Deputy Federal Commissioner of Taxation v. Manners and Anor.

Judges:
Phillips J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 23 May 1985.

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Phillips J.

In these actions, I have ordered that the plaintiff have leave to enter final judgment against the defendant, Geoffrey George Manners, in the sum of $11,019,659.90 and as against the defendant, Terrule Pty. Ltd., in the sum of $2,542,423. I have further ordered that the defendant, Manners, have leave to defend the action in respect to the plaintiff's claim for additional tax pursuant to sec. 207, calculated on the sec. 226(2) penalty.

Such leave to enter judgment has been given even though it is common ground that the defendants have done all that is necessary on their part to procure a reference to a Board of Review of the disallowance of the plaintiff of objections by the defendants to assessments relevant to these actions (hereinafter called ``the reference''). Such a result is possible because of the provisions of sec. 201 of the Income Tax Assessment Act (Cth). Section 201(1) provides that ``The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending''.

In subsec. (1), ``income tax'' includes additional tax under sec. 207 or Pt VII.

It has been submitted by Mr de Wijn that I should stay the execution of these judgments. In developing this submission, he raised the following matters on behalf of the defendant, Manners. I will now set out the matters on which he relied in this submission in summary form.

Firstly, he referred to a delay of some two years, which has occurred, before the Commissioner disallowed Manners' objections. They have still not been referred by the Commissioner to a Board of Review as requested.

Next, he submitted Manners' assessments are default assessments for very large amounts and were based on concepts of deemed derivation. This involved a discretionary exercise of which Manners has yet to receive any explanation.

Next, he contended Manners has virtually no assets with which to pay the debts and execution would occasion him substantial hardship and possibly bankruptcy.

Finally, Mr de Wijn submitted I should pay regard to the merits of Manners' reference on the assessments, which is, he contends, a factor to be taken into consideration in exercising my discretion whether to grant a stay of execution.

I now turn to the opposing arguments on these matters in detail.

The aspect of delay

Mr de Wijn set out for me a sequence of events. Objections were lodged by Manners soon after the assessments were issued in January 1983. Then followed negotiations for settlement. The Commissioner did not disallow the objections until early this year and after these proceedings had been instituted. In February this year, the Commissioner was asked to refer the objections to the Board of Review. He has not yet done so, despite the provisions of sec. 188 of the Act.

I interpolate here that counsel have informed me, and I accept, that some three years are likely to elapse before a Board of Review determines these matters.

Mr de Wijn referred me to
Re Norper Investments Pty. Limited & the Companies Act 77 ATC 4212 and
Barina Corp. Ltd. v. D.F.C. of T. 85 ATC 4186, in which criticism was voiced of the Commissioner's failure to comply with sec. 188. Mr de Wijn submitted the delay in the instant case has been extraordinary. He also referred, on the aspect of the Commissioner's failure to explain the assessments, to
Giris Pty. Ltd. v. F.C. of T. 69 ATC 4015; (1969) 119 C.L.R. 365.

In reply, Mr Meagher Q.C. for the plaintiff, referred me to the evidence of Mr Lloyd in the transcript of the Federal Court proceedings, see pp. 753-757 inclusive, which indicated that the Commissioner's investigations into these matters went far beyond January 1983 and, indeed, into 1984 and involved the seizure of a great quantity of records from Norfolk Island.

Mr Meagher also directed my attention to evidence of the plaintiff in the Federal Court, see pp. 500-502 inclusive. He also argued that delay was occasioned by each step in the assessment process being subject to review under the Administrative Decisions (Judicial Review) Act 1977 (C.I. & L.) but in that he was clearly in error. Mr Meagher asserted that Manners had boasted, in interview with the

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ATC 4296

plaintiff's officers in 1981, that it would take at least five years to unravel his affairs but I find Manners did not make any such boast.

My assessment of the factor of delay in this case is this - Geoffrey George Manners, both personally and as a director and effective controller of Terrule, engaged in transactions and arrangements to obstruct collection of tax over a protracted period of time; with the same intent an almost bewildering complexity of events and entities was injected into these transactions. The work of the plaintiff's officers, in endeavouring to unravel what has occurred, was rendered correspondingly more difficult.

In these particular circumstances, I am not prepared to find reprehensible delay occurred on the part of the Commissioner and I do not regard the lapse of time in this case as being in any way significant in the exercise of my discretion.

The character of the assessments

Mr de Wijn submitted the assessments were default assessments of Manners, the basis of which the plaintiff has never explained. He referred me, in this connection, to a decision of Evatt J.,
F.C. of T. v. Trautwein (1936) 56 C.L.R. 211 and to an article by Mr Castan of counsel, in vol. 5 of the Australian Tax Review, which in turn referred to an unreported decision of McInerney J., D.F.C. of T. v. Krew, where a stay had been granted.

True it is, Krew clearly involved a default in assessment and in Trautwein, Evatt J. refers to a stay having previously been granted but I do not regard either case as really supporting Mr de Wijn's submission that the fact, if it be so, that an assessment is a default assessment assumes any special significance in this discretionary exercise.

Hardship to Manners

Mr de Wijn asserted Manners has virtually no assets. Execution could cause substantial hardship and possibly bankruptcy to him. The amount of the penalties exceeds the assessed income of his client, Mr de Wijn said. The hardship point is therefore, he contended, a self-evident one. Sections 177 and 201 of the Act are Draconian provisions and have been the subject of judicial criticism.

Judges certainly have criticised these sections but have also, on more than one occasion, observed that any change in these provisions is a matter for Parliament and Parliament has seen fit to effect no such change.

The response I must make to Mr de Wijn's other submission in this particular aspect is that I just do not know what Manners' assets are. He has elected not to tell me.

In these circumstances, I am unable to find in his case circumstances of substantial or exceptional hardship. With respect, I agree with O'Bryan J., in concluding that sec. 201 of the Act imposes an onus on a defendant to show cause why the Court should intervene to stay proceedings; see
D.F.C. of T. v. Ewen 84 ATC 4550 and with the observations of Hutley J.A. in
D.F.C. of T. v. Mackey 82 ATC 4571 at p. 4575; (1982) 45 A.L.R. 284 at p. 289 to the effect that a defendant may discharge this onus by demonstrating extreme personal hardship. In my opinion, Manners has failed to discharge that onus on this issue.

The merits of the reference

On the question whether I should give consideration now to this aspect of the case, both counsel referred me to a number of authorities, including D.F.C. of T. v. Trevaskis, a decision of Senior Master Mahoney of this Court, 84 ATC 4533;
Ahern v. D.F.C. of T. 83 ATC 4698; (1983) 50 A.L.R. 177;
Koadlow v. D.F.C. of T. 85 ATC 4147;
Clyne v. D.F.C. of T. 82 ATC 4510; (1982) 43 A.L.R. 342; D.F.C. of T. v. Mackey 82 ATC 4571; (1982) 45 A.L.R 284; and two decisions of single judges of this Court, namely, D.F.C. of T. v. The Hell's Angels Ltd. (No. 2), a decision of Beach J., reported at 84 ATC 4548 and D.F.C. of T. v. Ewen, a decision of O'Bryan J., reported at 84 ATC 4550.

In Koadlow, a joint judgment of the Full Court of this Court, comprising Young C.J., Starke and Murphy JJ., it was said, at p. 4151:

``Another factor is the prospect of success on such a reference [a reference of a taxpayer's objection to the Board of Review] in the sense that if it were shown that a taxpayer's objection was frivolous or hopeless, no stay of proceedings would be granted.''

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ATC 4297

In Mackey, Moffitt P. held that, in considering a stay of proceedings, the fact that an appeal was arguable was relevant but, in the same case, Hutley J.A. observed at ATC p. 4575; A.L.R. p. 289:

``I am also of the opinion that speculation as to the result of appeals is not a significant factor to be borne in mind.''

These latter remarks were, I infer, treated with approval by Beach J. in The Hell's Angels. In Clyne, Mason A.C.J. proceeded to refer to and assess the prospects of a pending appeal by the defendant respondent. In Mackey, Moffitt P. also said this, at ATC p. 4574; A.L.R. pp. 287-288:

``I do not think that, except in quite exceptional circumstances, the Court in exercise of its overriding discretion should intervene to stay proceedings or execution to prevent sec. 201 operating where a taxpayer has been a party to a contrivance to avoid his liability otherwise for tax.''

Hutley and Glass JJ.A. expressed their agreement with the judgment of Moffitt P., and O'Bryan J. appears to follow this view, in Ewen.

Mr de Wijn addressed me at length as to the actual merits of Manners' reference, see pp. 804-811 inclusive of the transcript.

I now set out my findings. I am certainly not persuaded that Manners has not been ``party to a contrivance to avoid his liability otherwise for tax'', to use the words of Moffitt P. Like Senior Master Mahoney, in Trevaskis, I am unable to reach a view whether Manners' case on the reference is strong or otherwise. I do not believe it will be a matter that can be disposed of by short reference to decided authorities clearly in point. In my judgment, it will, at least, involve a very substantial factual investigation with quite unpredictable results.

Assuming, therefore, the relevance of the merits of the defendant's reference, I am unable to determine them and no impingement has occurred to the significance to be attached in my discretion to the provisions of sec. 201. The significance of the section in this setting is shown in observations of Moffitt P. in Mackey (supra) at ATC p. 4573; A.L.R. pp. 286-287:

``Accepting that there is an overall discretion to grant a stay of proceedings and that great weight should be given to sec. 201, and the policy of the legislation implicit in it, I would say two things. The first is that there should not be substituted for the discretion of the Court to grant a stay some general formula dictating the decision to become to, the formula being extracted from judicial pronouncements in other cases, often cases involving quite different considerations or, for example, a stay of a different remedy, such as a winding-up order
Re Roma Industries Pty. Ltd. 76 ATC 4113;
Fortuna Holdings Pty. Ltd. & Ors v. D.F.C. of T. 76 ATC 4312). The second is that if great weight is to be given to the operation of sec. 201, this will not be done if the case is determined merely on considerations which would be applied in any case not within the terms, and hence the strictures, of sec. 201. An exercise of this discretion which heavily or merely depends on whether the taxpayer has an arguable case and where the balance of convenience lies may point to sec. 201 not really being given the force warranted.''

I refer also to observations of Hutley J.A., in the same case, at ATC p. 4575; A.L.R. p. 289:

``The Commissioner starts off with rights under sec. 201 and the taxpayer is seeking on special bases to have a special discretion exercised in his favour. It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so. It is an open-ended discretion.

But there are only two cases where it is clear the Court should exercise that discretion. First the comparatively rare case where the Commissioner abuses his position, for example by assessing and endeavouring to collect tax in defiance of a decision of the High Court or other superior Court precisely in point. Second, in cases of extreme personal hardship to a taxpayer called upon to pay. The obligation to pay which has been cast upon him by law is not a hardship of itself and the mitigation of the effect of inflation and the burden of interest is a matter for the legislature, not for the Court.''

I am satisfied that neither of the circumstances referred to by Hutley J.A. exists in the present case.

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ATC 4298

In the light of the foregoing, Manners' application for a stay is refused.

In the case of Terrule, Mr de Wijn submitted that there had been a two-year delay on the part of the plaintiff in determining Terrule's objections and in this connection, referred me to a decision of Murphy J.,
Re O'Reilly; Ex parte Australena Investments 83 ATC 4807, where his Honour held that in normal circumstances, it would be a breach of the Commissioner's duty, not to consider an objection within 12 months. Mr de Wijn said, that in Terrule's case, not only was the Commissioner in breach of his duty in taking two years to consider the objections, but he had compounded this breach by a further breach of the provisions of sec. 188.

Mr de Wijn submitted that there was evidence Terrule had offered to provide security for payment and that it was still so prepared, to the extent of submitting to an order that it not deal with various properties, the value of which is well in excess of the amount for which leave has been granted to enter judgment. Further, he said, Terrule had made substantial payments (over a million dollars) to the plaintiff.

In Terrule's case, there is evidence as to at least some of its assets. In my opinion, it would be quite possible for a company, despite the effect of sec. 201 (particularly a company engaged in active and extensive trading) to make out a case of extreme personal hardship justifying a stay, but Terrule, in my view is just not in that situation.

As Hutley J.A. remarked in Mackey (supra) ``The obligation to pay which has been cast upon him by law is not a hardship of itself''.

Mr de Wijn then took me, in relation to Terrule, to the merits of Terrule's reference with what, if I may say so, was characteristic thoroughness. His arguments appear at pp. 813 to 824 inclusive of the transcript.

It is sufficient to say, that the conclusions I have reached and expressed on these matters, in relation to the defendant Manners, apply equally to the defendant Terrule, and accordingly, Terrule's application for a stay is refused.