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Zelino v Budai

Zelino v Budai

Case [2001] NSWSC 501 24 July 2001

Breach of Contract

Professional Negligence

Illegality

Costs

Tax Fraud

Professional Negligence

Taxation Law

Professional Ethics

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CITATION: Zelino and Ors v. Budai [2001] NSWSC 501

CURRENT JURISDICTION:
Equity

FILE NUMBER(S): SC 5622/92

HEARING DATE(S): 22-25, 28-31 May, 1, 4-8, 12-15 June 2001

JUDGMENT DATE:
24 July 2001

PARTIES :

Zelino Pty Ltd (First Plaintiff)
Peter Tesoriero (Second Plaintiff)
Tonia Tesoriero (Third Plaintiff)
Frank Budai (Defendant)

JUDGMENT OF: Palmer J

COUNSEL : P.D. White [Solicitor], M.K. Condon (Plaintiff)
Dr P. Budai

SOLICITORS: P.D. White
Litigant in person

CATCHWORDS: PROFESSIONAL NEGLIGENCE - INCOME TAX - Second and third plaintiffs retain defendant to prepare income tax returns - defendant advises that profits derived from a development are assessable income arising from the carrying on of a profit-making scheme under s.25A(1) ITAA - whether advice is negligent. - PROFESSIONAL NEGLIGENCE - TAX FRAUD - Second and third plaintiffs agree with defendant that he will prepare false accounts for development venture and insert false figures in their tax returns - contract for performance of illegal act by defendant and in furtherance of illegal purpose of second and third plaintiffs - whether an action for breach of contractual duty of care will lie. - PROFESSIONAL NEGLIGENCE - ACCOUNTANT - Whether second and third plaintiffs retained defendant as accountant - whether a term of the retainer that defendant would do all things necessary to procure third party to issue special rights units in a unit trust - term would be impossible of performance - no such contract found - no such term could be implied. - COSTS - ILLEGALITY - Defendant succeeds on one of three issues by proving that the contract sued upon was for the commission of offences under the Income Tax Assessment and the Taxation Administration Act 1953 - discretion as to whether to award the costs of that issue to the defendant - it would be contrary to public policy to permit the defendant to recover costs of that issue - defendant's costs reduced by one-third. - TAX FRAUD - SOLICITORS - ACCOUNTANTS - Serious offences under Taxation Administration Act revealed in course of litigation - both parties to litigation involved - other parties in venture probably involved - grounds for believing that solicitor and accountant involved - Court cannot turn blind eye to serious breaches of revenue law and serious breaches of professional ethics - Court directs copies of judgment to be sent to Australian Taxation Office and professional regulatory bodies and directs exhibits to be retained pending outcome of investigations.

LEGISLATION CITED: Crimes Act 1914
Income Tax Assessment Act 1936
Supreme Court Act 1970
Supreme Court Rules
Taxation Administration Act 1953

CASES CITED: - Burrows v Rhodes [1899] 1 QB 816
- Donald Campbell & Co v Pollak [1927] AC 732
- Everet v Williams (1893) 9 LQR 197
- Fitzgerald v F.J. Leonhardt Pty Ltd (1997) 189 CLR 215
- Igaki Australia Ltd v Coastmine Pty Ltd (unrep. FCA, Drummond J., 2 November 1994)
- Igaki Australia Pty Ltd v Coastmine Pty Ltd (1996) 3 IPR 37
- Jamal v Secretary, Department of Health (1988) 14…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Zelino v Budai

Details

AGLC: Zelino v Budai [2001] NSWSC 501
Case: [2001] NSWSC 501
Decision Date: 24 July 2001

CaseChat Overview and Summary

Zelino v Budai concerned a dispute over alleged professional negligence by an accountant in relation to income tax returns. The second and third plaintiffs retained the defendant, an accountant, to prepare their income tax returns. The plaintiffs argued that the defendant's advice was negligent, specifically regarding the assessment of profits derived from a development under section 25A(1) of the Income Tax Assessment Act. The court had to determine whether the defendant's advice constituted negligence.

Further, the plaintiffs had entered into a contract with the defendant to prepare false accounts for their development venture and insert false figures in their tax returns. This contract involved the commission of illegal acts and was for an illegal purpose. The court needed to decide if an action for breach of the contractual duty of care could lie under these circumstances. Additionally, the plaintiffs claimed that the defendant was retained as their accountant with a specific term to procure third parties to issue special rights units in a unit trust. The court had to ascertain whether such a term existed in the retainer and if it could be implied, given its impossibility of performance.

The court found that the defendant was not negligent in advising on the income tax returns. Regarding the illegal contract, the court held that it was for the commission of offences under the Income Tax Assessment Act and the Taxation Administration Act 1953. Consequently, the court exercised its discretion not to award the costs of this issue to the defendant, deeming it contrary to public policy. The defendant's costs for that issue were reduced by one-third. Furthermore, the court highlighted serious breaches of revenue law and professional ethics by the parties involved and directed copies of the judgment to relevant authorities and professional regulatory bodies, with exhibits to be retained pending investigations.

Orders