FEDERAL COURT OF AUSTRALIA Groves v Commissioner of Taxation (No 2) [2011] FCA 634 Citation: Groves v Commissioner of Taxation (No 2) [2011] FCA 634 Parties: LE NEVE ANN GROVES v COMMISSIONER OF TAXATION File number: QUD 582 of 2010 Judge: LOGAN J Date of judgment: 24 May 2011 Catchwords: PRACTICE AND PROCEDURE – non-party discovery – discretion to grant – where avenues for discovery as against other parties were exhausted – where documents relevant to proceeding – where one non-party contested that discovery was too wide compared with similar proceedings in the Queensland Supreme Court – orders for non-party discovery granted Legislation: Federal Court Rules (Cth) Date of hearing: 24 May 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 9 Solicitor for the Applicant: Cooper Grace Ward Counsel for the Respondent: Mr PJ Flanagan SC with Mr S Lumb Solicitor for the Respondent: McInnes Wilson Counsel for the BT Securities Ltd and Westpac Banking Corporation Ltd: Mr E Goodwin Solicitor for the BT Securities Ltd and Westpac Banking Corporation Ltd: Mallesons Stephen Jaques Counsel for the Citigroup Global Markets Australia Pty Ltd and Citibank N.A.: Mr G Beacham Solicitor for the Citigroup Global Markets Australia Pty Ltd and Citibank N.A.: Mallesons Stephen Jaques Mr Edmund Stuart Groves appeared in person IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 582 of 2010 BETWEEN: LE NEVE ANN GROVES Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE OF ORDER: 24 MAY 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. That Edmund Stuart Groves be required to give discovery with verification in the following categories within 21 days of this order: (a) Any documents that record, evidence or refer to the payment of dividends by ABC Learning Centres Ltd (ACN 079 736 664) in the period 1 July 2002 to 30 June 2008 in respect of shares owned by the applicant; (b) Any documents that record, evidence or refer to the transfer of funds out of Westpac bank account number 578 231 in the period 1 June 2001 to 30 June 2008; (c) Any documents that record, evidence or refer to the purported transfer of shares owned by the applicant to any or all of the following entities: (i) Citigroup Global Markets Australia Pty Ltd (ACN 003 114 832); (ii) BT Securities Ltd (ACN 000 720 114); and/or (iii) Citibank, N.A. (d) Any documents that record, evidence or refer to the purported sale of shares on behalf of Mr Edmund Stuart Groves and/or the applicant by any or all of the following entities: (i) Citigroup Global Markets Australia Pty Ltd (ACN 003 114 832); (ii) BT Securities Ltd (ACN 000 720 114); and/or (iii) Citibank, N.A. (e) Any documents that record, evidence or refer to any margin loan from BT Securities Ltd, Citigroup Global Markets Australia Pty ltd or Citibank N.A. which refers to the applicant as either a borrower or guarantor; and (f) Any documents that record, evidence or refer to the income tax returns of the applicant. 2. That BT Securities Ltd be required to give discovery with verification in the following categories within 21 days of this order: (a) Any documents that record, evidence or refer to the purported transfer of shares owned by the applicant to BT Securities Ltd; (b) Any documents that record, evidence or refer to the purported sale of shares on behalf of Mr Edmund Stuart Groves and/or the applicant by BT Securities Ltd; and (c) Any documents that record, evidence or refer to any margin loan which refers to the applicant as either a borrower or guarantor. 3. That the parties mentioned in orders 1-2 give discovery of the above documents be filing and serving a list of documents within 21 days of the date of this order. 4. That the applicant be entitled to inspect and make copies of the discovered documents (or request copies to be made). 5. That, in accordance with O 15A r 11(1) of the Federal Court Rules (Cth), the applicant pay the costs of the parties mentioned in orders 1-2 providing discovery under this order and of their appearance today. 6. The applicant's costs of and incidental to the motion, and of and incidental to the compliance with order 5, be the applicant's costs in the proceedings. 7. Liberty to apply. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 582 of 2010 BETWEEN: LE NEVE ANN GROVES Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE OF ORDER: 24 MAY 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. Pursuant to O 15A r 8 of the Federal Court Rules, Edmund Stuart Groves ("Mr Groves") make discovery to the respondent of all documents (other than the bank statements for the Westpac Banking Corporation bank account number 578231 in the account name of Mr Edmund Stuart Groves and Mrs Le Neve Ann Groves) which Mr Groves has, or has had, in his possession which are directly relevant to the matters pleaded in paragraphs 8 (including Annexures B and C), 9A (including Annexures D and E), 10A, 12, 13A, 15(4), 18, 19A, 21a, 21aa and 21b (including Annexure A) of the Amended Defence of Mr Groves filed on 29 June 2009 in Supreme Court proceeding number 10662/08 brought by the applicant. 2. Order 1 is to be complied with by Mr Groves filing and serving on the respondent, within 21 days of the date of the order, a List of Documents in accordance with O 15 r 6 of the Federal Court Rules. 3. The respondent or his Solicitors be at liberty to inspect and make copies of (or request copies to be made of) any documents discovered by Mr Groves. 4. The respondent is to pay Mr Groves' reasonable costs and expenses of complying with Orders 1, 2 and 3, to be taxed if not agreed. 5. The respondent's costs of and incidental to the motion, and of and incidental to compliance with order 4, be the respondent's costs in the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 582 of 2010 BETWEEN: LE NEVE ANN GROVES Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE OF ORDER: 24 MAY 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. Pursuant to O 15A r 8 of the Federal Court Rules, BT Securities Limited ACN 000 720 114 ("BT") make discovery to the respondent of each of the following documents (within the meaning of the term "document" in the Federal Court Rules) which BT has, or has had, in its possession: (a) all documents which are directly relevant to the matters pleaded in paragraphs 4, 5(a), 6, 12(b), 13, 17(a), 17(b)(i), 17(b)(ii), 22(c)(iii), 23(a), 23(b) of the Defence of BT filed on or about 1 December 2008 in Supreme Court proceeding number 10662/08 brought by the applicant (other than the tax invoice from Austock Securities Limited to Dr Groves dated 6 March 2008); (b) all further documents (including account statements) evidencing or recording withdrawals, debits or transfers from each BT loan account or margin loan account of Edmund Stuart Groves during the period on and from 1 July 2004 up to and including 12 March 2008; (c) all further documents (including account statements) evidencing or recording payments, credits or transfers to each BT loan account or margin loan account of Edmund Stuart Groves during the period on and from 1 July 2004 up to and including 12 March 2008. 2. Order 1 is to be complied with by BT filing and serving on the respondent, within 21 days of the date of the order, a List of Documents in accordance with O 15 r 6 of the Federal Court Rules. 3. The respondent or his Solicitors be at liberty to inspect and make copies of (or request copies to be made of) any documents discovered by BT. 4. The respondent is to pay BT's reasonable costs and expenses of complying with Orders 1, 2 and 3 of its appearance today, to be taxed if not agreed. 5. The respondent's costs of and incidental to the motion, and of and incidental to compliance with order 4, be the respondent's costs in the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 582 of 2010 BETWEEN: LE NEVE ANN GROVES Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE OF ORDER: 24 MAY 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. Pursuant to O 15A r 8 of the Federal Court Rules, Westpac Banking Corporation ABN 33 007 457 141 ("Westpac") make discovery to the respondent of each of the following documents (within the meaning of the term "document" in the Federal Court Rules) which Westpac has, or has had, in its possession: (a) any document relating to the opening of Westpac bank account number 578231 in the account name of Mr Edmund Stuart Groves & Mrs Le Neve Ann Groves ("the joint bank account"), including but not limited to any application form, any document containing the signature of Le Neve Ann Groves and any terms and conditions applicant to the joint bank account; (b) with respect to Westpac bank account number 32-6068 in the name of KSD Property Pty Ltd KSD Property Trust ("the KSD account"): (i) all account statements for the period subsequent to 14 December 2007 to and including 30 June 2008; (ii) all documents (other than the account statements for that account prior to 15 December 2007): (A) recording or evidencing the request, direction or authority to transact the withdrawal or debit of $2,000,000.00 on or about 17 September 2006; (B) identifying the recipient or recipients of the withdrawal or debit of $2,000,000.00 on or about 17 September 2006; (c) with respect to the joint bank account: (i) all vouchers in relation to cheques drawn on the account in an amount of $5,000 or greater from 2004 onwards; (ii) all other documents (other than the account statements for the joint bank account or the account statements for the KSD account prior to 15 December 2007): (A) recording or evidencing the request, direction or authority to transact each withdrawal from (or the debiting of) the joint bank account in an amount of $5,000 or greater; (B) identifying the recipient or recipients of the amount the subject of each such transaction; (iii) all vouchers or other documents (other than the account statements for the joint bank account) evidencing or recording a deposit to (or the crediting of) the joint bank account in an amount of $5,000 or greater from 2004 onwards; and (iv) all documents (other than the account statements for the joint bank account) identifying the payee in respect of each such transaction; (d) all account statements from the Westpac bank account number 555355 (operated by Edmund Stuart Groves) during the period on and from 1 July 2002 to and including 30 June 2008; (e) the documents identified in paragraph 11 of the affidavit of Beverly Fuller sworn on 23 May 2011 (for the period 4 November 2002 and 2 December 2004). 2. Order 1 is to be complied with by Westpac filing and serving on the respondent, within 30 days of the date of the order, a List of Documents in accordance with O 15 r 6 of the Federal Court Rules. 3. The respondent or his Solicitors be at liberty to inspect and make copies of (or request copies to be made of) any documents discovered by Westpac. 4. The respondent is to pay Westpac's reasonable costs and expenses of complying with Orders 1, 2 and 3 of its appearance today, to be taxed if not agreed. 5. The respondent's costs of and incidental to the motion, and of an incidental to the compliance with order 4, be the respondent's costs in the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 582 of 2010 BETWEEN: LE NEVE ANN GROVES Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE: 24 MAY 2011 PLACE: BRISBANE REASONS FOR JUDGMENT 1 The Commissioner of Taxation, who is the respondent in a series of taxation appeals (numbered QUD 582 to 589 of 2010), which are presently pending in this court, has made an application under the Federal Court Rules (Cth) for non-party discovery as against Westpac Banking Corporation (Westpac) and Dr Groves' former husband, Mr Edmund Stuart Groves. An affidavit of an officer of Westpac, Ms Beverley Fuller, has been read of behalf of Westpac Banking Corporation in respect of that application. It is not necessary to refer, in detail, to that affidavit. 2 Suffice it to say, Ms Fuller deposes to the present situation in respect of the bank's records with respect to particular categories of documents and to the retrieval times entailed in respect of categories of documents. She also deposes to the circumstances in respect of some categories of documents that, having regard to applicable statutory requirements having expired, they have been, in accordance with the bank's practice, destroyed. The Commissioner has taken into account the contents of Ms Fuller's affidavit in advance of today's proceeding and proposes orders which reflect the matters of fact to which she deposes. Westpac's position is, as one might expect, one where it will abide the order of the Court given that those particular concerns voiced by Ms Fuller have been taken into account. Its position, further, is that it ought to have the costs of its appearance today as well as the costs of compliance with the obligations under the proposed order. 3 Westpac, in adopting that position, has taken into account the position of a customer, Mr Groves, who has appeared today on his own behalf. Mr Groves has indicated that he does not consent to the production of documents, pursuant to notice, by Westpac. His position is relevant but not determinative and it is a position recognised by Westpac in adopting its position. 4 There is long standing authority for the proposition that documents, which may be subject to an obligation of confidence, are, nonetheless, amenable to third party discovery. That there is such an obligation of confidence as between banker and customer may be accepted. 5 While I take that into account, it does seem to me that, having regard to the issues in the taxation appeal, as disclosed by a notice of objection in each case and the respective appeal statements, that firstly, there has been an exhausting of inter partes discovery and secondly, that what is sought is relevant in the taxation appeals. That being so, and taking into account the implied undertaking that will inform the Commissioner in relation to the use of documents produced by Westpac, or for that matter, by Mr Groves personally, it seems to me that an objection by a customer is not, in itself, a sufficient basis for not ordering non-party discovery as against Westpac. 6 There is another position voiced by Mr Groves which relates, really, to work which he has undertaken, or perhaps had those acting for him in the Supreme Court undertaken in conjunction with him, which is that the Commissioner's discovery application as against him is too wide. It is true that, when one looks to the pleadings in the Supreme Court proceeding there is an apparent overlap, at a factual level, between some of the facts at issue in that proceeding, and what one might apprehend to be factual controversies in the taxation appeals. It is a mistake, though, to view the taxation appeals through the prism of the Supreme Court proceeding. The primary issue in the taxation appeals is whether or not Dr Groves can prove the assessments concerned are excessive. In meeting that particular evidentiary case that she seeks to mount, the Commissioner is entitled to adduce evidence that would persuade the Court that the assessments concerned are not excessive. One way of doing that, one might apprehend, and this is the basis for non-party discovery as against both Westpac and Mr Groves, is by endeavouring to achieve some accounting reconciliation of the flow of funds, such as would demonstrate or seek or demonstrate that the assessed income in the assessments is not excessive. That, to me, is a sufficient basis for ordering discovery in the terms sought as against both Westpac and Mr Groves. 7 The orders, then, will be in the terms of the draft, save that, in respect of the orders proposed on behalf of the commissioner as against Westpac. In lieu of ordering that the Commissioner's costs of an incidental to the motion and of an incidental to compliance with order 4 be reserved, I order instead, that the respondent's costs of an incidental to the motion and of an incidental to compliance with order 4 be the respondent's costs in the proceeding. 8 In so far as there is an order sought as against Mr Groves, by Dr Groves, for non-party discovery, there is no controversy, so I was informed by each of them, as to the terms of the order that is sought. That being so, and in so far as the draft provided by or on behalf of Dr Groves seeks, in paragraph 1, orders against Mr Groves, I make orders in terms of that paragraph of the draft and further, note that paragraph 5 of that draft order is to have added to it an obligation in these terms: "And of their appearance today". There is further to be added to that: an order that those costs be the applicant's costs in the proceeding. 9 As to Mr Groves, of course, those costs cannot include preparation costs, but, rather, only out of pocket expenses, as I am sure the taxing officer, if it comes to that, will appreciate. Finally, I should record that it was, in my opinion, entirely appropriate for Mr Groves to attend in person and to make submissions in respect of the discovery issues. I was not disposed to make any order against him at the behest of either the Commissioner or Dr Groves, in the event that were sought, and I note no such order has been sought. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 8 June 2011