PEARSON & ORS v FC of T & ANORJudges:
MEDIA NEUTRAL CITATION:
 FCA 171
1. This is a notice of motion filed on 25 February 2000 by the first respondent in the principal proceedings, the Commissioner of Taxation (the Commissioner), seeking to strike out the application filed on 19 November 1999 by Janette Ann Pearson and Propcombe Pty Ltd.
2. Although styled an appeal, the principal application is one in the original jurisdiction of this court, pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) (the Administration Act). It seeks that an appealable objection decision by the Commissioner in respect of the Jancy Trust's 1991 year of income (the objection decision) be set aside or varied by allowing the objection in full.
3. Section 14ZZ of the Administration Act provides:
``If the person is dissatisfied with the Commissioner's objection decision, the person may:
- (c) if the objection is an appealable objection decision (other than a reviewable objection decision) - appeal to the Federal Court against the decision.''
4. There are three named applicants in the principal proceedings: ``Janette Ann Pearson as beneficiary of the Jancy Trust''; ``Janette Ann Pearson as the public officer of Jancy Pty Ltd''; and ``Propcombe Pty Ltd ACN 090 599 607 as trustee of the Jancy Trust''. The first and second applicants are expressed in the application to appeal ``for and on behalf of the second respondent''.
5. The question, simply put, is whether Ms Pearson, either as beneficiary or as public officer of the trust company, or Propcombe Pty Ltd (Propcombe), has standing to appeal against the Commissioner's appealable objection decision; that is, are any of the three named applicants ``the person'' referred to in s 14ZZ of
ATC 4106the Administration Act, or do any of the applicants have standing to appeal, as the ``person'' in s 14ZZ of the Act, in the capacity claimed. The application commences in the following way:
``The first and second applicants for and on behalf of the second respondent appeal, and the third applicant appeals to the Court against the appealable objection decision referred to below and applies for the decision to be set aside or to be varied in the manner set out below.
Objection decision appealed against:
Decision in respect of the 1991 year of income advised by notice of decision on objection dated 13 September 1999 and notified to the second respondent on 20 September 1999.''
6. The application was filed on 19 November 1999.
7. In considering this, it is first necessary to set out in summary form the relevant history of the matter as it appears from the material before me.
8. Janette Ann Pearson deposes that she was a director and secretary of Pearson & Associates ACN 009 869 203, and was the holder of one of two fully paid shares in that company up until its de-registration by the Australian Securities and Investments Commission on 24 April 1996. Her husband, Cyril John Pearson, held the other share. Pearson & Associates acted as the corporate trustee of the Corplan Financial Network Unit Trust (CFNUT) pursuant to deed, with Corplan Group Holdings Pty Ltd as trustee for CFNUT and, relevantly for current purposes, Jancy Pty Ltd (Jancy) as trustee for the Jancy Trust. Jancy was a unit holder and beneficiary of CFNUT. The Jancy Trust is constituted by deed of settlement dated 1 November 1983, and the terms of the trust establish Mr and Mrs Pearson as the primary beneficiaries of the trust.
9. It was common ground before me that the Jancy Trust is discretionary. In the trust deed, cl 1 defines classes of beneficiaries into ``Primary'' and ``Discretionary'', with Cyril John Pearson and Janette Ann Fenton (later Pearson) the only members of the first class. Clause 3 provides, inter alia, that the net income of the Trust Fund arising in each financial year which is not (at the discretion of the trustees) set aside for or paid to discretionary beneficiaries, accumulated, or used for taxation purposes shall be held for the Primary Beneficiaries living at the end of the financial year. Although the beneficiaries are specified, there is thus no obligation to make a distribution, and the primary beneficiaries may only benefit in the event that income is not otherwise applied.
10. Mrs Pearson further deposes that she is a director of Jancy, and has been since it was incorporated on 1 November 1983 for the purpose of acting as the corporate trustee for the Jancy Trust. She is the holder of one of two fully paid shares in Jancy, the other being held by one Wade Robert Fenton.
11. Mr Pearson deposes, inter alia, that he is the appointer and guardian of the Jancy Trust, and that the original trustee was Jancy. On 17 February 1995 Jancy executed a declaration excluding him as a beneficiary of the trust. On 17 February 1995 the trust deed of the Jancy Trust was amended to, in Mr Pearson's words, ``in effect provide that if I was not competent to exercise my power of appointment, that power was conferred upon my said wife'' by the addition of, inter alia, the following subclauses:
``23A(4) In the event that the... Appointor for the time being, if the... Appointor is an individual, shall... become bankrupt or be the subject of an application for a sequestration order or shall make any arrangement or composition with creditors generally,... then from the time of such event occurring and during the continuance of such disability..., or until such... application [is] dismissed..., the powers of the Principal shall vest in the nominee....
23A(5) Clause... 23A(4) shall apply mutatis mutandis to the nominee.''
12. On 5 July 1995, Mr Pearson was made bankrupt on the acceptance of his own petition. On 18 November 1999 he was imprisoned in Borallan prison for fraud related offences, and on that day received from the solicitor then acting for Mr and Mrs Pearson, Mr Nagel, a Notice of Appointment of Propcombe, in place of Jancy, as trustee of the Jancy Trust. Mr Pearson deposes that he signed that document and returned it by facsimile to Mr Nagel on the same day, but did not retain a copy.
13. Mrs Pearson further deposes that she is a director of Propcombe and the public officer of
ATC 4107Jancy (in liquidation). She instructed Mr Nagel to write to the liquidator of Jancy requesting his approval for her to bring this appeal, and exhibits the letter in question - dated 9 November 1999. She signed a Notice of Appointment of Propcombe as trustee of the Jancy Trust on 18 November 1999 (the day before these proceedings were instituted), at the office of Mr Nagel, and says she recalls the event clearly because Mr Nagel had said it was a matter of urgency that she attend in order that he could lodge this appeal. She also, like her husband, did not retain a copy of the notice, and is informed by her current solicitors that they have searched all the files from Mr Nagel and been unable to locate the document.
14. There is no affidavit of Mr Nagel before me. For the purpose of this notice of motion, I proceed on the basis that events occurred as Mr and Mrs Pearson swear they did.
15. Mrs Pearson's account of having signed a Notice of Appointment making Propcombe the successor trustee is supported only to a limited extent by her husband's account, and by a reference in the letter from Mr Nagel to the liquidator of Jancy on 9 November 1999, wherein he notes that she would propose to support her locus standi to appeal on the basis that she lodged the objection and is a beneficiary of the Jancy Trust, and continues: ``[in] further support of locus standi, we would also propose to appoint a new trustee of the Jancy Trust, also to join in the conduct of the appeal.''
16. The Notice of Assessment dated 10 December 1996 for the year ended 30 June 1991, addressed to Jancy as trustee for the Jancy Trust and certified by Deputy Commissioner of Taxation JM Wheeler, declares the amount payable on the assessment to be $2,470,067.32. The accompanying ``adjustment sheet'' on the return submitted by the Jancy Trust shows that the net income was adjusted from the claimed loss of $1,394 to an income of $2,563,127, and that the taxation payable was calculated on that amount.
17. On 20 December 1996, Jancy lodged a notice of objection against the assessment pursuant to Part IVC of the Administration Act. While it is not necessary to go into the details for the purpose of deciding the motion to strike out, it appears that the objection to the decision was based essentially on an argument that certain amounts which were calculated as income of the Jancy Trust, and in particular a purported distribution of profits from CFNUT amounting to $1,971,475, were not in fact ever received by it as income.
18. Philip Gregory Jefferson, of Jefferson Stevenson & Co, Chartered Accountants, deposes that he was appointed liquidator of Jancy by the Supreme Court of Queensland on 24 April 1998. The application to wind up the company was made by David Lewis Clout, trustee of the bankrupt estate of Mr Pearson. Mr Jefferson was requested by Mrs Pearson to consent to the commencement of these proceedings pursuant to s 471A of the Corporations Law, but did not so consent.
19. By letter dated 13 September 1999, which it was agreed before me was actually delivered on 20 September 1999, the Commissioner disallowed the objection and gave reasons for the decision. As the trustee, Jancy, did not exercise its discretion to distribute profits in the financial year ending June 1991, the Commissioner found it liable to pay the tax pursuant to s 99A(4) of the Income Tax Assessment Act 1936 (the Assessment Act).
20. This appeal was filed on 19 November 1999, which is within the limit provided by s 14ZZN of the Administration Act of 60 days after service of notice of the Commissioner's decision.
21. The legislative scheme for objection to a taxation assessment and appeal from the decision of the Commissioner on such objection commences with s 175A of the Assessment Act, which provides that:
``A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.''
``Taxpayer'' is defined in s 6 of the Assessment Act to mean ``a person deriving income or deriving profits or gains of a capital nature''.
22. Part IVC of the Administration Act is headed ``Taxation objections, review and appeals'', and relevantly provides as follows:
``14ZL(1) This Part applies if a provision of an Act or of regulations (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or
ATC 4108decision may object against it in the manner set out in this Part.
14ZL(2) Such an objection is in this Part called a `taxation objection' .''
23. The Administration Act then sets out the procedure to be followed in relation to the making of an objection decision, the details of which are not in dispute or relevant here.
24. Section 14ZZ, as previously noted, provides, inter alia, that ``the person'' - that is, the ``person... dissatisfied'' who made the taxation objection pursuant to s 14ZL - may appeal to the Federal Court against the Commissioner's objection decision. Section 14ZZP provides that, on hearing an appeal under s 14ZZ, the Federal Court: ``may make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision.''
25. Relevantly to the person - Jancy - who lodged the objection here having gone into liquidation prior to the appealable objection decision being made, s 471A(1) of the Corporations Law provides:
``While a company is being wound up in insolvency or by the Court, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company, except:
- (a) as a liquidator appointed for the purposes of the winding up; or
- (c) with the liquidator's written approval; or
- (d) with the approval of the Court.''
26. Section 471B of the Corporations Law provides:
``While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
- (a) a proceeding in a court against the company or in relation to property of the company ;...
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.''
Section 254 of the Income Tax Assessment Act 1936 provides:
``(1) With respect to every agent and with respect also to every trustee, the following provisions shall apply:
- (a) He shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature, derived by him in his representative capacity, or derived by the principal by virtue of his agency, and for the payment of tax thereon.
- (b) He shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other.
- (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.
- (e) He is hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax.
- (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax.''
27. Section 477(2) of the Corporations Law provides that a liquidator of a company may, inter alia: ``bring or defend any legal proceeding in the name and on behalf of the company''.
28. In relation to Mrs Pearson's status as public officer of Jancy, s 252(1) of the Assessment Act relevantly provides:
``Every company carrying on business in Australia, or deriving in Australia income from property, shall at all times, unless exempted by the Commissioner, be
ATC 4109represented for the purposes of this Act by a public officer duly appointed by the company or by its duly authorized agent or attorney, and with respect to every such company and public officer the following provisions shall apply:
- (f) The public officer shall be answerable for the doing of all such things as are required to be done by the company under this Act or the regulations, and in case of default shall be liable to the same penalties.
- (g) Everything done by the public officer which he is required to do in his representative capacity shall be deemed to have been done by the company...''
The respondent's notice of motion seeking an order that the application be dismissed does not specify the basis for the order sought, but I assume the basis relied on is O 20 r 2(1) of the Federal Court Rules, which provides:
``Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding-
- (a) no reasonable cause of action is disclosed;
- (b) the proceeding is frivolous or vexatious; or
- (c) the proceeding is an abuse of the process of the Court,
the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.''
29. It is important to bear in mind when applying such a rule that, as Dixon J commented in
Dey v Victorian Railway Commissioners (1948-1949) 78 CLR 62 at 91:
``A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination... [Once] it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and as an abuse of process.''
30. It seems to me, therefore, that if it is arguable that Mrs Pearson or Propcombe have standing to bring the appeal then the notice of motion should be dismissed. The question of the obtaining of leave of the Court to bring an appeal pursuant to s 471B of the Corporations Law is not a matter which could save the applicants in the principal proceedings at this stage, no such leave having been obtained.
31. The legislative scheme outlined above provides that the person who may appeal pursuant to s 14ZZ of the Administration Act must be the taxpayer originally dissatisfied with the relevant assessment and the person dissatisfied with the Commissioner's objection decision; it is clearly contemplated that, usually, the taxpayer and the person will be the same entity. In
McCallum v FC of T 97 ATC 4509; (1997) 145 ALR 446, Lehane J, with whom Whitlam J agreed, said at ATC 4521; ALR 460:
``... There can, I think, be no doubt that `the person' referred to in s 14ZZ and the other sections following s 14ZU is the same person as the one referred to in s 14ZU itself and, in turn, in subs 14ZL(1); and subs 14ZL(1) makes it clear that the `person' concerned is the taxpayer referred to in s 175A of the Assessment Act who is dissatisfied with an assessment `made in relation to the taxpayer'. And, as Hill J points out, whereas subs 220(7) of the Assessment Act empowers an executor or administrator of a deceased estate to lodge an objection to an assessment, there is no corresponding provision enabling a trustee in bankruptcy to lodge an objection and thus to become `the person' for the purpose of the provisions of the Administration Act to which I have referred.''
32. Lehane J held (Whitlam J agreeing) that under s 134(1)(j) of the Bankruptcy Act, the Official Trustee in Bankruptcy has standing to apply for a review of an objection decision, and applying
Cummings v Claremont Petroleum NL (1995-1996) 185 CLR 124, their Honours held that the appellant was likely to lack standing to apply to the AAT for a review of the respondent's decision because the amount due under the notice of assessment was payable out of the appellant's bankrupt estate and was not otherwise recoverable from him.
33. I turn to consider the question of standing of each of the claimed applicants. In my opinion, Janette Ann Pearson as the public officer of Jancy cannot bring these proceedings, as Jancy is in liquidation and she requires the consent of the liquidator or the leave of the
ATC 4110Court: s 471A of the Corporations Law; nor can she bring proceedings against Jancy, as she purports to do, except with the leave of the Court: s 471B of the Corporations Law. Section 252 of the Income Tax Assessment Act 1936 does not found a basis on which Mrs Pearson as public officer can institute an appeal on behalf of a company in liquidation. Section 252(1)(g) which provides that:
``Everything done by the public officer which he is required to do in his representative capacity shall be deemed to have been done by the company...''
does not avail Mrs Pearson, because lodging of an appealable objection is not something which a public officer is required to do.
34. Mrs Pearson, as beneficiary of the Jancy Trust, does not have standing to challenge the appealable objection decision. She is not the taxpayer referred to in s 175A of the Act. Pursuant to s 477(2)(a) of the Corporations Law, it is the liquidator who has the responsibility for challenging the appealable objection decision. Here the liquidator has declined to challenge the appealable objection decision. It was submitted on behalf of Mrs Pearson that a beneficiary can commence proceedings in his or her own name, provided that proceedings are regularised by naming the trustee as defendant relying on
Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432,
Lidden v Composite Buyers Ltd (1996) 67 FCR 560, a judgment of Finn J.
35. A trustee of a unit trust declined to pursue a claim, the benefit of which would enure to the trust beneficiaries, against parties whose allegedly wrongful conduct was said to have induced the creation of the trust and the business of the trust. Some of the beneficiaries sought in their own names to institute proceedings against the parties in question, joining the trustee as defendant. Finn J held that though the relief sought was variously under statute at common law and in equity, it was inappropriate to limit the powers of beneficiaries to pursue claims their trustee might, but would not, pursue to cases where purely equitable relief was sought. He found that in that case, ``the facts themselves, including acute conflicts of interest, attracted the prerequisite of `special or unusual' circumstances that warranted the beneficiaries in acting independently of their trustee''. His Honour indicated that the appropriate course was to join the trustee, not as defendant, but as an applicant with the beneficiaries.
36. There is nothing special or unusual in the present case. The only circumstance which is said to warrant Mrs Pearson as beneficiary acting independently of the liquidator is the circumstance that the liquidator has declined to challenge the appealable objection decision. Moreover, in my opinion, a beneficiary of a trust is not the taxpayer referred to in s 175A of the Act.
37. Finally, in my opinion, Propcombe, even if a trustee of the Jancy Trust, has no standing to challenge the appealable objection decision. It is not the taxpayer referred to in s 175A of the Act, and the tax liability of Jancy is personal and is not transferred to the new trustee upon appointment. See Ford and Lee Principles of the Law of Trust par 14000 dealing with the liability of successive trustees.
38. In my view, none of the applicants have standing to challenge the appealable objection decision which they claim to have, with the consequence that the application filed by the first, second and third applicants should be dismissed, and the first, second and third applicants should pay the first respondent's costs of the motion to be taxed if not agreed.
THE COURT ORDERS THAT:
(1) The application filed by the first, second and third applicants be dismissed.
(2) The first, second and third applicants pay the first respondent's costs of the motion to be taxed if not agreed.