Zelino and Ors v. Budai [2001] NSWSC 501

New South Wales Supreme Court

CITATION : Zelino and Ors v. Budai [2001] NSWSC 501 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5622/92 HEARING DATE(S) : 22-25, 28-31 May, 1, 4-8, 12-15 June 2001 JUDGMENT DATE : 24 July 2001

Zelino Pty Ltd (First Plaintiff) PARTIES : Peter Tesoriero (Second Plaintiff) Tonia Tesoriero (Third Plaintiff) Frank Budai (Defendant) JUDGMENT OF : Palmer J

COUNSEL : P.D. White [Solicitor], M.K. Condon (Plaintiff) Dr P. Budai SOLICITORS : P.D. White Litigant in person CATCHWORDS : PROFESSIONAL NEGLIGENCE - INCOME TAX - Second and third plaintiffs retain defendant to prepare income tax returns - defendant advises that profits derived from a development are assessable income arising from the carrying on of a profit-making scheme under s.25A(1) ITAA - whether advice is negligent. - PROFESSIONAL NEGLIGENCE - TAX FRAUD - Second and third plaintiffs agree with defendant that he will prepare false accounts for development venture and insert false figures in their tax returns - contract for performance of illegal act by defendant and in furtherance of illegal purpose of second and third plaintiffs - whether an action for breach of contractual duty of care will lie. - PROFESSIONAL NEGLIGENCE - ACCOUNTANT - Whether second and third plaintiffs retained defendant as accountant - whether a term of the retainer that defendant would do all things necessary to procure third party to issue special rights units in a unit trust - term would be impossible of performance - no such contract found - no such term could be implied. - COSTS - ILLEGALITY - Defendant succeeds on one of three issues by proving that the contract sued upon was for the commission of offences under the Income Tax Assessment and the Taxation Administration Act 1953 - discretion as to whether to award the costs of that issue to the defendant - it would be contrary to public policy to permit the defendant to recover costs of that issue - defendant's costs reduced by one-third. - TAX FRAUD - SOLICITORS - ACCOUNTANTS - Serious offences under Taxation Administration Act revealed in course of litigation - both parties to litigation involved - other parties in venture probably involved - grounds for believing that solicitor and accountant involved - Court cannot turn blind eye to serious breaches of revenue law and serious breaches of professional ethics - Court directs copies of judgment to be sent to Australian Taxation Office and professional regulatory bodies and directs exhibits to be retained pending outcome of investigations. Crimes Act 1914 Income Tax Assessment Act 1936 LEGISLATION CITED : Supreme Court Act 1970 Supreme Court Rules Taxation Administration Act 1953 - Burrows v Rhodes [1899] 1 QB 816 - Donald Campbell & Co v Pollak [1927] AC 732 - Everet v Williams (1893) 9 LQR 197 - Fitzgerald v F.J. Leonhardt Pty Ltd (1997) 189 CLR 215 - Igaki Australia Ltd v Coastmine Pty Ltd (unrep. FCA, Drummond J., 2 November 1994) - Igaki Australia Pty Ltd v Coastmine Pty Ltd (1996) 3 IPR 37 - Jamal v Secretary, Department of Health (1988) 14 NSWLR 252 - Jones v Merioneth Shire Permanent Benefit Building Society [1892] 1 Ch 188 CASES CITED : - Kratzmann v Federal Commissioner of Taxation (1970) 44 ALJR 293; (1970) 70 ATC 4043 - McCurry v FCT 98 ATC 4487 - Milne v AG of the State of Tasmania (1956) 95 CLR 460 - Ritter v Godfrey [1920] 2 KB 47 - St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 - Steinberg v FCT (1973) 134 CLR 640 - Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR(NSW) 371 - Tesoriero v Chief Commissioner of Stamp Duties [2001 NSWSC 489, at paras.24-40] - Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 DECISION : Judgment for the defendant; plaintiffs to pay two-thirds of the defendant's costs; copies of judgment to be sent to Australian Taxation Office and other professional regulatory bodies; exhibits not to be released but to be retained pending conclusion of investigations.