IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN: BETWEEN: JUDGE MAKING ORDER: DATE OF ORDER: WHERE MADE: THE COURT ORDERS THAT: JUDGMENT iy EN, No. S40 7 2¢-— Nos. WAG 2129-2131 of 1987 MICHELE LOMBARDO Applicant and COMMISSIONER OF TAXATION Respondent Nos. WAG 2132 and 2133 of 1987 LOMBARDO MARINE PTY LTD Applicant and COMMISSIONER OF TAXATION Respondent MINUTE OF ORDER FRENCH J. ay 4Q 13 MAY 1988 05 JUL 1983 FEDERAL COURT OF PERTH EE RALIA INOCIPAL EQISTAY 1. In Nos. WAG 2129, 2130 and 2131 of 1987, the applicant has leave to interrogate in terms of interrogatory 1 of the amended draft interrogatories filed in Court on 13 May 1988. 2. In Nos. WAG 2132 and 2133 of 1987, leave to is refused. interrogate Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION LIMITED DISTRIBUTION — Sew Nos. WAG 2129-2131 of 1987 BETWEEN: MICHELE LOMBARDO Applicant and COMMISSIONER OF TAXATION Respondent Nos. WAG 2132 and 2133 of 1987 BETWEEN: LOMBARDO MARINE PTY LTD Applicant and COMMISSIONER OF TAXATION Respondent CORAM: FRENCH J. 13 MAY 1988 EX TEMPORE REASONS FOR JUDGMENT As I indicated in my decision in Abduramanoski v Aidan Nominees Pty Ltd (French J.; unrep.; 2 November 1986), the criteria governing the grant of leave to interrogate under' the rules of court are broad and must have regard to a number of factors. They are not limited to those matters which might be the subject of formal objection upon leave having been granted, where objection is taken to specific interrogatories. 2. I am bound by the decision of this Court in WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559, not to allow interrogatories to be used for fishing purposes or where there is no ground for suspicion of a good case to use the criterion enunciated by Wilcox J. in Nestle Australia Ltd v Federal Commissioner of Taxation (1986) 67 ALR 128. In relation to the appeals in which Michele Lombardo is named as applicant, that is to say, numbers 2129, 2130 and 2131, the applicant seeks leave to interrogate on the formation of the Commissioner's opinion under sub-s.18(1)(b), that vendor's recoupment tax was likely to become payable in relation to ordinary company tax or undistributed profits tax of Centniv Pty Ltd. The formation of that opinion is an issue in the appeal because it is one of the conditions precedent to the effective operation of the deeming provisions of sub-s.18(1) which treat service upon a vendor shareholder as service upon a company for the purpose of s.174 of the Assessment Act. Such service is, in the ordinary course, a condition of the primary liability of the company to tax; a liability which, in this case, would found any liability for vendor's recoupment tax. Counsel for the applicant referred to sub-s.3(12) of the Taxation (Unpaid Company Tax)Assessment Act and_ said that discovery in 2129, 2130 and 2131 has shown that after the sale of 3. the shares of Centniv Pty Ltd, a scheme was entered into and carried out which eliminated or, alternatively, reduced, the company's liability to pay ordinary company tax or undistributed profits tax. That was pleaded in para.i0 of the statement of the grounds of appeal, and is now said to derive support from _ the terms of the company's income tax return for the year ended 30 dune 1980. Directed to the question of the formation of the requisite opinion under sub-s.18(1)(b), the applicant seeks to interrogate the Commissioner as to his inquiries into the liability of the company or any reduction of the liability of the company to pay tax after the sale of shares in it. The issue is the formation of the relevant opinion and not whether the company's liability had in fact been reduced. Insofar as the interrogatory asks whether the respondent or any of his officers made inquiries or investigations as to those matters, and in particular as to the accuracy or otherwise of the copy accounts annexed to the income tax return of Centniv Pty Ltd, its activities since May 1979 and the activities of a related organisation, Plateau Oil Exploration, it may be permitted. It may be that that question demanding a simple "yes" or "no" can fairly be asked and it might be said to be relevant. So far as the interrogatories go on to seek details of inquiries or investigations, of whom they were made, what was their nature and what information was obtained as a result of them, they are far wider than justified by the issue caised, and should not be allowed. Interrogatories 3 and 4 in 2129, 2130 and 2131, ask, in the first place, whether the losses sustained by Centniv in respect of Plateau Oil Exploration during the years of income ended 30 June 1979 and 30 June 1980, were properly allowable against the company's taxable income for each such year. They further ask, if the losses were not properly allowable, for what reason they were not so allowable. They are questions, I think, at least of mixed fact and law. They are not questions which are proper for interrogation. So, as far as 2129, 2130 and 2131 are concerned, I will give leave to interrogate in terms of interrogatory 1 but not otherwise. In respect of appeal 2132, the draft interrogatories are also the model for interrogatories sought in 2133. In both those cases, Lombardo Marine Pty Ltd is the applicant and the company whose primary liability is in issue, is Bulan Pty Ltd. Here there is no basis in the discovery for any suggestion of a post-sale tax avoidance scheme of the kind contemplated by sub-s.3(12) of the Act. Nevertheless, the interrogatory asks whether any inquiries or investigations were made as to the activities of Bulan since the sale, that is to say, since November 1979. If the answer to that is "yes", the 5. interrogatory asks when such inquiries or investigations were made and by whom; of whom they were made, what was their nature and what information was obtained as a result of them. The second interrogatory, of course, must fall on the same basis as the similar interrogatory in the other matters. It is far too wide to properly address any issue arising out of the pleadings. In the absence of any suggestion or any basis for any suggestion that there has been a post-sale tax avoidance scheme of the kind contemplated in sub-s.3(12) the first interrogatory in 2132 and 2133 must also be disallowed. So as far as those interrogatories are concerned, I will not grant leave. In the event, I grant leave to interrogate in the terms of interrogatory 1 in 2129, 2130 and 2131 of 1987. I certify that this and the preceding four (4) pages are a true copy of the Ex tempore Reasons for Judgment of his Honour Justice French. Associate: Ee etal Ww Date: \d Moy 1485 6. Counsel for the Applicants: Mr J.C. Vaughan Solicitors for the Applicants: Freehill Hollingdale & Page Counsel for the Respondent: Mr G.J. Windsor Solicitors for the Respondent: Australian Government Solicitor Date of Hearing: 13 May 1988 Date of Judgment: 13 May 1988