Supreme Court New South Wales Medium Neutral Citation: Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue; Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (No 2) [2013] NSWSC 89 Hearing dates: 8 February 2013 Decision date: 08 February 2013 Jurisdiction: Equity Division - Revenue List Before: Gzell J Decision: Orders for expert evidence and disclosure before evidence made. Catchwords: EVIDENCE - Expert Evidence - Uniform Civil Procedure Rules 2005, Pt 31 r 31.19 - commerciality and profitability in Land Tax Management Act 1956, s 10AA(2)(a) and s 10AA(2)(b) PROCEDURE - Disclosure before evidence - Uniform Civil Procedure Rules, Pt 21 r 21.2 - Practice Note SC Eq 11 - whether exceptional circumstances - defendant applicant - limited disclosure in plaintiff's evidence Legislation Cited: Civil Procedure Act 2005 Land Tax Management Act 1956 Practice Note SC Eq 11 Taxation Administration Act 1996 Uniform Civil Procedure Rules Cases Cited: Advance Innovative Solutions Pty Limited v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112 Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 Ghalloub v Ghalloub [2012] NSWSC 906 James v Chief Commissioner of State Revenue (No 2) [2011] NSWSC 654, (2011) 81 NSWLR 267 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; (2010) 79 NSWLR 724 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2012] NSWSC 913 Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 R v Brown [1996] 1 AC 543 Re Mempoll Pty Ltd, Anakin Pty Ltd and Gold Kings (Australia) Pty Ltd [2012] NSWSC 1057 Re Octaviar Limited and Re Octaviar Administration Pty Ltd [2012] NSWSC 1027 Suncorp Metway v Rider Levett Bucknall [2012] NSWSC 975 VPlus Holdings Pty Ltd v Bank of Western Australia Ltd [2012] NSWSC 1327 Watson v Federal Commissioner of Taxation [1999] FCA 1796, (1999) 96 FCR 48 Yacoub v Pilkington (Australia) Ltd [2007] NSWCA 290 Category: Procedural and other rulings Parties: Chief Commissioner of Revenue (Applicant) Leda Manorstead Pty Ltd (Respondent) Representation: Counsel: J K Kirk SC/ E Bishop (Applicant) I Neil SC (Respondent) Solicitors: Crown Solicitors Office (Applicant) Pikes & Verekers Lawyers (Respondent) File Number(s): SC 2011/118168 SC 2011 287997 EX TEMPORE Judgment 1This is an application by the Chief Commissioner of State Revenue for directions for the filing of expert evidence under the Uniform Civil Procedure Rules, Part 31, r 31.19, and for an order for disclosure before he puts on his evidence. Expert evidence 2The Chief Commissioner wishes to adduce evidence from Mr Hoffman and Mr Bryant. He proposes that the experts give evidence to update the evidence that they gave in the previous proceedings before the Court, Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; (2010) 79 NSWLR 724, and to provide the Court with assistance by way of evaluative material upon which it can determine what the competing uses of the land were during the relevant years. 3The application was initially opposed, but in light of my decision in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23, opposition was withdrawn. But as the solicitors for Leda Manorstead said in their written submissions in reply, the approval of the Court is still required. It is appropriate, therefore, that the Court should deal with the issues initially raised by Leda Manorstead in deciding whether to allow the proposed expert evidence. 4First, it was submitted that the articulation by the Chief Commissioner of the need for the evidence is so general one cannot know what expert evidence is required. The matters the expert evidence is to address are identified as being reasonably required in order to assist the Court by providing evidence about what the land is used for and the scale and intensity of the uses, as well as the characteristics of the Leda Manorstead's cattle operation and how that operation is conducted. 5A number of considerations that I observed in the previous proceedings are, it is submitted, required for determination in these proceedings as well. For example, the profitability of the cattle grazing, the percentage of the land committed to grazing, the percentage of the land agriculturally suitable for grazing and the percentage not usable or needing rehabilitation, the percentage of land committed to other uses, the level of expenditure of competing uses, the level of commitment, both financial and in terms of labour, by Leda Manorstead to the cattle operation compared with the level of commitment to other uses of the land, and the value of the herd as against the value of other expenditure relating to other uses. 6It is submitted that Mr Hoffman will be able to assist the Court by providing a report on whether the operation is conducted in a way similar to or different from other commercial cattle operations, what percentage of land is grazing land, whether the cattle operation is profitable and if not why not, and what remedial steps could be undertaken to improve profits, the number of cattle able to graze on the land in the present state of the soil, whether pasture improvement is required and if so over what portion of the land, whether Leda Manorstead has taken steps to improve pasture, the fertility of the soil and the likelihood of productive pasture in the future, and what is the indicia of a commercial cattle grazing enterprise with the purpose of making a profit. 7It is submitted that Mr Bryant would look at dominant use in terms of income and expenditure for cattle trading contrasted with income and expenditure for development, whether the cattle operation is making a profit as well as how the land is treated in accounts. In this regard it is submitted that Leda Manorstead has indicated that the land is treated as trading stock but it has not provided financial accounts to that effect. It is submitted that this is something that the Court will need in terms of evaluating the use of the land. 8Section 10AA(1) and s 10AA(2) of the Land Tax Management Act 1956 (Management Act) are in the following terms: "10AA Exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. (2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land: (a) has a significant and substantial commercial purpose or character, and (b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)." 9The concepts of commerciality and profitability in s 10AA(2)(a) and s 10AA(2)(b) of the Management Act are so broad that it is difficult to identify with great specificity the relevant evidence. The itemisation to which I have referred is, in my view, sufficient. Prima facie, there is no reason for the Court to depart from the leave granted in the earlier proceedings and the terms of that leave. 10Leda Manorstead had submitted that the evidence proposed to be adduced is directed to objective current and likely future profitability of cattle grazing under s 10AA(2)(b) of the Management Act and, it is submitted, that it raised subjective issues. 11Leda Manorstead had argued that the reasoning in Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 at [74] - [78] was to be preferred to the reasoning of the Appeal Panel in Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 at [45] - [52]. 12I have taken the view that s 10AA(2)(a) of the Management Act is objective and that s 10AA(2)(b) is subjective. I said that in Maraya at [77] "Section 10AA(2)(a) is concerned with objective qualities of the use of the land. The words "significant" and "substantial" in s 10AA(2)(a) are to be construed in their context and by interpreting the phrase "significant and substantial commercial purpose or character" as a whole rather than by adding up linguistic elements of each of the words (Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 at 396-397 quoting R v Brown [1996] 1 AC 543 at 561)." At [101] I said: "But I add a few words with respect to s 10AA(2)(b) of the Management Act. It introduces a subjective element into the land use. The primary production use must be engaged in for the purpose of profit on a continuous or repetitive basis, whether or not a profit is actually made." 13But I have also said that the expression of opinion by the taxpayer that the use is for the purpose of profit need not be accepted. At [103] I said: "The court is not bound, however, to accept Mr Giusti's assertion that Maraya engaged in its use of the land for primary production for the purpose of profit." 14Since that issue can be explored before the Court, expert evidence on the topic is relevant and in my view admissible. Disclosure before evidence 15The defendant also seeks an order for disclosure before he puts on his evidence. In Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2012] NSWSC 913, I dismissed an earlier application for disclosure before evidence. In that case I brought together all the cases that had dealt with Practice Note SC Eq 11 at cl 4 which provides: "The Court will not make an order for disclosure of documents (disclosure) until the parties to the proceedings have served their evidence, unless there are exceptional circumstances necessitating disclosure." 16Since that decision of mine, reference has been made to it in Re Mempoll Pty Ltd, Anakin Pty Ltd and Gold Kings (Australia) Pty Ltd [2012] NSWSC 1057. 17And further consideration has been given to the requirement of exceptional circumstances in Ghalloub v Ghalloub [2012] NSWSC 906, Suncorp Metway v Rider Levett Bucknall [2012] NSWSC 975, Re Octaviar Limited and Re Octaviar Administration Pty Ltd [2012] NSWSC 1027, Advance Innovative Solutions Pty Limited v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112 and VPlus Holdings Pty Ltd v Bank of Western Australia Ltd [2012] NSWSC 1327. 18In that case, after discussing the decision with reference to the need for exceptional circumstances, Leda Manorstead [2012] NSWSC 913 at [17] I said: "I do not dissent from any of these observations but caution against setting the bar too high. As was said in Kelly (Edward), to be exceptional the circumstance need not be unique or unprecedented or very rare. What is needed is an appraisal of all the circumstances and the context in which the expression must be satisfied. Are there circumstances necessitating disclosure before evidence in the sense that the party's case cannot be put without the disclosure? Are those circumstances exceptional?" 19Care must be taken not to deprive a party of access to documents essential to the presentation of its case at an early stage if the interests of justice require it. Section 56(1) of the Civil Procedure Act 2005 provides: "The overriding purpose of this Act and of rules of court, in their application to a civil dispute or civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings." 20The quick and cheap resolution of the real issues should not be allowed to outweigh the just resolution of which the section speaks. 21In that case I dismissed an application for disclosure before Leda Manorstead had put on its evidence mainly on the grounds that it was premature, although there were other aspects. 22The evidence put on by Leda Manorstead in this case is limited to the cattle grazing use of the land. It does not deal with other uses. Leda Manorstead does not propose to adduce expert evidence. The need for disclosure at this stage is explained. 23It is submitted that the Court will require all relevant documents to factor in its evaluation of the uses of the land. Leda Manorstead has all of those relevant documents wholly within its possession and has not put all of the relevant material into evidence. The experts will require all relevant documents in order to assist them in their task of providing expert reports. 24The principles to be adopted in determining this matter are set out in Yacoub v Pilkington (Australia) Ltd [2007] NSWCA 290. The statutory requirement for exceptional circumstances in that case concerned the Uniform Civil Procedure Rules, Pt 31 r 31.28 that provides that leave should not be granted for an expert report or hospital report, not filed and served in accordance with the rules, to be adduced into evidence in the proceedings unless the Court is satisfied that there are exceptional circumstances that warrant the granting of leave. At [66] - [67] Campbell JA, with whom Tobias JA and Handley AJA agreed, said: "Another question of construction concerned 'exceptional circumstances' in r 31.18(4). In San v Rumble (No 2) (2007) NSWCA 259 at [59] - [69], I gave consideration to the expression 'exceptional circumstances' in a different statutory context to the present. Without repeating that discussion in full, I shall state such of the conclusions as seem to me applicable in the construction of r 31.18(4). (a) Exceptional circumstances are out of the ordinary course or unusual, or special, or uncommon. They need not be unique, or unprecedented, or very rare, but they cannot be circumstances that are regularly, or routinely or normally encountered: R v Kelly (Edward) [2000] 1 QB 198 (at 208). (b) Exceptional circumstances can exist not only by reference to quantitative matters concerning relative frequency of occurrence, but also by reference to qualitative factors: R v Buckland [2000] 1 WLR 1262; [2000] 1 All ER 907 (at 1268; 912-913). (c) Exceptional circumstances can include a single exceptional matter, a combination of exceptional factors, or a combination of ordinary factors which, although individually of no particular significance, when taken together are seen as exceptional: Ho v Professional Services Review Committee No 295 [2007] FCA 388 (at [26]). (d) In deciding whether circumstances are exceptional within the meaning of a particular statutory provision, one must keep in mind the rationale of that particular statutory provision: R v Buckland (at 1268; 912-913). (e) Beyond these general guidelines, whether exceptional circumstances exist depends upon a careful consideration of the facts of the individual case: Awa v Independent News Auckland [1996] 2 NZLR 184 (at 186). In the context of r 31.18(4) UCP Rules, any decision about whether there are exceptional circumstances would need to bear in mind the explicit statement of objectives of a court in the management of litigation contained in ss 56-59 Civil Procedure Act 2005." 25The circumstances that are said to be exceptional are that: (a) The documents are wholly within the control of Leda Manorstead and its affiliated entities. (b) Leda Manorstead has not adduced the documents in its evidence that has now closed. The documents sought will assist the Court in weighing up competing uses of the land. (c) In the previous proceedings the documents that ultimately assisted the Court were provided by way of notice to produce and subpoena because Leda Manorstead had not put them in evidence. (d) The documents sought in this application to a large extent update the documents and information provided in the previous proceedings for the land tax years there in question. (e) The Chief Commissioner intends briefing experts to opine on Leda Manorstead's cattle farm operations on the land and to provide financial accounting expert evidence. Without disclosure prior to the filing of evidence there is a real risk that the experts will not have all the necessary documents before them when they provide their reports. As a result the experts will more than likely need to provide supplementary affidavits and/or reports, which will have the consequence of adding expense and delay. (f) Further, if disclosure is not granted, the Chief Commissioner will need to issue subpoenas to third parties without knowing precisely which parties hold documents relevant to the issues in dispute for the relevant tax year currently before the Court for determination. The Chief Commissioner is only able to speculate as to who the relevant third parties are, based on the previous proceedings where information may no longer be relevant to the 2010 and 2011 land tax years. In this regard an order for disclosure now will minimise expense, delay and inconvenience to the Chief Commissioner, but also to third parties who might otherwise be unnecessarily troubled to search for documents. (g) The Chief Commissioner is not able to utilise his compulsory powers to access documents or information under s 72 of the Taxation Administration Act 1996 as the Court is now seized of the proceedings: Watson v Federal Commissioner of Taxation [1999] FCA 1796, (1999) 96 FCR 48, and my decision in James v Chief Commissioner of State Revenue (No 2) [2011] NSWSC 654, (2011) 81 NSWLR 267. (h) Taken together, even if one factor alone is insufficient, the factors set out establish that there are exceptional circumstances warranting the making of an order for disclosure at this stage of the proceedings. (i) Leda Manorstead does not oppose this course; (j) In the previous application for disclosure, I anticipated that Leda Manorstead would put in its evidence some of the material sought by the Chief Commissioner. That has not happened and so it is now appropriate that the Chief Commissioner refresh his application. 26In my view exceptional circumstances have been demonstrated by the Chief Commissioner. Of particular significance are the factors that the documents are wholly within the control of Leda Manorstead, the Chief Commissioner can no longer use his powers under the Taxation Administration Act, s 72 to compulsorily obtain access to documents, and Leda Manorstead does not oppose the application. 27The orders in paragraphs 1 and 2 of the Notices of Motion are made. The parties are to post in the Online Court agreed directions to give effect to the orders and if agreement cannot be reached, their proposed directions, including directions as to categories of documents, by Friday 15 February 2013. Unless either party wants to be heard orally, I will determine the matter on the papers. 28It seems to me that even if there had not been opposition at an early stage to the application for leave to adduce expert evidence, there would still have been the necessity for the Court to make the sort of analysis that I have made, and for that reason the order is that the costs of the motions are costs in the cause. 29The matter is stood back into the Online Court. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 February 2013