FEDERAL COURT OF AUSTRALIA Cooke v Commissioner of Taxation [2001] FCA 1654 PRACTICE AND PROCEDURE – proceedings set down for hearing for five days after affidavits in chief, an affidavit in defence of an expert kind, and affidavits in reply had been completed and filed – statements of issues and contentions had also been filed prior to setting down the proceedings for hearing – Respondent filed further lengthy affidavit evidence in defence of expert character seven days prior to allocated hearing date without first seeking leave of the Court or consent of the Applicants – Respondent offered adjournment at its expense – Applicants' preferred course to proceed on the hearing dates fixed – Applicants subjected to financial limitations in pursuing the proceedings – purpose of new affidavit to raise additional evidence in support of defence already open to it rather than to raise additional defence – application to disallow use of the affidavit filed by the Respondent out of time granted. Income Tax Assessment Act 1936 (Cth) s 51(1), Part IVA Taxation Administration Act 1953 (Cth) s 14ZZO Cohen v McWilliam (1995) 38 NSWLR 476 distinguished The State of Queensland v J L Holdings Pty Limited (1997) 189 CLR 147 distinguished GRAHAM GEORGE COOKE v COMMISSIONER FOR TAXATION NG 167 of 1998 HUGH HUNTER JAMIESON v COMMISSIONER OF TAXATION NG 168 of 1998 GRAHAM GEORGE COOKE v COMMISSIONER FOR TAXATION NG 1106 of 1998 CONTI J 20 NOVEMBER 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 167 OF 1998 BETWEEN: GRAHAM GEORGE COOKE APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 168 OF 1998 BETWEEN: HUGH HUNTER JAMIESON APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1106 OF 1998 BETWEEN: GRAHAM GEORGE COOKE APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: CONTI J DATE OF ORDER: 20 NOVEMBER 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The Respondent is prohibited from reading in the proceedings the affidavit of Wayne Richard Lonergan sworn and filed on 19 November 2001. 2. The Respondent to pay the Applicants' costs of the application made by notice of motion filed on 19 November 2001. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 167 OF 1998 BETWEEN: GRAHAM GEORGE COOKE APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 168 OF 1998 BETWEEN: HUGH HUNTER JAMIESON APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1106 OF 1998 BETWEEN: GRAHAM GEORGE COOKE APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: CONTI J DATE OF ORDER: 2O NOVEMBER 2001 WHERE MADE: SYDNEY REASONS FOR JUDGMENT 1 The subject proceedings were commenced by the Applicants respectively in March 1998 and October 1998, and relate to the years of income ended 30 June 1989. Each relate to the Applicants' involvement in the Australian Horticultural Project No 1. 2 A number of directions were made by the Court in relation to the filing and service of affidavits, the respective due dates nominated being 22 July 1999, 29 October 1999, 25 March 2000 and 28 April 2000. On 27 April 2000, the Respondent filed its sole affidavit in the proceedings, being an affidavit purportedly addressed to issues of an expert character. 3 The affidavit evidence in chief filed by the Applicants had taken place during the year 1999. Two affidavits were filed on behalf of the Applicants in reply, each during December 2000. 4 On 10 April 2001, the Applicants' solicitors wrote to the Australian Government Solicitor. The letter was written without prejudice, and contained an offer of settlement. Attached to the letter were statements of assets and liabilities, which disclosed that each Applicant had relatively limited net means. Senior counsel for the Applicants explained to the Court that each of these professional men had suffered a severe financial set back as a result of a matter which has received considerable media publicity, namely certain large defalcations of a former partner. That unfortunate incident is so notorious that it requires no further elucidation; its ramifications reached the High Court of Australia. On 13 July 2001, the Australian Government Solicitor informed the Applicants' solicitor by letter to the effect that "the offers are not acceptable to the Commissioner". Nothing further of substance was said in that letter. 5 On 4 September 2001, the proceedings were set down for hearing on 26 November 2001 before Stone J. The hearing time is estimated to be five days. 6 On 19 November 2001, apparently without prior warning, the affidavit of an expert in financial and business matters, sworn on that day, was handed to the Applicants' counsel. The affidavit contains a lengthy financial analysis of the subject investments scheme undertaken by a well-known expert in his field, and speaks of the risks involved in participation of the scheme. It is debateable whether the matters addressed by the affidavit fall within justiciable issues in the proceedings. The material involved extends over 116 paragraphs. No prior application to the Court for leave to adduce this additional evidence was sought. Counsel for the Respondent submits that no such leave was required, at least as a matter of practice, a submission which I do not accept, but if correct would render a measure of insignificance to the Court's directions of a procedural nature. 7 In any event, the Applicants immediately filed a notice of motion seeking the following orders: "1. That the respondent be prohibited from reading the affidavit of Wayne Richard Lonergan sworn and filed 19 November 2001; alternatively 2. That the hearing of these proceedings set down to commence before her Honour Justice Stone on 26 November 2001 be adjourned to a date to be fixed." 8 Counsel for the Respondent submitted that fairness required the Court to allow the Commissioner to rely on Mr Lonergan's affidavit. He frankly informed me that the decision to adduce evidence of the nature appearing in Mr Lonergan's affidavit was made by himself and senior counsel briefed to appear in the proceedings. He referred me to the majority decision of the New South Wales Court of Appeal in Cohen v McWilliam (1995) 38 NSWLR 476, where the decision of a judge at first instance to disallow an adjournment to raise a new issue, notwithstanding non-compliance with court rules, procedures and directions, was set aside. To that decision I would add reference to the subsequent decision of the High Court in The State of Queensland v J L Holdings Pty Limited (1997) 189 CLR 147. Counsel for the Respondent offered the Applicants an adjournment to enable them to provide a response to Mr Lonergan's affidavit, and to pay the costs of the Applicants of the adjournment. Senior counsel for the Applicants stated that the Applicants' preferred course was to obtain order 1 set out in [7] above. 9 In my opinion, the Respondent's application misconceives the principles underlined in Cohen and J L Holdings. The Respondent is a privileged litigant in the sense that it has the benefit of the statutory onus imposed by s 14ZZO of the Taxation Administration Act 1953 (Cth) (as amended) upon the Applicants and in substance and reality, what it seeks by Mr Lonergan's affidavit is to add to its existing evidentiary armoury directed to resisting such statutory onus placed upon the Applicants to dislodge an adverse application of s 51(1) and Part IVA of the Income Tax Assessment Act 1936 (Cth) (as amended) to the assessments of income tax for the year ended 30 June 1989. 10 In my opinion, fairness dictates that order 1 sought by the Applicants' notice of motion be granted, so that the hearing of the proceedings takes place on the hearing days appointed for that purpose. Senior counsel for the Applicants has assured me that the Applicants would otherwise be put to further expense of potential significance in order to consider the detail of Mr Lonergan's lengthy studies, in order to rebut the same as a matter of precaution, irrespective of its ultimate relevance, and I accept that assurance. The solicitor for the Applicants has stated in his affidavit filed in support of the Applicants' notice of motion as follows: "6. The Applicants are not in a position to prepare any evidence in reply to the affidavit of Mr Lonergan before the hearing of the proceedings next Monday, 26 November 2001. 7. The Applicants will have difficulty in meeting the cost of an expert witness or witnesses to prepare an affidavit or affidavits in reply to the affidavit of Mr Lonergan…." No cross-examination of the Applicants' Solicitor was undertaken. 11 The Respondent's circumstances arising on the Applicants' notice of motion are entirely without merit. I therefore will grant the preferred relief sought by the Applicants, with costs. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 22 November 2001 Counsel for the Applicant: Mr R F Edmonds SC and Mr M Richmond Solicitor for the Applicant: Allens Arthur Robinson Counsel for the Respondent: Mr S McMillan Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 20 November 2001 Date of Judgment: 20 November 2001