Kahn v Commissioner of Taxation [2012] FCA 1150

FEDERAL COURT OF AUSTRALIA

Kahn v Commissioner of Taxation [2012] FCA 1150 Citation: Kahn v Commissioner of Taxation [2012] FCA 1150

Parties: PEDRO KAHN v COMMISSIONER OF TAXATION

File number: NSD 886 of 2012

Judge: EMMETT J

Date of judgment: 14 September 2012

Legislation: Judiciary Act 1903 (Cth) s 39B

Date of hearing: 14 September 2012

Place: Sydney

Division: GENERAL DIVISION

Category: No catchwords

Number of paragraphs: 16

Counsel for the applicant: D Allen

Solicitor for the applicant: Proctor & Associates

Counsel for the respondent: Dr M Perry QC with S Foda

Solicitor for the respondent: ATO Legal Services Branch

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 886 of 2012

BETWEEN: PEDRO KAHN

Applicant

AND: COMMISSIONER OF TAXATION

Respondent

JUDGE: EMMETT J DATE OF ORDER: 14 SEPTEMBER 2012 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The proceeding be dismissed. 2. The applicant pay the respondent's costs of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 886 of 2012

BETWEEN: PEDRO KAHN

Applicant

AND: COMMISSIONER OF TAXATION

Respondent

JUDGE: EMMETT J DATE: 14 SEPTEMBER 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The applicant, described as Mr Pedro Kahn in the statement of claim, but whose name appears as Mr Mohammed Riyasat Khan on various affidavits sworn by him, has brought this proceeding, seeking relief under s 39B of the Judiciary Act 1903 (Cth). He claims a declaration that the decision of the respondent, the Commissioner of Taxation (the Commissioner), to refuse to allow him a credit in respect of amounts said to be deducted by his employer, was invalid. Mr Khan also claims an order in the nature of mandamus requiring the Commissioner to allow a credit against assessments issued to him. The assessments relate to the years ended 30 June 1999, 2000, 2001, 2002 and 2003. 2 The Commissioner, by interlocutory application, filed on 24 August 2012, seeks summary dismissal of Mr Khan's proceeding on the basis that he cannot succeed by reason of an estoppel or, alternatively, that the proceeding is an abuse of process. The basis for the Commissioner's contention is that the question has been resolved against Mr Khan by a proceeding in the District Court of New South Wales. In order to put that contention in context, it is necessary to say something about the history of the dispute. 3 On 10 November 2008, the Commissioner commenced a proceeding in the District Court of New South Wales claiming moneys owing by Mr Khan under assessments issued by the Commissioner in respect of the years which I have mentioned. Mr Khan filed a defence on 4 February 2009, in which he effectively contended that the amount claimed was not owing to the Commissioner, because the Commissioner had wrongly failed or refused to allow a credit to him in respect of tax alleged to have been deducted from his earnings under the "pay as you go" withholding tax scheme. Mr Khan contends that he was employed in the relevant years by Designex Aust Pty Limited (Designex) and that tax was deducted from his salary or wages by Designex and that, although the tax was not paid to the Commissioner by Designex, he is entitled to credit by reason of the deduction. 4 On 8 April 2009, the District Court ordered that the Commissioner serve its evidence in chief by 19 May 2009, that Mr Khan serve his evidence in chief on or before 30 June 2009 and that the Commissioner serve evidence in reply on or before 28 July 2009. The Commissioner served evidence in chief on 28 May. There is no explanation for the delay. On 17 August 2009, the Commissioner wrote to Mr Khan's solicitors, calling attention to his failure to file and serve evidence in accordance with the orders made by the District Court. The proceeding was listed before the District Court on 19 August 2009, when an order was made that Mr Khan serve his evidence by 9 September 2009 and that the Commissioner serve any evidence in reply by 21 October 2009. The matter was listed for hearing on 4 November 2009 with an estimate of two days. 5 On 4 September 2009, the Commissioner wrote again to Mr Khan's solicitors in relation to the filing of evidence. On 16 October 2009, orders were made for the future conduct of the proceeding. The hearing date was vacated and a new hearing date was fixed. Shortly after 16 October 2009, Mr Khan provided the Commissioner with an unsworn affidavit, which did not have annexures attached to it. On 28 October 2009, the Commissioner wrote to the solicitor for Mr Khan, specifying that the unsworn affidavit was incomplete and that annexures were missing. 6 On 4 November 2009, a sworn affidavit of Mr Khan of 2 November 2009 was provided to the Commissioner. The Commissioner wrote to Mr Khan's solicitors on 20 November 2009, 23 November 2009 and 16 December 2009 in relation to the illegibility of many of the annexures. No response was received and no legible annexures were provided. Accordingly, on 19 January 2010, the Commissioner filed a notice of motion seeking orders in respect of Mr Khan's affidavit of 2 November 2009. At the hearing of the motion on 27 January 2010, the District Court made orders as asked by the Commissioner and it was noted that, if order 2 was not complied with by 4 February 2010, the Commissioner could approach the District Court to have the matter listed in order to require Mr Khan to show cause why his defence ought not to be struck out. 7 Mr Khan failed to comply with the orders and the proceeding was listed again on 22 February 2010, when the Commissioner applied to have Mr Khan's defence struck out. The District Court ordered that, if Mr Khan failed to comply with the orders made on 27 January 2010 within seven days, the Court would order that he would not be permitted to rely on his affidavit. The proceeding was listed again for directions on 1 March 2010. On that day, orders were made that Mr Khan was not to rely on the evidence filed by him or any evidence without further order of the Court. 8 The proceeding was listed for hearing on 24 March 2010. The hearing was adjourned to 25 March 2010 to allow Mr Khan to attempt to find the originals of documents annexed to the affidavit of 2 November 2009. On 25 March 2010, the proceeding was adjourned again to 29 March 2010, when orders were made concerning the service of subpoenas on the Australian Crime Commission. On 9 April 2010, the subpoena was dismissed with no documents being produced. The matter was listed again for further directions on 23 April 2010, when leave was granted for the issue of further subpoenas made returnable on 10 May 2010. The matter was otherwise listed for further directions on 27 May 2010. On that day, Mr Khan sought orders with respect to filing a notice of motion to amend his defence and otherwise rely on further evidence. The District Court ordered that Mr Khan serve his proposed defence on or before 3 June 2010, that the Commissioner notify of any opposition to the proposed defence by 10 June 2010, that any applications be filed by 17 June 2010 and that the proceeding and any notice of motion be listed for hearing on 2 July 2010. 9 Mr Khan failed to file or serve any further notice of motion or amended defence. On 28 June 2010, the Commissioner filed and served a notice of motion seeking summary judgment against Mr Khan. That motion was heard on 2 July 2010. Mr Khan was represented at the hearing of the motion. However, summary judgment was entered in favour of the Commissioner. 10 On 10 April 2012, a bankruptcy notice based on the judgment of the District Court was served on Mr Khan. No application was made in respect of the bankruptcy notice. On 21 May 2012, the Commissioner filed a creditor's petition seeking the bankruptcy of Mr Khan, based on an act of bankruptcy committed by failing to comply with the bankruptcy notice. The Commissioner's petition prompted this application. 11 It is against that background that the Commissioner contends that this proceeding is an abuse of process. It is apparent that the issue that Mr Khan seeks to agitate in this proceeding is precisely the same as the issue that he sought to raise by way of defence in the District Court. That issue could properly have been raised by Mr Khan in the District Court. However, there has been no explanation given as to why he did not comply with the orders of the District Court requiring production of original documents, or at least legible documents, which were said to establish his defence by way of set-off. 12 It has not been suggested that there was any reason why Mr Khan could not have raised those matters in the District Court prior to the hearing after which summary judgment was entered. Hearing dates were vacated on at least four occasions in order to enable Mr Khan to rectify his default. It would have been open to Mr Khan to move the District Court to set aside the summary judgment. He could have applied to the District Court before that time for leave to adduce evidence, notwithstanding his failure to comply with the earlier directions of the District Court. There has been no explanation given as to why Mr Khan did not take any of those steps, or take the step of appealing from the summary judgment of the District Court, if he contends that that judgment was given erroneously. 13 Clearly enough, this proceeding represents a collateral challenge to the judgment of the District Court, in so far as it challenges the assessment underlying the judgment, on precisely the same grounds as those that Mr Khan intended to raise in the District Court but, for reasons that are unexplained, he did not raise. 14 The creditor's petition filed on behalf of the Commissioner is now before the Federal Court, having been transferred to the Federal Court by the Federal Magistrates Court. It is, of course, open to Mr Khan on the hearing of the creditor's petition to invite the Court to go behind the judgment debt in order to establish that there is good reason why a bankruptcy petition based on that judgment debt, and the failure to comply with the bankruptcy notice based on the judgment debt, should be dismissed. 15 Thus, even if this proceeding were to be summarily dismissed, the Commissioner contends that would not necessarily be an end of Mr Khan's opportunity to raise the set-off to which he claims he is entitled. However, in circumstances where there has been no explanation as to why Mr Khan has not looked after his own interests in the District Court proceeding, or in relation to the bankruptcy notice, I would draw the inference that the commencement of this proceeding was prompted by the creditor's petition. Mr Khan has had ample opportunity to test in the ordinary way the defence that he claims he has to the Commissioner's assessments. He has failed to do so. 16 I consider that, in all of the circumstances, the commencement of this proceeding constitutes an abuse of the Court's process. Accordingly, I consider that it is appropriate to accede to the Commissioner's application for summary dismissal of the proceeding. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.