FEDERAL COURT OF AUSTRALIA Aristocrat Spa Pools Australia Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2005] FCA 1545 PRACTICE AND PROCEDURE – Federal Court Rules O 35A ARISTOCRAT SPA POOLS AUSTRALIA PTY LTD AND RELIANCE FINANCIAL SERVICES PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA AND QBE INSURANCE (AUSTRALIA) LTD NSD 1124 of 2005 CONTI J 24 OCTOBER 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1124 OF 2005 BETWEEN: ARISTOCRAT SPA POOLS AUSTRALIA PTY LTD FIRST APPLICANT RELIANCE FINANCIAL SERVICES PTY LTD SECOND APPLICANT AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA FIRST RESPONDENT QBE INSURANCE (AUSTRALIA) LTD SECOND RESPONDENT JUDGE: CONTI J DATE OF ORDER: 24 OCTOBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The proceedings be struck out pursuant to O 35A r 3 of the Federal Court Rules. 2. The first and second applicants pay the first respondent's costs of and incidental to the proceedings. 3. On the application of the second respondent, that the first and second applicants also pay the costs of the second respondent occasioned by its joinder in the proceedings. 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 NSD 1124 OF 2005 BETWEEN: ARISTOCRAT SPA POOLS AUSTRALIA PTY LTD FIRST APPLICANT RELIANCE FINANCIAL SERVICES PTY LTD SECOND APPLICANT AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA FIRST RESPONDENT QBE INSURANCE (AUSTRALIA) LTD SECOND RESPONDENT JUDGE: CONTI J DATE: 24 OCTOBER 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Aristocrat Spa Pools Australia Pty Ltd ('Aristocrat') and Reliance Financial Services Pty Ltd ('Reliance') (together 'the applicants') commenced proceedings on 7 July 2005 in the Court's original jurisdiction seeking injunctive and declaratory relief under s 39B of the Judiciary Act 1903 (Cth) against the first respondent ('the Commissioner'). Aristocrat was indebted to the Commissioner in respect of outstanding taxation liabilities. On 9 June 2005 the Commissioner served upon the second respondent, QBE Insurance (Australia) Ltd ('QBE') a garnishee notice under s 260-5 of the Taxation Administration Act 1953 (Cth). Aristocrat held an insurance policy with QBE ('the QBE Insurance Policy') and Aristocrat was entitled to a certain payout pursuant to a claim it had made under that policy from QBE. 2 The applicants sought by the institution of these proceedings to restrain the Commissioner from moving on that s 260-5 notice. Alternatively, the applicants sought declarations to the effect that QBE did not owe or may later owe money to Aristocrat within the meaning of s 260-5(2) and (3) of the Taxation Administration Act 1953 (Cth), and that consequently QBE owed money to Reliance. The basis for that relief was Aristocrat's assertion that it had assigned its right title and interest in the QBE Insurance Policy to Reliance. 3 Prior to the first directions hearing in the proceedings, the Commissioner issued notices to produce to Aristocrat and Reliance requiring production of documents pertaining to, inter alia, the alleged assignment by Aristocrat to Reliance of the QBE Insurance Policy and the notification of QBE of the same. Those notices were issued pursuant to Federal Court Rules O 33 r 12(1) and were correct in form. O 33 r 12(1) is in the following terms: 'Where a party to any proceedings serves on another party notice, in accordance with Form 45, requiring the party served to produce at any trial or hearing in the proceedings, or before any Judge, officer, examiner or other person having authority to take evidence in the proceedings any document or thing for the purpose of evidence and the document or thing is in the possession, custody or power of the party served, the party served shall, unless the Court otherwise orders, produce the document or thing in accordance with the notice, without the need for any subpoena for production.' 4 Those notices to produce were returnable at the first directions hearing on 18 August 2005. However the applicants did not comply with those notices on that date and an order was made standing over compliance therewith until 7 September 2005. Subsequently the return date was moved to 21 September 2005, by which time the applicants had failed to produce any documentation in response. The applicants similarly failed to respond to those notices when they were called upon by the Commissioner's legal representatives on the subsequent return dates set by the Court. 5 Approximately one week before the first directions hearing on 18 August 2005, the solicitor for the Commissioner had written to the applicants' solicitor indicating that the Commissioner intended to object to the tender of the affidavit filed in support of the application on the ground of hearsay. On 18 August 2005, I ordered by consent that the applicants file and serve any evidence upon which they intended to rely by 8 September 2005. The applicants failed to file any evidence by 8 September 2005. 6 On 20 September 2005 the Commissioner filed a notice of motion seeking summary dismissal of the application. The affidavit filed in support of that motion recounted a telephone conversation between the respective solicitors of each party in which the applicants' solicitor stated that she was not able to obtain instructions from her client. That motion was listed for directions on 29 September 2005. 7 On 29 September 2005 I adjourned the hearing of the Commissioner's motion until today in response to the applicants' request. I also made an order (by consent) that the applicants were to file and serve any further evidence upon which they proposed to rely by 19 October 2005, and I granted leave to the Commissioner to issue a subpoena duces tecum to Cassaniti & Associates. According to ASIC extracts annexed to the affidavit of Ms Jacqueline Gleeson, the solicitor for the Commissioner, sworn 18 August 2005, the offices of Cassaniti & Associates are the current registered office of both Aristocrat and Reliance. It also appears from those extracts that a principal of Cassaniti & Associates, Mr Sam Cassaniti, is a shareholder of Reliance. The Commissioner intended by that evidence to adduce a connection relevantly between the firm of Cassaniti & Associates and the applicants. 8 The subpoena issued to Cassaniti & Associates was returnable on 19 October 2005. As in the case of the outstanding notices to produce, there was no compliance with that subpoena on that date and so time for compliance was stood over until 21 October 2005, at which time there was still no compliance. Accordingly both the subpoena and the outstanding notices to produce were stood over until the hearing of the Commissioner's notice of motion on 24 October 2005. 9 On 21 October 2005 solicitors for the applicants formerly withdrew their representation in the proceedings. A solicitor of that firm has appeared at today's motion hearing so as to personally inform the Court of her firm's withdrawal of representation. The applicants have otherwise made no appearance. Counsel for the Commissioner has called on the outstanding notices to produce and the subpoena, and no responses to either have been received. 10 The Commissioner now seeks to have the application struck out summarily pursuant to O 35A of the Federal Court Rules. Order 35A r (3) grants the Court certain powers in the event that an applicant is in default. Under O 35A r 2(1) applicants are in default if they: '(a) Fail to comply with an order of the Court in the proceeding; or (b) Fail to attend a directions hearing; or … (c)Fail to prosecute the proceeding with due diligence…' 11 The orders that a Court may make pursuant to O 35A r 3(1), if an applicant is in default, include an order that: '(a) the proceeding be stayed or dismissed as to the whole or any part of the relief claimed by the applicant' 12 There is no doubt that the repeated failure of the applicants to file any further evidence involved non-fulfilment of the Court's orders of 18 August 2005 and 29 September 2005; so too was the applicants' repeated failure to comply with the Commissioner's notices to produce on the dates mandated by the Court. Those failures on the part of the applicants to comply with the orders of the Court are sufficient in themselves to bring the applicants within the O 35A notion of in default. I hasten to add that the circumstances prevailing in the present proceedings invite the inference that the applicants have also failed to prosecute their application with due diligence, within the meaning of that expression in O 35A r 2(1)(c). The failure of Cassaniti & Associates to respond to the Commissioner's subpoena, the withdrawal of the applicants' legal representation in somewhat enigmatic circumstances, the suggestion made in the Commissioner's evidence that prior to withdrawal the applicants' solicitors experienced difficulties obtaining instructions, all contribute to the dissatisfactory manner in which the proceedings have been conducted by the applicants. Accordingly the proceedings are dismissed and I order the applicants to pay the Commissioner's costs of the proceedings. 13 The major extent of QBE's involvement in the proceedings has been principally to deliver a cheque made out to the Commissioner to the Commissioner's solicitors for the amount of the insurance payout the subject of the s 260-5 notice. QBE was named a respondent by the applicants and has necessarily incurred expense in obtaining representation to appear on its behalf. I also order the applicants to pay the costs of QBE involved as second respondent to the application. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 1 November 2005 The applicants did not appear Counsel for the First Respondent: R Quinn Solicitor for the First Respondent: Australian Government Solicitor Solicitor for the Second Respondent Ebsworth & Ebsworth Date of Hearing: 24 October 2005 Date of Judgment: 24 October 2005