FEDERAL COURT OF AUSTRALIA Woodroffe v Deputy Commissioner of Taxation [2000] FCA 1379 PRACTICE AND PROCEDURE – motion under O 20 r 2 and under O 54 r 6 of the Federal Court Rules to dismiss or permanently stay application – application based on grounds under s 5(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). TAXATION – notice under s 218 of the Income Tax Assessment Act 1936 (Cth) – whether respondent should have notified the applicant in advance of decision to issue a s 218 notice under the Income Tax Assessment Act 1936 (Cth) – whether denied natural justice – whether applicant should have been given an opportunity to be heard before notice issued. Administrative Decisions (Judicial Review) Act 1977 (Cth) ss 5(1)(a), (b), (d), (e), (f), 5(2), 11(1)(c), 11(3)(b)(iii) Income Tax Assessment Act 1936 (Cth) ss 204, 206, 208, 209, 218, 264(1) Judiciary Act 1903 (Cth) s 39B Taxation Administration Act 1953 (Cth) ss 14ZZR, 14ZZY Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth) s 9 Federal Court Rules O 20 r 2, O 54 r 6 Income Tax Regulations 1936 regs 38(1), 39(1) Dey v Victorian Railways Commissioners (1949) 78 CLR 62 applied General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 applied Sandery v Commissioner of Police (1986) 65 ALR 181 applied Sixth Ravini Pty Ltd v Federal Commissioner of Taxation (1985) 6 FCR 356 considered Eighth Oupan Pty Ltd v Commissioner of Taxation (1986) 10 FCR 559 considered May v Deputy Commissioner of Taxation [1999] FCA 287 applied Edelsten v Wilcox (1988) 83 ALR 99 applied, distinguished Kioa v Minister of State for Immigration and Ethnic Affairs (1985) 159 CLR 550 considered Safadi v Minister for Immigration and Ethnic Affairs (1981) 38 ALR 399 considered Commonwealth v Crowe (1992) 39 FCR 435 considered Walker v Secretary, Department of Social Security (No 2) (1997) 75 FCR 493 considered General Electronics International Pty Ltd v Deputy Federal Commissioner of Taxation (1996) 96 ATC 5036 considered Gilshenan & Luton v Federal Commissioner of Taxation (1983) 74 FLR 398 applied Huston v Deputy Federal Commissioner of Taxation (1983) 78 FLR 47 applied JENNIFER JEAN WOODROFFE & JAJ HOTELS PTY LTD v DEPUTY COMMISSIONER OF TAXATION S 20 of 1999 MANSFIELD J ADELAIDE 3 OCTOBER 2000 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 20 OF 1999 BETWEEN: JENNIFER JEAN WOODROFFE and JAJ HOTELS PTY LTD APPLICANTS AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 5 SEPTEMBER 2000 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The application be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 20 OF 1999 BETWEEN: JENNIFER JEAN WOODROFFE and JAJ HOTELS PTY LTD APPLICANTS AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: MANSFIELD J DATE: 3 OCTOBER 2000 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is a motion by the respondent, the Deputy Commissioner of Taxation, ("the DCT") under O 20 r 2 and under O 54 r 6 of the Federal Court Rules ("the Rules") to dismiss or permanently stay the application. The principles which guide the Court in exercising power under those rules are well known: Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. Under such principles I should only dismiss or permanently stay the application if the claims are clearly untenable. 2 The application was instituted on 14 March 2000. It was supported only by an affidavit of the applicants' solicitor. By leave, it was amended on 7 April 2000. In the meantime, the DCT had issued this motion raising the arguments now presented. Moreover, the affidavit of Allan Goss ("Mr Goss"), an officer of the Australian Taxation Office, indicated clearly the DCT's claims and those matters which the DCT did not accept or which he positively contradicted. The amended application was filed and served, therefore, in the light of those complaints by the DCT and in the light of the DCT's contention that there was no cogent evidence in support of the applicants' claim because it consisted only of assertions by the solicitor for the applicants (who I shall refer to as Ms Woodroffe and JAJ hereafter) on instructions and belief. Ms Woodroffe and JAJ were given leave to file affidavit evidence in opposition to the motion, or to propose further amendments to the amended application to meet the DCT's objections. That opportunity included the opportunity to identify specific affidavits filed and served in separate but related proceedings in the Court upon which they might rely. They have not taken up those opportunities, except to file and serve a further affidavit of their solicitors which asserts: "Based upon my knowledge of the matters deposed to in that [related] proceeding, I say that the Applicant is able to demonstrate to the Court that there is a genuine dispute for the purposes of the Corporations Law" This application does not concern any provision of the Corporations Law. 3 At the hearing, Ms Woodroffe appeared in person, and sought leave also to appear for JAJ. Their interests correspond. I have regarded her submissions as being made on behalf of JAJ as well as on her own behalf. She was clearly ill-equipped to make submissions in opposition to the motion. She was unable to explain the foundation for the very general claims in the amended application. At one point she was given an adjournment to seek from someone else an answer to my question as to the nature of the error of law alleged. Her explanation then was to the effect that the notice under s 218 is invalid because it relates to a taxation assessment which is invalid because it was based upon information unlawfully procured by the DCT and the National Crime Authority (the issue which is the subject of the separate but related proceedings). 4 The amended application is brought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act") and under s 39B of the Judiciary Act 1903 (Cth). It seeks to have declared invalid two decisions of the DCT, namely: (a) on or about 13 September 1999 his decision to issue a notice under s 218 of the Income Tax Assessment Act 1936 (Cth) ("the ITAA") to Timothy Cogan ("Mr Cogan") requiring him to pay to the Commissioner of Taxation such money as Mr Cogan, a solicitor, held in his trust account on behalf of Ms Woodroffe as is sufficient to pay $765,925.26 being the amount said to be due by Ms Woodroffe in respect of income tax ("the notice"), and (b) his decision on or about 22 September 1999 to refuse to revoke the notice. The DCT accepts that both those decisions were each made under s 218(1) of the ITAA. 5 On 6 September 2000, I made an order on the motion dismissing the application of Ms Woodroffe and of JAJ. These are my reasons for that decision. 6 The DCT first submitted that the application was out of time. The evidence shows that Ms Woodroffe was notified in writing on or within a few days of 13 September 1999 of the decision to require Mr Cogan to pay the money held in his trust account on account of Ms Woodroffe to the Commissioner for Taxation: see regs 38(1) and 39(1) of Pt 1 of the Income Tax Regulations 1936. Ms Woodroffe acknowledged as much. Notice of that decision was not given to JAJ. The solicitor for Ms Woodroffe (who was and is also the solicitor for JAJ) wrote on her behalf demanding withdrawal of that notice on 14 September 1999 and on 20 September 1999. By letter of 22 September 1999 from his solicitor, the DCT refused to withdraw the notice. 7 Although the correspondence from the solicitors for Ms Woodroffe threatened proceedings in relation to the notice, the proceedings were not instituted until 14 March 2000. During September and up to 13 October 1999, the solicitors for the parties corresponded with a view to reaching some agreement about varying the notice to release certain funds the subject of the notice for the purpose of conducting proceedings on behalf of Ms Woodroffe or JAJ (as well as concerning the release of certain funds held by another person on behalf of Ms Woodroffe or JAJ which were the subject of a separate notice under s 218 of the ITAA). Those negotiations concerning the notice did not result in agreement. They were reactivated by the solicitor for Ms Woodroffe on 18 November 1999 by a fresh proposal for the variation or withdrawal of the notice, to which the DCT by its solicitor replied on 19 November 1999 indicating the terms on which it was prepared to vary the notice. Again, it appears that nothing came of that approach. A further brief flurry of correspondence occurred in mid December 1999. The application was, it appears, eventually prompted by a letter from the Australian Taxation Office to Mr Cogan of 1 March 2000 demanding compliance with the notice. 8 Section 11 (1)(c) requires the application by Ms Woodroffe for judicial review under the ADJR Act to be made within the prescribed period or such further time as the Court allows, because it related to a decision the terms of which were recorded in writing in a document furnished to Ms Woodroffe. Section 11 (3)(b)(iii) prescribes the relevant period in the present circumstances to be twenty-eight days after the notice of the decision was furnished to Ms Woodroffe. In the case of the decision to issue the notice, that period expired on about 14 or 15 October 1999. In the case of the decision to refuse to revoke the notice, that period expired on about 23 or 24 October 1999. In each case the application is well out of time. 9 Despite the solicitor for Ms Woodroffe and JAJ being put on notice of that difficulty, the amended application does not seek an order under s 11(1)(c) extending the time for making the application. No subsequent application for an extension of time has been made. I do not of my own motion grant an extension of time for the applicant to have brought this application. Ms Woodroffe has, until her appearance on the hearing of the motion, been represented by counsel and solicitor. There is no reason to think that the issue has not been addressed by them on her behalf. The material before me suggests that there have been significant periods when communications between her solicitor and solicitors for the DCT have not been pursued. On that material, in some if not all of those instances the responsibility for maintaining or developing the dialogue appears at that point to have lain with her solicitor or there has been a deadlock in discussions which could then have prompted the application. Ms Woodroffe has not suggested that the failure to seek an extension of time was not consistent with her instructions. There has been no explanation offered for the delay, other than intermittent correspondence seeking to negotiate a resolution of the issue. 10 I have also borne in mind that, so far as the material before me discloses, information which the DCT has sought from Ms Woodroffe relevant to his ongoing consideration of whether to vary or revoke the notice has not been supplied to him. The DCT himself has responsibilities under the ITAA Act and the Taxation Administration Act 1953 (Cth) to adhere to and enforce those laws. Even though there is no real prospect of the monies held in trust by Mr Cogan being dissipated by reason of an order already made, I consider that there are public interest considerations in the DCT in these circumstances being entitled to enforce the notice. Moreover, as appears later in these reasons, I am not satisfied on the material that either Ms Woodroffe or JAJ will be unable to instruct counsel and solicitors in the other proceedings before the Court if that application is dismissed. If the challenges to the assessments in respect of which the notice was served were to succeed, the amount recovered is repayable with interest: s 9, Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth). I am not therefore persuaded that there is a grave prejudice to them in not granting an extension of time to institute the application: cp. Sandery v Commissioner of Police (1986) 65 ALR 181. That, of course, deals only with the claims of Ms Woodroffe under the ADJR Act. The DCT did not contend that her claims based on s 39B of the Judiciary Act, or the claims of JAJ, were out of time. 11 The DCT further submitted that, in any event, there was simply no prospect of Ms Woodroffe and JAJ succeeding on the application. The grounds of the application were those available under s 5(1)(a), (b), (d), (e) and (f) of the ADJR Act. 12 No indication is given by Ms Woodroffe or JAJ as to the way in which their claim to procedural fairness was not recognised. I infer from the materials that they were not notified in advance of the intention to decide to issue the notice so that they might make submissions with respect to it. I do not consider that they were entitled to be so notified. It has been held that a person to whom it is proposed to issue a notice under s 264(1) of the ITAA has no entitlement to be heard or to make representations before that notice issues: Sixth Ravini Pty Ltd v Federal Commissioner of Taxation (1985) 6 FCR 356 at 363, and on appeal see Eighth Oupan Pty Ltd v Commissioner of Taxation (1986) 10 FCR 559 at 564. Those decisions do not necessarily apply directly to a person whose interests may be affected by the provision of the notice, although not the person to whom notice is directed: cp. May v Deputy Commissioner of Taxation [1999] FCA 287 ("May"). However, in May at [34] it is clear that the Full Court held also that any obligation to give advance notice of the proposed decision would not properly be seen as an element in the decision to exercise the power. I note also that in Edelsten v Wilcox (1988) 83 ALR 99 at 114-115 ("Edelsten") Burchett J in the particular circumstances of that case, expressed the view obiter that the applicant should have been given the opportunity to submit that the proposed notice under s 218 of the ITAA should not have been issued. 13 In my judgment, absent circumstances of the kind which existed in Edelsten, I think it is clear that the decision to issue a s 218 notice is not one of which advance notice is required to be given to the proposed recipient of the notice or to others whose money is to be the target of the notice. Section 5(1)(a) does not impose natural justice obligations beyond those imposed by the common law: Kioa v Minister of State for Immigration and Ethnic Affairs (1985) 159 CLR 550; Safadi v Minister for Immigration and Ethnic Affairs (1981) 38 ALR 399. Those obligations may be excluded by clear legislative intention: Commonwealth v Crowe (1992) 39 FCR 435. In my view, such an intention is clearly evidenced by s 218 itself. Its object is to secure the payment of taxation liability. It would frustrate the fulfilment of that object if such advance notice were required to be given, which might facilitate the movement of the funds the subject of the proposed notice: see eg. Walker v Secretary, Department of Social Security (No 2) (1997) 75 FCR 493 at 500, 508. 14 Section 218(1) expressly provides that notice of the decision will be given to the taxpayer whose funds are the subject of the notice at the time the notice is given. See also General Electronics International Pty Ltd v Deputy Federal Commissioner of Taxation (1996) 96 ATC 5036. Moreover, s 218(1) has within its terms a remedy for any unfairness which may result. It also empowers the amendment or revocation of a notice at any time, or from time to time, or it may extend the time for making any payment in pursuance of the notice. It therefore contemplates that the recipient of a notice, or persons whose interests are affected by the notice, will then have the opportunity to make submissions and perhaps to present evidence in support of the revocation or amendment of the notice. That action may be undertaken promptly, as indeed occurred in the present circumstances. It is not action which is therefore final and conclusive in that sense. Indeed, as the expression "from time to time" contemplates, the notice may be amended or revoked even after an initial request for its amendment or revocation has once (or more) been refused. It was not the subject of argument before me, so I do not decide whether, even after the notice has been fully complied with, Ms Woodroffe or JAJ may still endeavour to have the notice amended or revoked. 15 I do not consider that there are special circumstances, such as those which obtained in Edelsten, to generate the entitlement of Ms Woodroffe or JAJ to have been heard before the notice was issued. There is no other feature of the decision to serve the notice which, unaided by any submissions from them or by particularity in the application, indicates a failure to comply with s 5(1)(a) of the ADJR Act in the making of that decision. Nor has any such circumstance been identified in the making of the decision to refuse to revoke or amend the notice which is the subject of this application. The letter from their solicitor of 14 September 1999 demanded withdrawal of the notice "forthwith". The DCT, in its reply of 17 September 1999, drew attention to a number of matters of concern and requests for further information. The solicitor for Ms Woodroffe and JAJ on 20 September 1999, rather than then responding to that request, insisted on the withdrawal of the notice forthwith. That request was then refused. I note that, as s 218 contemplates, there were nevertheless ongoing but intermittent communications seeking the revocation or amendment of the notice. 16 No relevant procedures required by law to be observed in connection with the making of the decisions under challenge have been identified by or on behalf of Ms Woodroffe or JAJ. No failure to comply with any such procedures has been identified. It is not for the Court to guess on what basis that general claim is asserted. The mere general assertion in the application provides no foundation for the existence of an arguable point. In my view, Ms Woodroffe and JAJ have no real prospect of succeeding on that score, based on s 5(1)(b) of the ADJR Act. I have reached the same conclusion with respect to the ground of review based on s 5(1)(d) of the ADJR Act. There has been no submission to identify the complaint, and the amended application does not do so. 17 As best I can determine, the ground of review based on s 5(1)(e) of the ADJR Act as explained by s 5(2) of that Act is that the DCT, in making each of the decisions under challenge, failed to consider whether the funds the subject of the notice were required to conduct litigation against the DCT challenging the assessment on which the s 218 notice was based, or other assessments. It is asserted in the amended application that that was the earmarked purpose of the funds. It may also have been asserted by Ms Woodroffe and JAJ that, in the absence of access to those funds, they will be unable to continue to conduct those challenges. 18 The general entitlement of the DCT to serve a notice under s 218 of the ITAA upon a solicitor in respect of funds held in trust for a taxpayer must be accepted: Gilshenan & Luton v Federal Commissioner of Taxation (1983) 74 FLR 398; Huston v Deputy Federal Commissioner of Taxation (1983) 78 FLR 47. Those cases each concerned funds deposited in a solicitor's trust account on account of fees to be incurred. In each case, the notice under s 218 was upheld. The DCT, in the letter from his solicitors of 17 September 1999, indicated that he had considered, and was prepared to consider, amending the notice to enable certain of the funds held by Mr Cogan to be applied for the normal day to day living expenses or the usual expenses of the business of JAJ. He expressed concern at his lack of knowledge to be satisfied on those matters, or to be satisfied that the funds were not otherwise being put beyond his reach if the challenges succeeded. He sought further information, and undertakings, in the light of those concerns. It appears that those matters had been the subject of communications for some time before the decision to serve the notice of Mr Cogan had been made. The letter of 22 September 1999 giving notice of the decision not to revoke or amend the notice also indicates that the DCT was aware of the desirability of Ms Woodroffe and JAJ having funds available to continue to conduct their challenges to the assessments. 19 In my judgment, there is no real chance of Ms Woodroffe or JAJ showing that either of the decisions was an improper exercise of the power granted by s 218(1) of the ITAA. The evidence adduced by them tends to show that the factors which they regarded as relevant were addressed by the DCT. It also negates any suggestion that the power was exercised for a purpose other than that which s 218 contemplates, or was exercised in bad faith. The assertion in the affidavit of the solicitor for Ms Woodroffe and JAJ to the contrary are, on the material before me, no more than argumentative assertions. There is no evident relevance to the other subpars of s 5(2) of the ADJR Act. 20 The DCT also contends that there is no cogent material to support the claims that the funds held by Mr Cogan were to pay legal fees in the proceedings to challenge the taxation assessments against Ms Woodroffe or JAJ, or that without access to those funds they will be unable to secure legal representation to do so. The only material to that effect is contained in an affidavit of their solicitor asserting those matters on instructions and belief. The DCT, before the amended application, gave notice that he challenged those claims. He points out that, in correspondence, details of the financial position of Ms Woodroffe and of JAJ, has been sought. It has not been provided. Ms Woodroffe has paid no part of the tax assessed. Despite that position, neither Ms Woodroffe nor JAJ have filed any affidavit deposing to either of those matters. In this matter, I am not disposed in the circumstances to give any weight to the solicitor's claims on instructions and belief. As I have indicated, I do not consider that it is arguable that the DCT failed to take those two matters into account in making either of the decisions, but in any event I do not consider that any real evidentiary foundation has been laid to establish either of those two matters. 21 As noted earlier, the error of law was said by Ms Woodroffe to be the making of the two challenged decisions at a time when Ms Woodroffe and JAJ are challenging the lawfulness of the means by which the information was obtained by the DCT upon which the taxation assessments were based and so in turn are challenging the validity of the assessments. If I assume that they have reasonable prospects of establishing that the means by which the DCT obtained information upon which the assessments were based so that the assessments are ultimately shown to have been invalid, in my judgment that does not demonstrate an arguable error of law in the making of the decisions the subject of the present application. The challenge to a taxation assessment does not give rise to a stay in the process of recovery of the tax: ss 204, 206, 208 and 209 of the ITAA and ss 14ZZY and 14ZZR of the Taxation Administration Act 1953 (Cth). In my judgment, the power under s 218(1) of the ITAA may be exercised in circumstances where the validity of the assessment on which it is based is under challenge. That is the clear legislative intention. There is therefore no real prospect of Ms Woodroffe and JAJ making out the claimed error of law. 22 For those reasons, I am persuaded that there is no real prospect of the application succeeding. Nothing has been put to suggest that s 39B of the Judiciary Act 1903 (Cth) provides a basis upon which the application might succeed which is not available under the ADJR Act. In addition, I am of the firm view that no discretionary reason could exist on the present material to issue writs of mandamus or prohibition or to grant any injunction against the DCT with respect to the notice. If Ms Woodroffe and JAJ had demonstrated an arguable claim, the appropriate remedy would be under the ADJR Act, namely the setting aside of the decision or decisions under review and for any appropriate consequential orders. It is also unnecessary to determine whether, in any event, JAJ has any standing to maintain the application in light of the fact that the notice related to the funds of Ms Woodroffe only and in respect of a taxation assessment against her only. 23 In my judgment, on the DCT's notice of motion, the application should be dismissed. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Acting Associate: Dated: 3 October 2000 Counsel for the Applicant Jennifer Jean Woodroffe: The Applicant appeared in person Counsel for the Applicant JAJ Hotels Pty Ltd: No appearance Solicitors for the Applicants: Douglas Wardle Counsel for the Respondent: A McDonald Solicitors for the Respondent: Australian Government Solicitor Date of Hearing: 5 September 2000 Date of Judgment: 5 September 2000 Date of Reasons for Judgment: 3 October 2000