Whitby Land Company Pty Ltd as trustee for the Whitby Trust v Caratti - [2017] WASC 131

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WHITBY LAND COMPANY PTY LTD AS TRUSTEE FOR THE WHITBY TRUST -v- CARATTI [2017] WASC 131

CORAM: ALLANSON J

HEARD: 28 APRIL 2017

DELIVERED : 12 MAY 2017

FILE NO/S: CIV 2880 of 2016

MATTER :Section 92 of the Trustees Act 2016 (WA)
and
The Whitby Trust

BETWEEN: WHITBY LAND COMPANY PTY LTD AS TRUSTEE FOR THE WHITBY TRUST
Plaintiff
AND
ALISHA BETH CARATTI
First Defendant
BENJAMIN CARATTI
Second Defendant
CHRISTINA MARCIA CARATTI
Third Defendant
NATALIE CARTER
Fourth Defendant
NICOLE MADELINE CARATTI
Fifth Defendant
MNWA PTY LTD
Sixth Defendant
BERNGUARD DEVELOPMENTS PTY LTD AS TRUSTEE FOR THE BERNGUARD TRUST
Seventh Defendant
IME DEVELOPMENTS PTY LTD
Eighth Defendant
SUCCESS ASSET PTY LTD AS TRUSTEE FOR THE SUCCESS TRUST (IN LIQ)
Ninth Defendant
COMMISSIONER OF TAXATION
Prospective Tenth Defendant

Catchwords:

Practice and procedure - Jurisdiction - Trustees Act 1962 (WA) - Jurisdiction of the court to make declarations in relation to a trust where income tax assessments have issued to beneficiaries - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 58 r 17, O 12, O 58 r 2, O 2 r 1
Taxation Administration Act 1953 (Cth), pt IVC
Trustees Act 1962 (WA), s 92

Result:

Chamber summons to strike out originating summons dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr M L Robertson QC with Mr D S Romano
First Defendant     :     No appearance
Second Defendant     :     No appearance
Third Defendant     :     No appearance
Fourth Defendant     :     No appearance
Fifth Defendant     :     No appearance
Sixth Defendant     :     No appearance
Seventh Defendant     :     No appearance
Eighth Defendant     :     No appearance
Ninth Defendant     :     No appearance
Prospective Tenth Defendant     :    Mr N J Williams SC with Ms C H Thompson and Mr M O'Meara

Solicitors:

Plaintiff:     Zafra Legal
First Defendant     :     No appearance
Second Defendant     :     No appearance
Third Defendant     :     No appearance
Fourth Defendant     :     No appearance
Fifth Defendant     :     No appearance
Sixth Defendant     :     No appearance
Seventh Defendant     :     No appearance
Eighth Defendant     :     No appearance
Ninth Defendant     :     No appearance
Prospective Tenth Defendant     :    Australian Government Solicitor

Case(s) referred to in judgment(s):

Australian Executor Trustees Ltd v Attorney General (WA) [2015] WASC 439
Executor Trustee and Agency Co of South Australia v Deputy Federal Commissioner of Taxes (South Australia) [1939] HCA 35; (1939) 62 CLR 545
Groves v Commissioner of Taxation [2011] FCA 222
Groves v Commissioner of Taxation [No 4] [2012] FCA 658
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404
Platypus Leasing Inc v Federal Commissioner of Taxation [2005] NSWCA 399
Thomas Nominees Pty Ltd v Thomas [2010] QSC 417; (2010) 80 ATR 828
Thomas v Commissioner of Taxation [2017] FCAFC 57
Whitby Land Company Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2017] FCA 28

ALLANSON J: On 31 October 2016, Whitby Land Company Pty Ltd as trustee for the Whitby Trust filed an originating summons seeking the following:
1.A determination as to who is/are, having regard to:
1.1the proper construction of the deed of trust dated 27 July 2005 (the Trust Deed);
1.2the income distribution resolutions made by the plaintiff pursuant to the Trust Deed;
1.3the accounts for the Whitby Trust;
1.4the certifications made by the plaintiff pursuant to the Trust Deed; and
1.5the disclaimers of beneficial entitlement to all and any right, title and interest to income under the Trust Deed executed by the first to fifth defendants (inclusive),
the Beneficiary or Beneficiaries entitled, and in which shares, to the distributable income of the trust as at 30 June in each of the financial years from 2011 to 2014 (inclusive.
2.A determination as to whether that part of the trust fund comprising 293 Nicholson Road, Forrestdale WA (Lot 22 on Diagram 45151, Certificate of Title Volume 1353 Folio 245) and the income arising therefrom is held by the plaintiff on trust for the sixth defendant.
3.A determination as to whether the first to fifth defendants (inclusive) have disclaimed effectively all rights, title and interest in the distributable income of the Trust Fund and, if so, whether those disclaimers operated from before the commencement of the 2011 financial year.
4.Pursuant to s 500(2) of the Corporations Act 2001 (Cth) that leave be granted to the plaintiff to commence this originating summons against the ninth defendant subject to such terms as the court imposes.
The originating summons is in the form of a summons in a matter under s 92 of the Trustees Act 1962 (WA), in the matter of the Whitby Trust. It names 10 defendants. The Commissioner of Taxation is the tenth defendant named.
None of the other defendants has filed an appearance. The plaintiff has not yet pursued his application for leave to proceed against the ninth defendant, a corporation in liquidation. I was told at the hearing that the sixth defendant is also now in liquidation.
On 10 November 2016 the Commissioner filed a memorandum of conditional appearance reserving the right to apply to the court to set aside the originating application on grounds of informality and irregularity which renders the originating process invalid. On 18 November 2016, the Commissioner applied by chamber summons for the originating summons to be struck out. In the application, the Commissioner relies upon five grounds:
1.The prospective tenth defendant is not a proper party to proceedings brought under s 92 Trustees Act seeking declarations in respect of the Whitby Trust.
2.The originating summons does not properly invoke the jurisdiction of the court under s 92 Trustees Act.
3.The subject matter of the proceedings is not a matter that is within the jurisdiction of s 92 Trustees Act.
4.There is no jurisdiction to make binding declarations in respect of the Whitby Trust as against the prospective tenth defendant, in circumstances where income tax assessments have issued to the first to sixth defendants.
5.Further or other grounds may be also relied on.

The evidence

The plaintiff relies on two affidavits of Allen Bruce Caratti, sworn 31 October 2016 and 27 April 2017. Relevantly, in the earlier substantial affidavit, Mr Caratti deposes:
1.He is the sole director of the plaintiff.
2.The plaintiff is the trustee of the Whitby Trust, under a deed of settlement dated 27 July 2005.
3.The trustee carries on business as a property developer.
4.The first to fifth defendants are Mr Caratti's children.
5.The net income of the Whitby Trust for the financial years 2011 to 2013 was distributed as follows:
(a) to Dawnlink Pty Ltd, a company now deregistered, in 2011 and 2012;
(b)to IME Developments Pty Ltd (the eighth defendant) and Success Asset Pty Ltd as Trustee for the Success Trust (In Liquidation) (the ninth defendant) in 2013; and
(c)to Bernguard Developments Pty Ltd as trustee for the Bernguard Trust (the seventh defendant) in 2014.
6.None of the distributions were by payments of cash, but were shown as loans for the beneficiaries to the trustee.
7.The Commissioner has asserted that the taxable income of the trust was different from that calculated by the plaintiff and has issued notices of assessment to the first, third, fourth and fifth defendants (Mr Caratti's daughters).
7.The Commissioner has also issued a notice of assessment or notice of amended assessment and assessment of shortfall penalty to the sixth defendant, MNWA Pty Ltd, in respect of each of the 2011 to 2013 years.
8.In early June 2014, the first to fifth defendants executed deeds which disclaimed any interest in income under the Whitby Trust, with effect from 30 June 2010.
9.The plaintiff was subject to an audit by the Commissioner in relation to the 2014 year. The Commissioner subsequently issued further notices of amended assessment to the sixth defendant, and the first, third, fourth and fifth defendants.
Mr Caratti also referred to proceedings in the Federal Court of Australia in which the plaintiff challenged the validity of some of the current assessments. A decision was published on 30 January 2017, dismissing that challenge: Whitby Land Company Pty Ltd (Trustee) v Deputy Commissioner of Taxation[2017] FCA 28.
In his second affidavit, Mr Caratti exhibits caveats lodged by the Commissioner over land registered to the plaintiff. In lodging the caveats, the Commissioner claimed an equitable interest in the land as a creditor of Whitby Land, entitled to be subrogated to the company and to enforce its lien and right of indemnity against the assets of the trust.
At the directions hearing in December 2016 counsel for the plaintiff informed the court that the various defendants objected to the assessments and objection decisions were made. Those objection decisions are now the subject of review proceedings under pt IVC of the Taxation Administration Act 1953 (Cth). The plaintiff proposed that four actions commenced in this court in 2016 by the Deputy Commissioner of Taxation against the first, third, fourth and fifth defendants to recover tax assessed, in which the Deputy Commissioner has applied for summary judgment, be managed with this action and heard concurrently. No orders were made.

The conditional appearance

Order 12 of the Rules applies, with necessary modifications, in relation to an originating summons to which an appearance is required: O 58 r 17(5). By O 12 r 6:
A defendant in any cause may enter a conditional appearance denying the jurisdiction of the Court or reserving the right to apply to the Court to set aside the originating process, or the notice thereof, or the service of the originating process, or notice thereof, on the ground of any informality or irregularity which renders the originating process or the service thereof invalid … (emphasis added)
The Commissioner does not dispute that he has been validly served, but relies on invalidity of the originating summons.
The Commissioner submits, generally, that the proceedings are brought against the background of unresolved taxation disputes between the plaintiff, some of the defendants, and the Commissioner. At the centre of that dispute is the question of who was presently entitled to the income of the Whitby Trust in the years 2011 to 2014. One aspect of the dispute is whether deeds of disclaimer executed by the first to fifth defendants were effective. That is, the originating summons seeks determination of matters that go directly to the assessments issued by the Commissioner. Against that background, the Commissioner challenges the validity of the summons on several grounds.
First, the Commissioner submits that the application does not properly invoke the court's jurisdiction under s 92 of the Trustees Act. He submits that the jurisdiction of the court is to make directions concerning the property of the trust, the management of administration of the property, or the exercise of any power of discretion vested in the trustee. While the originating summons is headed as an application for directions under s 92, the orders sought include determination of issues beyond advice to the trustee.
The Commissioner submits that he is not a proper party to an application under s 92 of the Trustees Act; he has no interest relevant to directions sought by the trustee and is a legal stranger to the Whitby Trust.
The plaintiff submits that the Commissioner is at least an appropriate party under O 58 r 2, as a creditor of the trust, although the plaintiff conceded that it may not have joined all creditors. It is not necessary to decide whether the Commissioner had to be joined. By serving the summons on the Commissioner, the plaintiff has given notice of the application and the relief it seeks. If the Commissioner wishes to be heard in the action, he must enter an appearance. If he does not wish to be heard, the court may proceed without hearing him. But even if he is not properly a party to the application, that would not affect the court's jurisdiction.
Second, the Commissioner submits that the jurisdiction of the court is not properly invoked: typically, a summons for directions would frame the questions on which the trustee seeks advice and the directions sought. The plaintiff here seeks a determination of various issues.
The Commissioner's submissions take an unduly limited view of the court's jurisdiction in an application brought by a trustee. Section 92 requires that the directions sought concern property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee. Section 92 confers a discretionary power that is confined only by the subject matter, scope and purpose of the Act. The court will exercise the power for the purpose for which it was conferred, that is, the protection of the property of the trust and the protection of a trustee acting properly and in accordance with the directions of the court: Australian Executor Trustees Ltd v Attorney General (WA) [2015] WASC 439 [32]. The court will not confine provisions conferringjurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words: Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404, 421; Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 [55].
I do not believe that, by seeking the 'determination' of questions, the plaintiff has gone outside the jurisdiction of the court. The jurisdiction under s 92 was described as an alternative source of jurisdiction, functionally equivalent to the jurisdiction under the English RSC 1883, O 55 r 3(e) - (g) (corresponding to O 58 r 2 of the Rules of the Supreme Court1971 (WA)): Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [41] ‑ [49]. Order 58 r 2 expressly provides for a summons by which a trustee seeks determination of:
(a)any question affecting the rights or interests of the person claiming to be creditor, devisee, legatee, next of kin or cestui que trust;
…
(g) the determination of any question arising in the administration of the estate or trust.
It may be that objection can be taken to the form of the relief sought in the summons. That, in my opinion, would be an irregularity, and not something taking this application outside the jurisdiction of the court. An irregularity can be corrected, and does not ordinarily lead to invalidity: see O 2, r 1.
The plaintiff referred the court to Thomas v Commissioner of Taxation [2017] FCAFC 57 (Thomas).
In Thomas Nominees Pty Ltd v Thomas [2010] QSC 417; (2010) 80 ATR 828, a trustee commenced proceedings in the Supreme Court of Queensland for directions under s 96 of the Trusts Act 1973 (Qld) as to the proper construction of the trust deed and resolutions passed in the tax years 2006, 2007 and 2008. The beneficiaries were named as respondents to the trustee’s application. The trustee put the Commissioner on notice of the application, but the Commissioner did not apply to be made party to the application: [10] - [11]. Applegarth J made declaratory orders, as between the trustee and beneficiaries, concerning the proper construction of a trust deed and resolutions which had been made by the trustee for particular income years. In 2011, 2012 and 2013, the Commissioner issued notices of amended assessment.
In Thomas, the Commissioner conceded in the Full Court of the Federal Court that, to the extent that Applegarth J's orders conclusively determined the rights of the beneficiaries and the trustee, the declarations made by his Honour may bind the Commissioner: Thomas [25]; see Executor Trustee and Agency Co of South Australia v Deputy Federal Commissioner of Taxes (South Australia) [1939] HCA 35; (1939) 62 CLR 545, 562 - 563 (Latham CJ), 569 - 570 (Dixon J), 572 (McTiernan J). Perram J expressed doubt about the regularity of the procedure followed in the proceedings in the Supreme Court, but said:
But the fact of the matter is that a declaration was made in a proceeding to which both the trustee and beneficiaries were party. As an order of a superior court of record, this declaration, however procedurally irregular, is valid and binding until set aside. [3] (references omitted)
While questioning procedural regularity, his Honour did not question the jurisdiction of the Supreme Court.
Following the hearing, senior counsel for the plaintiff provided a note regarding his oral submissions on this case. I have not had regard to that note, which was, in effect, a further submission filed without leave.
Third, the Commissioner submits that underlying issues in the application as to the identity of the beneficiaries entitled to the distributable income of the Whitby Trust arise also in the proceedings under pt IVC of the Taxation Administration Act. The apparent intention of the application is to bind the Commissioner to any finding made in the course of obtaining directions. The Commissioner submits that the application under s 92 is not a proper vehicle for the resolution of those issues. Further, the Commissioner submits that the proceedings are a collateral attack on the assessments which have been issued.
The Commissioner submits that it would be inappropriate for the court to make the determination sought, in the context of the ongoing taxation dispute between the Commissioner and the plaintiff and people and entities associated with the plaintiff. The application for directions is not a proper vehicle to resolve issues which fall for determination in proceedings under pt IVC of the Taxation Administration Act. Any determination would be inutile because it would not bind the Commissioner, and would not be binding in the pt IVC proceedings.
The Commissioner's primary argument went further and contended that, because the assessments have issued, the court no longer has jurisdiction to determine the matters which the plaintiff seeks to have determined in its summons. The argument is based on the provisions of Taxation Administration Act. At the hearing, the Commissioner tendered the first affidavit of Mr Caratti, and in that way the notices of assessment. In these proceedings, the notices are conclusive evidence that the assessments were properly made and the amounts and particulars shown thereon are correct: Taxation Administration Act, Sch 1, s 350 -10, item 2(a). Part IVC of that Act provides the procedure for objection to the Commissioner when a person is dissatisfied with an assessment and, depending on the circumstances, for review by the Administrative Appeals Tribunal and appeal to the Federal Court.
In Platypus Leasing Inc v Federal Commissioner of Taxation [2005] NSWCA 399 [2] - [5], and again at [9] - [10], Handley JA (Tobias JA agreeing) described the effect of the Taxation Administration Act as excluding jurisdiction to grant declarations which challenged or called existing assessments into question. Once issued, an assessment is valid and can only be challenged on an appeal or application for review in accordance with the provisions of pt IVC: Platypus Leasing [4].

The decision in Platypus Leasing can, however, be distinguished. The declarations sought by the plaintiffs in that case were all with respect to their liability under A New System (Goods and Services Tax) Act 1999 (Cth): for example, the court was asked to declare whether certain transactions were taxable supplies, or creditable acquisitions, and whether particular transactions gave rise to a liability to GST in specified tax periods: [15]. In the present case, the plaintiff seeks determination of matters including which beneficiaries are entitled, and in which shares, to the distributable income of the trust. Those questions overlap with issues on which the liability to taxation of a trustee or beneficiary is assessed. But the court is not being asked to declare the liability to taxation of the plaintiff or particular beneficiaries.
Further, the plaintiff submitted that the summons seeks determination of issues in the years 2011 to 2013 where there is no taxation dispute.
The plaintiff also submitted that where the Federal Court has become aware in a taxation dispute that the underlying facts upon which tax liability depends are being contested in a Supreme Court, the Federal Court 'has been inclined to order a stay of the Federal Court proceedings pending the Supreme Court's determination of that fact'. The sole authority relied on was Groves v Commissioner of Taxation [No 4] [2012] FCA 658. That is not how I understood that decision, particularly when read with Groves v Commissioner of Taxation [2011] FCA 222. In any event, that is a matter for the Federal Court.
It is unnecessary to consider those further issues at this stage, when I am concerned only with the validity of the originating summons. I am not satisfied that all of the matters raised on the summons have been shown to be, in substance, a challenge to the assessments, and that the court has no jurisdiction to hear the application.
I will dismiss the Commissioner's application. It is for the Commissioner to decide whether he wishes to enter an appearance and be heard on the summons.