FEDERAL COURT OF AUSTRALIA Multiflex Pty Ltd v The Commissioner of Taxation [2011] FCA 789 Citation: Multiflex Pty Ltd v The Commissioner of Taxation [2011] FCA 789 Parties: MULTIFLEX PTY LTD (ACN 137 111 598) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File number: VID 446 of 2011 Judge: DODDS-STREETON J Date of judgment: 13 July 2011 Catchwords: PRACTICE AND PROCEDURE – Application for expedited hearing Cases cited: Blackrock Asset Management Australia Services Ltd v Waked [2011] FCA 272 discussed British American Tobacco Australia v Secretary, Department of Health and Ageing [2011] FCA 718 discussed Date of hearing: 13 July 2011 Date of publication of reasons: 15 July 2011 Date of last submissions: 13 July 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Applicant: Mr F O'Loughlin Solicitor for the Applicant: Mills Oakley Counsel for the Respondent: Mr M Flynn Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 446 of 2011 BETWEEN: MULTIFLEX PTY LTD (ACN 137 111 598) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: DODDS-STREETON J DATE OF ORDER: 13 JULY 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The applicant file and serve its application and amended statement of claim by 19 July 2011. 2. The respondent file and serve a defence to the applicant's amended statement of claim by 26 July 2011. 3. The applicant file and serve any further affidavit upon which it intends to rely at the trial on or before 13 July 2011. 4. The respondent file and serve any affidavit upon which he intends to rely at the trial on or before 1 August 2011. 5. The applicant file and serve any affidavit in reply upon which it intends to rely at the trial on or before 8 August 2011. 6. The applicant file and serve an outline of submissions on or before 8 August 2011. 7. The respondent file and serve an outline of submissions on or before 15 August 2011. 8. The proceeding be listed for hearing on 19 August 2011 on a one day estimate. 9. The costs of the scheduling conference be costs in the appeal. 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 VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 446 of 2011 BETWEEN: MULTIFLEX PTY LTD (ACN 137 111 598) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: DODDS-STREETON J DATE: 13 JULY 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 13 July 2011, I ordered that: 1. The applicant file and serve its application and amended statement of claim by 19 July 2011. 2. The respondent file and serve a defence to the applicant's amended statement of claim by 26 July 2011. 3. The applicant file and serve any further affidavit upon which it intends to rely at the trial on or before 13 July 2011. 4. The respondent file and serve any affidavit upon which he intends to rely at the trial on or before 1 August 2011. 5. The applicant file and serve any affidavit in reply upon which it intends to rely at the trial on or before 8 August 2011. 6. The applicant file and serve an outline of submissions on or before 8 August 2011. 7. The respondent file and serve an outline of submissions on or before 15 August 2011. 8. The proceeding be listed for hearing on 19 August 2011 on a one day estimate. 9. The costs of the scheduling conference be costs in the appeal. 2 My reasons for making those orders are set out below. 3 The applicant, Multiflex Pty Ltd ("Multiflex"), by a notice of motion dated 14 June 2011, sought orders for an expedited hearing as follows: 1. The proceeding be expedited such that the scheduling conference currently listed to be conducted before the Honourable Justice Gordon be conducted within 7 days of the date of this order on a date to be notified; 2. The proceeding be listed at the scheduling conference for hearing within 21 days with an estimate of 1 to 2 days. 3. Costs be reserved. 4 The application was supported by the affidavit of Tanu Ghosh sworn 24 June 2011. 5 On 6 July 2011, I made orders by consent that the scheduling conference be conducted within seven days and that the determination of orders 2 and 3 of the notice of motion be heard on the same date. The matter was listed for a scheduling conference on 13 July 2011. 6 The proceeding was not yet set down for hearing. 7 As appeared from the affidavit of Mr Ghosh and the statement of claim and application dated 24 May 2011, Multiflex is a buyer and seller of information and communication technology products, such as mobile phones and iPads. It operates on small margins between the purchase and sale price, and has a small profit margin. In 2010, the cost of its purchase of products was $18.8 million, and the proceeds of sale was $19.9 million. 8 Multiflex alleged that in about August 2010, it had accumulated GST input tax credits, and the Commissioner of Taxation ("COT"), although obliged to refund the GST amounts, advised that Multiflex would be audited and the GST amounts withheld. Subsequently, in December 2010, the refund was made. 9 Multiflex alleged, however, that as at May 2011, it was now entitled to a further $835,000 in refunds relating to tax periods outside the advised audit period, which the COT was not entitled to withhold, even if the audit period were extended. 10 Multiflex alleged that the COT's refusal to pay the GST refund is a decision under s 3 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("ADJR Act") and Multiflex is a person aggrieved. It alleged that the decision to withhold the refund was an improper exercise of power, without a proper basis, ultra vires and contrary to law. Multiflex was accordingly entitled to relief under s 39B of the Judiciary Act 1903 (Cth), a review under the ADJR Act, an order that the decision be quashed, and relief in debt and damages. 11 The COT, by a Notice of Objection to Competency dated 8 June 2011, alleged that the decision was not one to which the ADJR Act applied. 12 Mr Ghosh, the sole director and CEO of Multiflex, deposed to its high volume but low margin business, which involved the export of products to Singapore. Its sales were GST free, but its purchases were creditable acquisitions. 13 Mr Ghosh deposed that Multiflex was now entitled to $835,000 in refundable GST for the January-March 2011 period. 14 He deposed that the Australian Tax Office ("ATO") initially advised Multiflex of an audit for the periods July and August 2010 but subsequently advised that the audit would be expanded to the period May 2009 to November 2010, and was now expected to be completed by 4 August 2011. The ATO initially withheld GST refunds but then released them with an apology, affirming that it would process its future BAS on a normal basis. 15 Mr Ghosh deposed that in late February 2011, however, the ATO again ceased releasing Multiflex's GST refunds and advised that the situation would remain in place until the audit and investigations of Multiflex were completed. Although the standard time for paying GST refunds was 14 days, the Multiflex refunds had now been withheld for much longer. The ATO had not clearly stated the reasons for withholding the refunds or given a legitimate explanation for so doing. 16 Mr Ghosh deposed that due to the continuing withholding of the refunds, the solvency of the Multiflex business was in jeopardy and its essential working capital and ability to operate as a going concern were crippled. It received delivery of products only on the basis of advance payments and owed $US2.2 million to a related company, Mercantile Pacific Asia Pte Ltd ("MPA"). Stock would not be delivered unless the advance payments were made. Multiflex's sourcing agreement would be terminated and it would be forced into liquidation. In the circumstances, Multiflex could barely meet its legal fees, salaries and other expenses. It relied on a high volume of stock in order to be profitable, and without receiving the GST refund in a timely manner, would not be able to trade for longer than two months without an immediate release of funds. 17 Mr Ghosh deposed that in April 2011, the ATO refused Multiflex's proposal to release the GST refunds in relation to Multiflex's acquisitions from its largest suppliers. In March 2011, the ATO advised that Multiflex's GST refunds would be withheld until Mr Narula, the controller of MPA, attended for interview from Singapore. Further, the audit had been expanded. Multiflex therefore sought an expeditious hearing, as its financial future was at stake. Principles relevant to Expedition 18 In Blackrock Asset Management Australia Services Ltd v Waked [2011] FCA 272, Perram J ordered an expedited trial on liability only on the application of the respondents who, as former employees of the applicants, were alleged to have breached, inter alia, statutory duties, non-solicitation clauses and various other contractual terms. 19 His Honour considered that while the separation of liability from quantum entailed considerable risks which were otherwise unacceptable, there was evidence that litigation was stifling the respondent's business. In an imperfect situation, the risks of potential problems from the split outweighed the likely prejudice to the respondents if the trial were not heard in a short period of time. 20 His Honour stated at [17] and [18]: Mr Moses SC submitted that there was no evidence that if the trial was not expedited the corporate respondent, VinvA, would become insolvent, would suffer a major financial difficulty, nor, so he submitted, was there any evidence that the personal respondents would not be able to put food on their tables if the case did not proceed in an expedited manner. I accept that, of course. However, in terms of obtaining an order for expedition, I do not think that the respondents are required to go so far as to prove utter penury or total ruin before they are entitled to obtain such an order. Plainly, these proceedings are affecting the respondents' business activities in a way which is not trivial. In doing the best that one can in what is clearly a far from ideal situation, it seems to me that the interests of justice favour expedition over yielding to the potential difficulties which may arise from the separation of the issues. For that reason, in my opinion, the matter should be expedited and there should be a separation of the issue of liability from quantum. I will simply stand the matter over for directions to facilitate the making of appropriate orders. 21 In British American Tobacco Australia v Secretary, Department of Health and Ageing [2011] FCA 718, North J ordered an expedited appeal from the decision of the AAT denying the applicant access to certain legal advice about Australia's compliance with international obligations in relation to plain packaging of tobacco products, which it allegedly required in order to participate in public debate about plain packaging. 22 The applicant required the advice before the end of a consultation period as it would otherwise be valueless or of diminished value. The application was unopposed. 23 North J stated at [7]: Whilst the lack of opposition by the respondent to the application for expedition is a matter of relevance and some significance to the court, at the heart of this application is a necessity for the court to balance the consequences of refusing an order for expedition against the effect on other litigants waiting in the appeal lists. If the order is not made, the appeal would come on in the ordinary course in the November sittings of the court. 24 His Honour noted that the appeal was currently listed for November 2011, and the applicant would suffer only a small detriment if the ordinary course were maintained. 25 His Honour nevertheless concluded at [10] and [11]: Whilst the applicant's reason for advancing the case in the appeal list is not strong, and the result of advancing it will be to disadvantage other appeals in the list, consideration should be given to the fact that part of the right which the applicant seeks to assert will disappear forever if the expedition is not accorded to it. In other words, the balance is slightly tipped in favour of the applicant as a result of the submission of Mr Myers that the right to utilise the legal advice, if the court decides in favour of the applicant, is one which should be taken into consideration in favour of the applicant. Save for one issue therefore, the court will order that the appeal be accorded such expedition as the court can afford it. Freely interpreted and without treading on the toes of those who set the lists, it is expected, but cannot be guaranteed, that this will mean the case will obtain a hearing in or about the August appeal sittings. discussion 26 In the present case, the respondent did not oppose the expedition of the hearing provided that, in circumstances where Multiflex had already filed one lengthy affidavit and would shortly file further material, the respondent had an adequate opportunity to prepare responsive material. The respondent submitted that the COT was withholding the Multiflex GST refunds due to the investigation of a possible large scale fraud involving many different suppliers of mobile telephones and other electronic products. It would therefore be necessary to obtain affidavits from one or more of the COT's officers who were auditing Multiflex to explain the steps taken to investigate the company and its chain of supplies, and why further investigations were required. 27 I was satisfied that the expedition of the hearing was justified in circumstances where the subject matter of the litigation was the taxpayer's entitlement to a refund, the prompt payment of which was vital to its continued business operations and solvency. The respondent's audit, apparently advanced as the justification for the withholding of the refund, has been in progress for some time (approximately nine months) and may be of uncertain duration. In the ordinary course, the proceeding might not be set down for trial for some months, at least, which would be likely to entail significant and perhaps irreparable prejudice to the applicant. The case for expedition was thus considerably stronger than in the authorities referred to above. Further, while expedition necessarily has an impact on other cases in the list, in the present case, it entailed no prejudice to the respondent. The Court had an available date for an expedited hearing, 19 August 2011, which would permit the respondent adequate time to prepare its response. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton. Associate: Dated: 13 July 2011