Pharmacare Laboratories Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADT 128

CITATION: Pharmacare Laboratories Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADT 128

DIVISION: Revenue Division

APPLICANT Pharmacare Laboratories Pty Ltd PARTIES: RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 086088

HEARING DATES: 7 April 2009

SUBMISSIONS CLOSED: 7 April 2009

DATE OF DECISION: 29 May 2009

BEFORE: Needham J SC - Deputy President

CATCHWORDS: Extension of time – late application to Tribunal – preliminary matter.

Administrative Decisions Tribunal Act 1997; LEGISLATION CITED : Duties Act 1997 Taxation Administration Act 1996

Assimakopoulos v FC of T 98 ATC 2037 Brown v Commissioner of Taxation 1999 FCA 563 CASES CITED: Hunter Valley Developments v Cohen (1984) 7 ALD 315 Lighthouse Philatelics Pty Limited v FC of T 91 ATC 4942 Gessner v Chief Commissioner of State Revenue [2006] NSWADT 26

APPLICANT D Knoll, barrister REPRESENTATION: RESPONDENT AH Rider, barrister

ORDERS: 1.The application for an extension of time is granted and the application for review made by the Applicants is to be treated as having been made within time 2.The application is listed for directions on 24 June 2009 at 11.00 am.

REASONS FOR DECISION Part A. Introduction and background. 1 In respect of the hearing which took place before the Tribunal on 7 April 2009 the only issue to be determined by the Tribunal at this time is as to whether the Applicant should be granted an extension of time within which to seek the review by the Tribunal of the disallowance by the Respondent of an objection against an assessment of duty made under the Duties Act 1997, in respect of the acquisition by the Applicant (and a wholly owned subsidiary) of the wholesale distribution businesses of Bioglen Limited and National Biocare Pty Ltd (collectively referred to as the "vendor"). In the event that the Tribunal determines that an extension of time should be granted the matter must be listed for directions in respect of the hearing of the review of the disallowance of the objection (and referred to as 'the merits review"). 2 The Tribunal had before it the documents produced pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 (admitted as Exhibit RX02). The Tribunal also admitted as Exhibit RX01 an affidavit by Mr G van Emmerik, a Senior Review Officer in the employ of the Respondent, as Exhibit AX01 an affidavit by Mr M Halter dated 27 February 2009, and as Exhibit AX02 an affidavit by Mr C Parisi (who is the Applicant's solicitor) dated 7 April 2009. 3 The Tribunal was also furnished with written submissions by each of the parties; the Respondent's written submissions ("RS) deal in detail with the extension review issue where as the Applicant's written submissions ("AS") deal almost entirely with the merits review. The only clause in AS which deals in its terms with the extension review issue is clause 66 which reads as follows: "66. At paragraphs 40 and 41 of the Halter Affidavit a full and candid explanation is given for the delay in filing the application before this Tribunal. The respondent makes no issue of the delay, and by consent an extension of time or to be granted." 4 It is therefore necessary to make it clear that the Tribunal does not at this stage seek to deal with the merits review. However and in order to deal with the extension review the Tribunal must consider whether in respect of the merits review the Applicant does have an arguable case and must also consider whether there has been an explanation of what has been a lengthy delay. 5 Exhibit RX02 is as set out previously an affidavit by Mr van Emmerik. It includes annexures marked A to W (both inclusive); moreover in respect of Exhibit RX02: (a) Clause 4 specifies that the Applicant returned a number of agreements with the vendor and including Heads of Agreement dated 26/6/2002, an Asset Sale Agreement dated 16/9/2002 and a Transition Agreement dated 14/10/2002. (b) Clause 6 specifies that in September 2003 'minimum duty of $41683.50 was assessed; (c) Clause 16 specifies that on 20/3/2005 a final assessment of duty in an amount of $213778.50 was issued. (d) Annexure V to Exhibit RX02 is a letter by the Respondent to the applicant's solicitor dated 26/9/2006 in which the Respondent: (i) referred to a notice of objection dated 21/1/ 2008 objecting against an estimate assessment issued on 12/7/2004; (the Respondent also referred to letters dated 6/10/2005 and 20/2/2004); (ii) noted that the aggregate purchase consideration was $9m; (iii) accepted that the purchase consideration was negotiated at arms length but contended that the apportionment was made by the vendor alone and was thus not negotiated at arms length; (iv) noted that the purchase consideration was apportioned as to $1.6m to stock, $1.44 m to trademarks, as to $5.6m to product registrations. as to $359,997 to business records, as to $2 to goodwill and as to $1 to contracts. 6 The Respondent in RS and in amplification of Exhibit RX02 contended that the Facts were as set out in clause 7 to 17 reading (without footnotes or references to footnotes) as follows: 7... The relevant facts in this matter are set in the affidavit of Gerardus Hendricks Van Emmerik sworn 2 February 2009 (GVE) and the documents annexed to CVE. 8. In amplification of facts set out in CVE, the Respondent particularly notes the following facts. 9. On 12 July 2004, the Respondent set out his proposed basis for assessing duty on the Agreement (and the possibility of issuing a compromise assessment). 10. On 30 March 2005 due to the failure of the Applicant to respond to the proposed basis for assessing duty, the Respondent issued an assessment fur $213,778.50 for the duty payable on the Agreement under the Duties Act 1997 (Act) (Assessment). 11. On 6 October 2005, the Applicant's solicitor (Solicitor) wrote to the Respondent and informed him that the Applicant was in the process of seeking advice on making an application to the Tribunal regarding the Respondent's assessment of stamp duty on the Agreement and that the Applicant would serve the application on the Respondent once it was finalised. 12. On 31 January 2006, the Applicant's Solicitor wrote to the Respondent and objected to the Respondent assessing stamp duty on the Agreement "which seems to have been undertaken under cover of letter of 12 July, 2004" (i.e. in the Decision) (Objection). 13. On or about 26 September 2006, the Respondent wrote to the Solicitor and advised him that he bad disallowed the Applicant's Objection to his "estimate assessment issued on 12 July 2004" (i.e. the Decision)" (Disallowance). At the end of the Disallowance, the Respondent noted that the TAA allowed the Applicant to request the Tribunal or the Supreme Court to review the Respondent's decision within 60 days of the date of the letter and that only the Tribunal or Court could extend the time for lodgement of such a request after the 60-day period had elapsed. 14. On 28 November 2006, during a telephone conversation between an officer of the Respondent and the Applicant's Solicitor (Mr. Charles Parisi), Mr. Parisi advised that the Applicant was going to appeal to the Tribunal. 15. On 4 January 2007, the Applicant's Solicitor wrote to the Respondent and informed him that the Applicant had instructed him to make an application to the Tribunal "for the appeal of the decision in relation to the assessment of the Stamp Duty". 16. On 8 May 2008, the Respondent was again advised that the Applicant intended to file an application in the Tribunal". 17. on 3 September 2008, the Applicant. filed the Application in the Tribunal seeking a review of the Decision 7 The Applicant in AS did not dispute the Respondent's allegations as contained in the preceding clause. It will be noted in particular that there have been significant delays on the part of the Applicant; in this regard: (a) The Applicant's objection was well out of time; on the basis that the duty was assessed on 20/3/ 2005 the Applicant's objection dated 31/1/2006 was very late. (The Respondent did not treat the late filing of the objection as being of particular significance) (b) Once the objection was disallowed (on 26/9/2006) the Applicant had a period of 60 days within which to seek the review of that disallowance. In fact the Applicant sought the review on 3/9/2008 i.e. nearly 2 years after the date on which it should have been lodged. 8 Mr Parisi in Exhibit AX 02 dealt at some length with some of the delays which had occurred. In clause 43 he said that the delay in seeking review by the Tribunal was due to his own inadvertence. Clauses 45 and 46 of that Exhibit read as follows: 45. The delay in making the application to the Administrative Decisions Tribunal is, I regret to admit, in addition to the factors sets out above, the result of my own inadvertence and failure to ensure that my client's instructions were implemented within required time frames. 46. I apologise to the Tribunal and ask that the slowness of my implementation of my client's instructions not prejudice my client's application. 9 There is one further aspect of the extension application which should be noted. The Applicant has not in fact made a formal application in writing for an extension of time as required by section 67 of the Taxation Administration Act. It may be noted in this regard: (a) at the relevant time section 99(I) of that Act required that application be made within 60 days after determination of the objection but in its terms allowed the Tribunal to extend the period. (b) at the relevant time section 57 (1)of the Administrative Decisions Tribunal Act also required that application for review be made within 60 days, and in writing, but section 57 (1A) of that Act allowed the Tribunal to dispense with this latter requirement. 9. The Tribunal has previously referred to and quoted clause 66 of AS; the Respondent in RS pointed out that Exhibit AX 01 does not contain paragraphs 40 and 41 and accordingly the Respondent does not accept that the Applicant has furnished a full and candid explanation. Part B: The law as regards applications for extensions of time. 9 In Assimakopoulos v FC of T 98 ATC 2037 the Administrative Appeals Tribunal (referred to henceforth as the "AAT") attempted a detailed review of the law at that time (in 1998) as regards applications of this nature; it referred in particular to Hunter Valley Developments v Cohen (1984) 7 ALD 315 in the following terms. In Hunter Valley Developments Pty Limited v Cohen the issue before the Court was an application for an extension of time under Section 11 of the ADJR Act. Wilcox J set out a number of non-exhaustive guiding principles which should be considered in the exercise of discretions in these circumstances. These are reproduced in full. (a) Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper so to do... Indeed, it is the prima facie rule that proceedings commenced outside that period will not be entertained ( Lucic v Nolan (1982) 45 ALR 411 at 416). It is a pre-condition to the exercise of discretion in his favour that the applicant for an extension show an ``acceptable explanation of the delay'' and that it is ``fair and equitable in the circumstances'' to extend time (Duff at 485; Chapman v Reilly (unreported) Neaves J, 9 December 1982, at 7). (Emphasis added by the Tribunal) (b) A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision...: per Fisher J in Doyle v Chief of [General] Staff (1982) 42 ALR 283 at 287 and a case where the decision-maker was allowed to believe that the matter was finally concluded. (c) Any prejudice to the respondent including any prejudice in defending proceedings occasioned by the delay is a material factor militating against the grant of an extension; see Doyle v Chief of General Staff (1982) 42 ALR 283. (d) However, the mere absence of prejudice is not enough to justify the grant of an extension... In this context public considerations often intrude (Lucic, Hickey). A delay which may result, if the application is successful, in the unsettling of other people (Ralkon at 550, Becerra at 12-13) or of established practices (Douglas at 19) is likely to prove fatal to the application. (e) The merits of the substantial application are properly to be taken into account in considering whether an extension should be granted (Lucic at 417, Chapman at 6). (f) Considerations of fairness between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court's discretion (Wedesweiller at 534-535). Wilcox J also held that `the adequacy of an explanation for delay is intimately related to the nature of the case. The distinction drawn in Wedesweiller between a case which is merely inter-partes and a case involving elements of public interest in relation to other people, practices or the need for finality is here relevant. The point goes beyond absence of prejudice. An applicant concerned to challenge a decision which has implications for other people or for day to day public administration may properly be regarded as being under a heavier duty to act expeditiously than is an applicant who is aware that his case has no such implications'. He then went on to state that `in contrast to most of the cases which have arisen in the court and which predominantly involve employment or industrial decisions there is here no suggestion that any other person is affected, for good or ill, by the decision which has been made. The only consequence of the decisions to refuse the final certificate is to deny the applicants the taxation benefits which they would otherwise have obtained. The only implications of the case are, therefore, the extent of their taxation liabilities. Although the relevant decision is a ministerial decision made under a statutory authority, this is a case very similar to inter-parties private litigation, involving no other persons'. 14 Subsequently to the decision in Assimakopoulos and in Brown v Commissioner of Taxation 1999 FCA 563 Hill J (overturning a decision of the AAT in which an extension of time has been refused) raised doubts as to the manner in which the Hunter Valley principles had been applied; he said in clauses 32 to 41 (under the heading "The applicability of Hunter Valley Developments") 32 As I have already noted the parties acquiesced in the application of the principles discussed in Hunter Valley Developments to the circumstances of Mr Brown's application. This was, as I have noted, the approach taken in Windshuttle . It was also the approach taken by the Tribunal in Zizza v Commissioner of Taxation (unreported [1999] FCA 37) and adopted by Katz J on appeal in that case. An appeal against that decision has been filed but has not yet been argued. It is difficult to see that the Tribunal erred in law in applying those principles where the parties proceeded upon the basis that it should. While I would not say that to do so would, in any event, amount to an error of law I think that it is important here to say something about them and their applicability to an application for extension of time to object. 33 First, it must be pointed out that Wilcox J in Hunter Valley Developments never suggested that he was laying down a series of principles to be applied in every case, even every case involving an application to the Court to commence proceedings for judicial review outside the time prescribed by the Administrative Decisions (Judicial Review) Act. His Honour was seeking to distil from previous case law factors which would serve as a "guide". Nor did his Honour suggest that the matters which he outlined were exhaustive. Indeed he said the contrary. As I pointed out in Kim Hyun Tai v Bolkus (1996) 42 ALD 249 at 251: "The danger that the distillation of matters relevant to discretion might harden into a statement of binding principle was not lost on his Honour. Sometimes, however, his Honour's warning appears to have escaped the attention of those seeking to rely upon what his Honour said." 34 Secondly, the context in which Wilcox J stated his non-exhaustive guidelines differs substantially from that where a taxpayer is seeking an extension of time for filing an objection against an income tax assessment. 35 The Administrative Decisions (Judicial Review) Act prescribes a time in which applications for review under s5 of that Act may be brought in the Court. I leave out of consideration for present purposes provisions which operate where no time is prescribed. It is provided in s 11(1) that the Court may allow a further time in which the application may be filed. There are no criteria specified as matters to which the Court should give attention. This contrasts with s 11 (4) which does specify criteria to be taken into account in a case where no period is prescribed within which an application to the Court must be made. 36 The Administration Act, while likewise stipulating the time in which objections are to be lodged, permits the Commissioner (or the Tribunal standing in the shoes of the Commissioner on a review of the Commissioner's decision) to determine whether to agree to or refuse a taxpayer's application for an extension of time. Although it does not expressly stipulate matters that are to be taken into account the requirement in s 14ZW (3) that the taxpayer's application state fully and in detail the circumstances concerning and the reasons for the failure to lodge the objection in time make it clear that these matters are clearly relevant. This is not to say that these are the only matters which the Commissioner or the Tribunal may take into account and counsel for the Commissioner, properly, did not submit this to be the case. 37 More significantly, however, an application for judicial review of an administrative decision under the Administrative Decisions (Judicial Review) Act is an application which is restricted to a review on quite limited grounds (cf s5of that Act). In essence it is an application seeking to assert a legal error in the decision or a failure in the decision making process, for example, the denial of natural justice. It is not a review on the merits. Absent what may be succinctly described as legal or process error the Court can not intervene to set aside a discretionary decision. An objection against an assessment of income tax is quite different. It is the first step in a process whereby the assessment may be reconsidered by the Commissioner in the light of the objection and if disallowed may be the subject of merits review by an independent tribunal, the Administrative Appeals Tribunal, or by the Court, (although before the Court matters involving the exercise of discretion are the subject of judicial, rather than merits, review). If the disallowance of the objection is reviewed by the Tribunal and a decision adverse to the taxpayer is arrived at there is the possibility of an application to this Court by way of an appeal on a question of law. 38 The historical background to the ability of a taxpayer to seek an extension of time to lodge an objection is in part sketched in Lighthouse Philatelics v Commissioner of Taxation (1991) 32 FCR 148, although that case was concerned with a related question, namely the ability of a taxpayer to seek to rely on grounds other than those on which the original objection was framed. Before the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth) a taxpayer was required to lodge an objection within 60 days and that time was mandatory. Further the taxpayer was bound thereafter by those grounds and could not with or without leave, depart from them. This framework was apt to lead to considerable injustice. It was from time to time the subject of submissions from professional organisations that the legislation be changed to alleviate that injustice. Ultimately Parliament saw fit to amend the law to permit the Commissioner to extend the time for making objections by substituting a new section s 188, substantially in the form of s 14ZW of the Administration Act which later replaced s 188. At the same time s 190(a) was amended to permit a taxpayer, with leave, to rely upon a ground of objection which did not appear in the grounds of objection initially lodged. 39 In Lighthouse Philatelics a Full Court of this Court rejected a submission that the ability to rely on a new ground of objection should be narrowly construed and so as not to permit an amendment which raised entirely new matters. In so doing the Court said at 156: "The amendment to s 190(a) introduced by the Taxation Boards of Review (Transfer of Jurisdiction) Act (Cth) was of a remedial kind and thus must be construed in accordance with well-established principles relating to ameliorating legislation. ... The decision whether to allow an amendment ought to be made on the same considerations of justice upon which such decisions are regularly made in litigation. It was in the past a reproach to the law that the real issues in taxation appeals could be refused a hearing for a defective objection, and Parliament has legislated to remove that reproach; an amendment under s 190 should not be considered with reluctance, but on its merits." 40 I should add that it was in the past a reproach to the law that a taxpayer might well be refused an independent review of a meritorious taxation objection even in circumstances where the failure to object may not have been his or her fault or where the assessment may not even have come to the attention of the taxpayer within the time within which objections were required to be lodged. Parliament has legislated to remove that reproach and an application for approval to lodge an objection out of time should be considered by the Commissioner or the Tribunal on a review not with reluctance but taking into account all circumstances in an endeavour to arrive at a just result. 41 In the comments which follow I propose to examine the matters raised by Wilcox J and their relevance to taxation objections generally and to the present case in particular. In doing so I would repeat that I should not be taken to be suggesting that in the present case the Tribunal erred in law in approaching the matter by reference to Hunter Valley Developments for this was the approach which the parties suggested to the Tribunal. And it must be said that at least some of the factors enunciated as guidelines in Hunter Valley may have relevance, notwithstanding the differing context in which they were formulated. Nor should I be seen to be criticising the comments which the Tribunal made in considering the Hunter Valley guidelines, other than the approach it took to the merits of Mr Brown's case. The Tribunal's comments, however, do serve to demonstrate that a number of the Hunter Valley Developments "guidelines" will often have no relevance to an inquiry such as the present for they are framed by reference to a quite different context. Too slavish an adherence to them should, in my view, be avoided. 15 Hill J concluded his judgment in Brown's case by summarising the matters which require consideration in clauses 58 and 59 as follows: 58 In summary when a taxpayer seeks an extension of time in which to lodge an objection the following matters will require consideration: 1. The taxpayer's explanation for the delay in lodging an objection against the assessment within the time stipulated by Parliament. 2. The circumstances attendant upon that delay. 3. Whether the objection is one which, on its face, is frivolous or which in law must fail, or, to the extent that this is indeed a different test, is one in which the taxpayer has no arguable case. This matter will be considered by reference to the objection itself and such other material as the taxpayer puts before the Commissioner. It will seldom, if ever, require the decision maker to consider matters such as credit or endeavour to reconcile the evidence which the taxpayer chooses to rely upon with other factual material in the possession of the Commissioner. No doubt the stronger the case the more likely that the discretion would be exercised in favour of a taxpayer even where the explanation for delay was thought not to be strong. Whether the converse is also the case need not here be considered. 4. Such other matters as the circumstances of the particular case make relevant, including, if prejudice to the Commissioner be asserted, such prejudice as is shown to arise. 59 What is required is the balancing of the delay; the explanation for it; the circumstances which gave rise to it and such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to a taxpayer who has by reason of the failure to object in time lost the right to a review of the assessment. In this balancing process the Commissioner or the Tribunal on a review will be guided by what the justice of the case requires. The balancing process should be approached on the basis that while Parliament has stipulated a time in which objections are required to be lodged it has entrusted to the Commissioner a power to extend that time in appropriate circumstances. The decision maker should not lose sight of the fact that s 14ZW is an ameliorating provision designed to avoid injustice Part C. Consideration of the legal principles and conclusion. 16 Although in the past it was conventional to determine applications of this nature by reference to what were referred to as the Hunter Valley principles it is clear that the principles enunciated by Hill J in Brown's case should, to the extent that they differ, be preferred. 17 The delay which has occurred in respect of this application for review is unquestionably lengthy; moreover there must be a real question as to whether there has been a full and candid explanation. But that said Mr Parisi has in fact and in no uncertain terms accepted the blame for the delay which occurred. This being so it seems to the Tribunal that the Applicant has in fact furnished the Tribunal with an explanation for the delay and being quite simply that his solicitor did not act in a timely fashion. (The Tribunal does not consider it necessary to refer to the fact that the objection was late because the Respondent made no issue of this aspect). The Tribunal does not think that it would be fair, in the absence of prejudice or any other compelling reason, to deny the Applicant a merits review hearing because it was sought late and through the fault of the solicitor. 18 The provisions of the preceding clause must be considered in the light of the fact that the Applicant does appear to have an arguable case on the merits. This case does not appear to the Tribunal to be one as to which it can be said that it is frivolous or that the Applicant is bound to fail. The strength (or lack of it) of the Applicant's case will depend on the evidence and in particular its evaluation in the light of any relevant cross-examination. The Respondent disputes the validity of the apportionment and contends (inter alia) and in effect that the dutiable assets were undervalued. He contends also that some of the relevant assets attracted duty on a partial basis. The Applicant contends that the apportionment was made by parties acting at arms length while the Respondent responds with the contention that the apportionment was made by the vendor alone. The voluminous documentation before the Tribunal does suggest that there may be other aspects which may be relevant but the Tribunal does not think it necessary or appropriate to comment on them. 19 The Tribunal held in Gessner v Chief Commissioner of State Revenue [2006] 26 (cited in the hearing before the Tribunal) that to allow an extension of time would not result in prejudice to the Respondent and has come to the same conclusion in this matter. The Tribunal considers that it is reasonable to infer that the evidence which will be presented will be much the same as the evidence which would have been furnished had the application been heard at an earlier date, always assuming of course that all of that evidence remains available. Insofar as any of such evidence is no longer available there may be prejudice to the Applicant given that it bears the onus, but not prejudice to the Respondent. The Tribunal refers in particular in this context to clause 40 of the judgment of Hill J in Brown's case and which has been quoted in full previously in these reasons. 20 Insofar as it remains relevant to consider the question of equity in relation to other taxpayers similarly placed, the Tribunal is of the view that this aspect is of little if any relevance. Nor to the extent that it remains relevant does the Tribunal consider that it can be said that the Applicant rested on its rights. 21 The Tribunal refers in this context to clause 22 of the decision in Gessner reading as follows: 22 It must be remembered also that a statutory provision in respect of the grant of an extension of time is a remediable provision which should not lightly be refused more particularly, as is the case here, where the Applicants have an arguable case. Lighthouse Philatelics Pty Limited v FC of T 91 ATC 4942 is authority for the proposition that a provision of this nature should be interpreted remedially and beneficially. Considering all of the relevant factors the Tribunal considers that it is fair that the Applicants have an opportunity to present their case. 22. Insofar as it may be relevant the Tribunal has determined that it is prepared to dispense with a written application for an extension of time. 23 In all the circumstances, the Tribunal has come to the conclusion that it is fair that the Applicant be afforded an opportunity to present its case. Accordingly the Tribunal grants an extension of time such that the application by the Applicant for review is to be treated as if it had been made within the statutory time period. The application is listed for directions on 24 June 2009 at 11 am.