FEDERAL COURT OF AUSTRALIA Stallion (NSW) Pty Ltd v Commissioner of Taxation [2020] FCA 554 File number(s): NSD 1451 of 2019 Judge(s): JAGOT J Date of judgment: 7 April 2020 Catchwords: PRACTICE AND PROCEDURE – application for security for costs of appeal– whether reasonable prospects of success on appeal – whether appellant's impecuniosity arises out of respondent's conduct – whether the appeals will be stifled or stultified if order for security made Legislation: A New Tax System (Goods and Services Tax) Act 1999 (Cth) A New Tax System (Luxury Car Tax) Act 1999 (Cth) Federal Court Rules 2011 (Cth) Cases cited: Angas Securities Limited v Savills (SA) Pty Ltd [2017] FCA 868 Elston v Commonwealth of Australia [2014] FCA 704 Capital Webworks Pty Ltd v Adultshop.com Ltd [2008] FCA 40 Cooper v Universal Music Australia Pty Ltd [2006] FCA 642 Cowell v Taylor (1885) 31 Ch D 34 Dye v Commonwealth Securities Limited [2012] FCA 992 J & M O'Brien Enterprises Pty Limited v The Shell Co of Australia Limited (No. 2) [1983] FCA 92; (1983) 70 FLR 261 Madgwick v Kelly [2013] FCAFC 61; (2009) 181 FCR 152 Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103 Stallion (NSW) Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1306 Date of hearing: 7 April 2020 Registry: New South Wales Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 39 Counsel for the Appellant: J Hyde Page Solicitor for the Appellant: Rostron Carlyle Rojas Lawyers Counsel for the Respondent: M Hirschhorn with T Arnold Solicitor for the Respondent: Review and Dispute Resolution, Australian Taxation Office Table of Corrections 28 April 2020 In the Appearances on the cover page in the field Counsel for the Respondent the words "M Hirschhorn" have replaced "M Hirschorn". 28 April 2020 In the Appearances on the cover page in the field Counsel for the Respondent the words "with T Arnold" after "M Hirschhorn" have been added. ORDERS NSD 1451 of 2019 BETWEEN: STALLION (NSW) PTY LTD Appellant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JAGOT J DATE OF ORDER: 7 APril 2020 THE COURT ORDERS THAT: 1. The appellant in proceeding NSD 1451 of 2019 give security for costs to the respondent (the Commissioner) in respect of the costs of and incidental to, the proceeding incurred by the Commissioner from 24 December 2019. 2. The security for costs be provided within 21 days of the making of order 1 by either: (a) The amount of $37,136.00 being paid into Court as ordered, or (b) Alternatively, a bank guarantee from an Australian trading bank for the amount of $37,136.00 be lodged with the court in a form satisfactory to the Registrar and a copy of which is to be served on the Commissioner. 3. If the appellant fails to comply with the order to provide security within the timeframe specified in order 2, the proceeding NSD 1451 of 2019 be stayed until order 2 is complied with. 4. The appellant pay the Commissioner's costs of the interlocutory application, as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT JAGOT J: The proceedings 1 This is an interlocutory application by the respondent that the appellant give security for costs to the respondent in respect of the costs of, and incidental to, the appeal. 2 Security is sought in respect of costs incurred by the Commissioner from 24 December 2019 in the sum of $37,136. 3 The appeal is from the decision in Stallion (NSW) Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1306 (the First Instance Decision), in which the primary judge dismissed the appellant's application appealing against objection decisions by the respondent. The respondent's objection decisions disallowed objections to amended assessments and assessments of shortfall penalties for the tax periods November 2016, December 2016 and January 2016. The amended assessments disallowed input tax credits under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) and luxury car tax (LCT) adjustments under the A New Tax System (Luxury Car Tax) Act 1999 (Cth) (LCT Act). Principles Court's power to order security for costs 4 There was no dispute between the parties in relation to the relevant principles. 5 The Court has power to order the payment of security for costs in appeal proceedings (see r 36.09 of the Federal Court Rules 2011 (Cth)). 6 As set out in the respondent's written submissions, the primary purpose of an order for security for costs is to ensure that a successful party has protection for costs incurred in defending a proceeding: Capital Webworks Pty Ltd v Adultshop.com Ltd [2008] FCA 40 at [13]. 7 The matter which lies at the heart of the discretion is one of fairness, both in terms of whether security should be granted, and if so, in what amount: Madgwick v Kelly [2013] FCAFC 61; (2009) 181 FCR 152 at [92]. 8 It has been said that the Court's power to make an order is broad and unconstrained except for the requirement that the power must be exercised judicially: Elston v Commonwealth of Australia [2014] FCA 704 at [32]. 9 In Cooper v Universal Music Australia Pty Ltd [2006] FCA 642 at [11], it was said, citing Cowell v Taylor (1885) 31 Ch D 34 at [38], that: Courts have given weight to the injustice that might be caused to a successful litigant if the litigant is compelled to contest the matter a second time without the probability of obtaining the costs if ultimately successful. 10 In Dye v Commonwealth Securities Limited [2012] FCA 992 at [26], relevant considerations were identified, including: (1) the prospects of success of the appeal; (2) the risk that a costs order will not be satisfied; (3) whether the making of an order for security would be oppressive insofar as it would stifle a reasonably arguable claim; (4) whether impecuniosity of the appellant arises out of the conduct that is the subject of complaint in the relevant matter; (5) whether there any aspects of public interest that weigh in the balance against granting security; and (6) whether there are any other particular discretionary matters peculiar to the circumstances of the case. Discussion 11 Having considered the competing submissions of the parties in this matter, I am satisfied that when all relevant considerations are taken into account the discretion should be exercised by making an order that the appellant provide to the respondent the security in the amount sought in the interlocutory application. In so deciding, I have taken into account the following matters. 12 First, in this case, the appellant effectively admits that it cannot pay the respondent's costs if the respondent is successful in the appeal. 13 Second, the appellant has already had the benefit of a three-day hearing before the primary judge, which led to a decision on the merits in which the appellant was wholly unsuccessful. 14 Third, in the hearing before the primary judge, the appellant argued that it was a dealer in luxury cars in its own right and was not an agent for an undisclosed principal, referred to in the primary judge's reasons as CJS, and that it was not a trustee for CJS. In the present appeal, it is plain that the appellant is seeking to disavow the entirety of its position as put before the primary judge and to run arguments that were never put below. The current version of the notice of appeal has only one ground remaining which is pressed, that is, ground 4, which states as follows: The Court's finding at 203 that the Appellant acquired legal title to certain luxury cars as a trustee, with CJS as trust beneficiary, entitled the Appellant to succeed. A trust is a discrete entity for the purposes of both GST and also LCT. Each transfer of title by the Appellant was a 'supply'. 15 The appellant has also proposed an amended notice of appeal raising the arguments in ground 4 in more detail, none of which were put to the primary judge and all of which would require leave from the Full Court in order to be relied upon. Therefore, it can be said that the appeal case is entirely new and involves matters of fact. I accept the respondent's submissions that there would be real difficulty for the appellant to establish the required factual elements, noting also that the respondent will oppose the appellant being granted leave to raise the new case on appeal that, on the respondent's argument, could and should have been argued below. 16 Fourth, the proposition of the appellant that a fundamental point was missed by all involved below has to be seen in the context of the parties both having been legally represented by counsel experienced in taxation matters. 17 Fifth, having regard to the competing submissions, I accept the respondent's contention that it cannot be concluded that the prospects of the appeal are strong or indeed even reasonably arguable. The appellant says it accepts the factual findings below, but the fact is it cannot succeed unless it establishes that it was registered as a trust. The evidence demonstrates that the appellant was registered as a body corporate and not as a trust and conducted itself at all material times in that capacity. 18 As the respondent argued, it is difficult to see how the appellant can now claim credits in a different legal capacity, that is, as a trust. In this regard, it is relevant that s 184-1 of the GST Act, defines an entity to mean "any of the following", relevantly, "(b) a body corporate" and "(g) a trust". Section 184-1(3) also provides that: A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity. 19 The appellant has not confronted the fact that it ran the entirety of the case below on the basis that the relevant entity was as a body corporate and not a trust. In written submissions in reply, the respondent has identified numerous potential hurdles which the appellant would have to overcome in order to succeed in the appeal, even assuming that the appellant was granted leave to rely upon its new grounds in its proposed amended notice of appeal. In the words of the respondent (original emphasis): Whilst the appellant attempts to contend a different deemed legal entity is entitled to claim the tax credits (i.e. Stallion, as trustee of a trust) and that 'acquisitions in a trustee capacity give rise to refunds' ([Appellant's Submissions] [2](ii)) there are insuperable problems with this contention: (a) The appellant was a body corporate with registered ABN 21 614 422 061 – it cannot claim tax credits for a different entity. (b) In any event, Stallion as an undisclosed agent (and at best a momentary 'bare trustee' ([First Instance Decision at] [203]) did not satisfy all of the requirements of s 11-5 GST Act and, contrary to [Appellant's Submissions] [2](ii) & [Appellant's Submission] [62], the Full Court could not make such findings relying on the factual findings of the primary judge below as the appellant proposes: (i) As an undisclosed agent/bare trustee, it did not make any 'acquisitions' of the 'luxury cars' – the cars were instead an acquisition of goods by the undisclosed principal, CJS, as the primary judge found at [First Instance Decision] [235]-[238]. (ii) The new contention on appeal that there was an acquisition of 'legal rights' under s 11-10(2)(e) and (g) [of the GST Act] by the undisclosed agent for 8 of the 9 luxury cars ([Appellant's Submissions] [30]-[31]) is not the same thing as an acquisition of the luxury cars on which the tax credits were claimed: [GST Act] s 11-10(2)(a). There was no factual evidence led below by the appellant that any 'legal rights' had independent value nor was any tax invoice held in relation to the same, as required to claim input tax credits ([GST Act] s 29-10(3)(a)). (iii) There was no evidence led below or factual findings made that 'legal rights' or indeed 'luxury cars' were acquired by the appellant in the course of carrying on an enterprise as an undisclosed agent/bare trustee necessary to establish a 'creditable purpose': [GST Act] s 11-15(1) cf [Appellant's Submissions] [63]. The sworn evidence of the appellant below was that it was carrying on an enterprise as a motor vehicle dealer, which was not accepted by the primary judge at [First Instance Decision] [7] & [227]. (iv) There was no taxable supply of the luxury cars by the registered dealers to the undisclosed agent/bare trustee – there was a supply of the cars by the dealers only to the undisclosed principal, CJS [First Instance Decision at] [238] and authorities there cited. Any supply of 'legal rights' to a 'bare trustee' is not the same as the supply of goods being the luxury cars – the latter was the only basis upon which the appellant claimed input tax credits. (v) Finally, the appellant was never registered in the capacity of a trustee of a bare trust (this is common ground) nor was there any finding or evidence below that it was required to be registered pursuant to s 23-5 of the GST Act – this is fatal to any appeal. (vi) There was no evidence led below and no factual findings made about whether the appellant, as an undisclosed agent, had any 'GST turnover' that met the registration turnover threshold (being $50,000) – s 23-5(b) [of the GST Act]). The appellant gave sworn evidence it was a motor vehicle dealer in its own right and not an undisclosed agent. (vii) The appellant's proposed notice of appeal at 4(d) asserts that the value of any 'supplies' it made as an undisclosed agent to CJS was zero and it was not required to pay any GST on the transfer of bare legal title to CJS. The appellant by its own admission would not have been 'required to be registered' and the appeal would need to be dismissed. (b) Likewise, Stallion as an undisclosed agent, and at best a momentary 'bare trustee', could not satisfy all the requirements of s 15-30 LCT Act: (i) It was not supplied with a luxury car – the supply of the luxury car was by the dealers to CJS ([First Instance Decision at] [247]). Any asserted supply of 'legal rights' in this appeal was different and cannot satisfy the statutory criterion. (ii) It was not registered at the time of the supply, that is, in capacity as a bare trustee – so much is common ground and fatal to any appeal; (iii) It did not intend to use and only use the car for trading stock and for no other purpose because it was not itself a trader in luxury cars. There is no factual finding that it was operating any business as a trader in luxury cars. As per [the First Instance Decision] [248], it was never going to 'use' the cars at all – it acted as agent for CJS. I accept these submissions. 20 If the appellant fails in respect of any of the requirements set out above, it is doomed to fail in its appeal. In short, and as I have said, it cannot be concluded that the appellant has a good or even reasonable prospect of success in the appeal. In this regard, I take into account the observations in Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103 at [43] that "it is common for the court to undertake a preliminary assessment of the strength of an applicant's claim in considering a security for costs application." I also take into account an observation to similar effect in Angas Securities Limited v Savills (SA) Pty Ltd [2017] FCA 868 at [11] to the effect that it is established that "an applicant's prospects of success is a proper matter to be considered." Further at [11], White J referred to the observation of Bowen CJ in J & M O'Brien Enterprises Pty Limited v The Shell Co of Australia Limited (No. 2) [1983] FCA 92; (1983) 70 FLR 261 at [264] as follows: One matter which is generally considered in relation to applications for security for costs in relation to proceedings at first instance is what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the court is reluctant to make an order which may have the effect of shutting the plaintiff out. 21 Having regard to the issues which the respondent has raised, this is not a case where the Court should feel reluctant to shut the appellant out of an opportunity to present a "strong and apparently meritorious case". 22 Sixth, I accept the respondent's submission that there is no apparent public interest in the appeal. No issue of principle arises in respect of the application of the law. The primary judge applied the law to the facts on the basis of the arguments which were put to the primary judge by the parties. It must be remembered that a first instance decision is not a practice run for an appeal which enables a party to effectively abandon altogether what has been put to the primary judge in an attempt to recast the entirety of its case. The absence of any public interest in the appellant's contentions on appeal weighs against its position opposing the making of any order for security for costs. 23 Seventh, it has not been established that persons who have previously stood behind the appellant are unable, as opposed to presently unwilling, to fund the appeal. As the respondent submitted, an inference is available that Mr Simon Wakim, the principal of CJS, has been involved in this matter from a very early stage. Further, Mr Wakim provided 100% of the funds for some of the luxury vehicles to be purchased and in one case even traded in a vehicle to enable an acquisition of a luxury vehicle to occur. Bills for the proceedings below were paid directly by Mr Wakim. Mr Wakim has also made various deposits into the appellant's bank account from time to time. 24 Eighth, I accept the respondent's submission that it can be inferred that CJS stands to benefit from the appeal as the undisclosed principal of the appellant. There is no evidence to the effect that Mr Wakim cannot afford to fund the appeal proceedings. The evidence, such as it is, is that Mr Wakim is presently unwilling to fund the appeal proceedings or, more relevantly, to fund the respondent's application for security of costs, given that the appeal is being run by the appellant's legal representatives on a contingency fee basis. 25 Ninth, I also accept the respondent's submission that Mr Moussa's own incapacity to fund the appeal has to be proved on satisfactory evidence. Mr Moussa's bank account shows repeated deposits by a number of people as gifts, including by but not limited to Mr Wakim. Mr Moussa's oral evidence that some deposits by Mr Wakim were not gifts, as he had said in his affidavit, but were in fact payments of money owed left his evidence in a confused and ambiguous state. There is no evidence from any of the people who have been willing in the past to repeatedly gift or loan money to Mr Moussa to the effect that they are incapable, as opposed to merely unwilling at the present time, to fund the payment of the respondent's security for costs. Nor is there satisfactory evidence about the various companies in which Mr Moussa said he was in equal partnership with his brother. There was evidence that the financial position of those companies has been inadequately disclosed. As but one example, there was evidence that cash payments were not put through the bank statements of a printing company in which Mr Moussa was in equal partnership with his brother but rather were disbursed immediately to Mr Moussa and his brother. In short, the evidence does not permit a state of satisfaction to be reached that Mr Moussa is unable to obtain funds to enable him to pay the security that the respondent seeks 26 Tenth, it has not been satisfactorily proved that the respondent is solely or primarily responsible for the appellant's financial position. It may be inferred that the financial position of the appellant is at least partly a result of its own lack of ready access to capital, as referred to by the primary judge at [38]. As the respondent noted, the business also kept operating after the Australian Taxation Office had indicated it would be withholding refunds. After that time, further acquisitions of luxury cars were made and Mr Moussa paid himself a salary from the appellant of some $62,500 in 2017. There are no financial statements for the appellant for 2017. In these circumstances, it cannot be said that the respondent's withholding of refunds is necessarily the principal cause of the appellant's apparent impecuniosity. 27 Eleventh, it must be taken into account that the appellant has a substantial tax debt, based on the judgment below, and the respondent has the benefit of an outstanding costs order which has not yet been quantified. It seems clear that the appellant will not be in a position to meet either of these financial obligations. As the respondent noted, the appellant elected to bring an appeal in this Court, where there is an exposure to costs for an unsuccessful party. The appellant had the benefit of a three-day hearing in the court below and failed. This fact also weights in favour of the orders that the respondent seeks. 28 Twelfth, even if the stultification of the appeal had been established – which it is not – that fact would not be determinative, given that the appellant has had the benefit of a full hearing on the merits. Further, it may be accepted that the evidence from Mr Moussa is that he does not currently have the money to pay for the respondent's security for costs. This was said to be demonstrated by Mr Moussa's personal bank account statements, which show that he has insufficient funds to do so. But as I have said, this overlooks the facts referred to above, that Mr Moussa has received fairly regular deposits of cash from a variety of people, including Mr Wakim, and there is no satisfactory evidence to demonstrate that Mr Moussa is unable to access further funds to meet the respondent's costs of the appeal. 29 For one thing, as the respondent said, the accounting arrangements between Mr Moussa and Mr Wakim and their respective companies have not been adequately disclosed. For another, as I have already said, there is evidence that companies in which Mr Moussa has involvement with his brother have also not made full and frank disclosure of their financial position. In this regard, I have in mind the fact that cash payments have been made and been paid directly to Mr Moussa and his brother without passing through the account of the company in question. 30 As noted, there is evidence that at present Mr Wakim is unwilling to meet the respondent's security for costs, but there is no evidence that Mr Wakim is unable to do so, and the same proposition applies to other creditors. This is in circumstances where the evidence discloses a number of payments to Mr Moussa from Mr Wakim and other creditors, with unsatisfactory evidence from Mr Moussa explaining the nature of these payments. In summary, the evidence is insufficient to prove that the appellant is incapable of obtaining funds to pay the respondent's costs of the appeal. The present state of the evidence is simply that those who have been willing to fund the appellant and Mr Moussa in the past have expressed a current unwillingness to fund the respondent's cost of the appeal. Their position, if the appellant was ordered to pay security for costs, is unknown. As I have also said, even if the effect of the order would be to stultify the appeal due to the appellant's inability to pay the security, that is not a determinative factor in the present case, given that: (1) the appellant has had the benefit of a three-day hearing on the merits before the primary judge; (2) the arguments which the appellant wishes to raise in the appeal were not put to the primary judge; (3) leave is required to raise the new arguments, and there is no guarantee that such leave will be obtained; (4) even if leave to raise the new arguments is granted, it is not apparent that the appellant's case on appeal is a meritorious one. See the summary extracts from the respondent's submissions quoted above; and (5) there is no public interest component to the appellant's contentions on the appeal. 31 Thirteenth, and contrary to the appellant's submissions, as discussed, the evidence is not sufficient to prove that the respondent's conduct was the sole or primary cause of the respondent's impecuniosity. In this regard, as I have also noted, there has not been adequate disclosure of the appellant's financial position over time such as to support a positive finding in the appellant's favour in this regard. Even if it is the case that the respondent's conduct is the sole or primary cause of the appellant's impecuniosity, again, I do not find this factor determinative in the circumstances of the present case, particularly having regard to the five factors to which I have referred above. 32 Fourteenth, I did not find persuasive the appellant's arguments as to its prospects of success in the appeal. It is not the case that the respondent did not articulate reasons why the appellant's contention should be seen as unlikely to succeed. The submission to this effect, in my view, involved a misapprehension of the respondent's submissions. The point being made by the respondent was that, on the facts as found by the primary judge, which the appellant purportedly does not dispute, the appellant's new arguments on appeal face apparently insuperable difficulties. It is not necessary for me to repeat these arguments, as I have already identified them above. Suffice to say, those arguments, in my view, undermine any suggestion that the appellant's new case on appeal is sufficiently strong or meritorious to make it oppressive or unfair to order the appellant to pay security for costs as sought by the respondent. 33 Fifteenth, in my view, it cannot be said that the respondent effectively conceded that the appellant acquired legal rights in circumstances where, as the respondent pointed out, the appellant has not identified the legal rights said to have been acquired, or why they would have had the same value as the luxury cars in question. The appellant's submission of an alleged complete failure of all involved in the proceedings below to read the legislation cannot be accepted. The reality is that none of the arguments that the appellant now wishes to put were put below. It was for the appellant to make its case below, and it did so on a particular basis. It is not free simply to abandon the entirety of the case which it put and to seek to run a new case on appeal. 34 I also do not necessarily accept that the respondent is bound to file a notice of contention to raise its point that the appellant was not registered as a trust entity. That was a basal and common substratum fact of the proceedings below. It is the appellant that is now seeking to depart from that fundamental fact. As indicated, the evidence contains a clear indication that the appellant's registration was effective in its capacity as a body corporate, and that there was no effective registration of the appellant in a capacity as a trust. I do not accept that this involves a mere matter of form, as opposed to substance. The legislative scheme draws a clear distinction between the different capacities in which an entity may be registered. 35 Nor do I accept, for the reasons already given, that the appellant has demonstrated a clear error in the First Instance Decision which is likely to cause confusion in the administration of the GST scheme. The only confusion in the present matter, it seems to me, arises from the fact that the appellant ran its case below on one basis and failed on the merits after a three-day hearing and now in the context of an appeal wishes to effectively abandon its entire case below and to recast its contentions on the purported basis that it accepts all of the factual findings made by the primary judge. 36 As to the appellant's submissions in respect of oppression, I do not accept that the respondent is only proceeding with the application for security for costs so as to prevent the appellant from proceeding with its appeal. As I have said, the circumstances are that the appellant has already had its day or, more to the point, three days, in court, and failed. The respondent is also already exposed in respect of both the outstanding tax debt and the costs below. It is entirely understandable that the respondent wishes to protect its position, in so far as it is able to do so, in respect of the costs of the appeal. 37 The costs the respondent has incurred in bringing the application for security for costs do not establish that the respondent is acting in a manner calculated to oppress the appellant or such as to have that effect. The respondent was entitled to bring this application. It has been forced to deal with the appellant's extensive written submissions and evidence and the new arguments which the appellant wishes to raise in the appeal. 38 None of the new arguments which the appellant seeks to raise are, prima facie, persuasive for the reasons the respondent has given. 39 In these circumstances, weighing up all of the relevant discretionary factors, I am of the view that this is a matter where it is fair and in the interests of justice that an order for security for costs ought to be made in the amount which the respondent has proposed. In the latter regard, I am satisfied that the amount of security sought is reasonable in the circumstances. It involves only counsel's fees and, as the respondent submitted, it is if anything a conservative estimate of the costs likely to be incurred by the respondent in defending this appeal. The amount of $5,000 in security for costs proposed by the appellant has no rational foundation and plainly would not cover the party/party costs of the respondent in defending the appeal. I do not accept the appellant's submissions to the contrary. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 27 April 2020