McGuire v. Deputy Federal Commissioner of Taxation.
Judges:Pincus J
Court:
Federal Court
Pincus J.
This is an application for an interlocutory injunction to restrain the respondent from proceeding with an action seeking recovery of tax in the Supreme Court of Queensland. The applicant, who is the defendant in the Supreme Court action, asks this Court to so order on the ground that the applicant has applied for release from his tax liabilities under sec. 265 of the Income Tax Assessment Act 1936. The applicant claims that, in view of his having applied for release, the respondent's decision to pursue his remedy in the Supreme Court was improperly taken. The grounds of attack suggested by the applicant are that the decision was unreasonable in the relevant sense and that it was taken as a matter of policy without regard to the merits of the individual case.
I have come to the conclusion that interlocutory relief should be refused, principally for the reasons that:
- (i) the applicant's bases of attack on the respondent's decision to proceed in the Supreme Court appear to me to be tenuous;
- (ii) the applicant's attempt to obtain relief under sec. 265 of the Act was not pursued either candidly or promptly;
- (iii) I have had regard to what has been held to be the policy of the Act which is, in general, to allow the respondent to pursue proceedings to recover tax.
On 12 February 1988, the Supreme Court action I have mentioned was instituted by a writ bearing a special endorsement claiming the sum of $100,349.83 made up of income tax, provisional tax and additional tax claimed in respect of the years ended 30 June 1982, 1983 and 1984. On 12 April 1988, the applicant delivered his defence in those proceedings and on the same day applied for release from payment of tax under sec. 265. The defence admitted the allegations in the statement of claim, subject to proof that the assessments were validly issued and served and the calculations correct; the applicant (defendant in the Supreme Court) also pleaded his application under sec. 265 and said that the Supreme Court proceeding should be stayed.
The application under sec. 265 relied upon grounds of, to put it simply, hardship. The section reads as follows, so far as relevant:
``(1) In any case where it is shown to the satisfaction of a Board consisting of the Commissioner, the Secretary to the Department of Finance and the Comptroller-General of Customs or of such substitutes for all or any of them as the Minister appoints from time to time that -
- (a) a taxpayer has suffered such a loss or is in such circumstances; or
- (b)...
that the exaction of the full amount of tax will entail serious hardship, the Board may release the taxpayer... wholly or in part from his liability, and the Commissioner may make such entries and alterations in the assessment as are necessary for that purpose.
...
(3) Where an application is made for release in respect of an amount of tax if that amount is not less than $10,000, the Board shall, and if that amount is less than $10,000, the Board may refer the application to the Tribunal and shall notify the applicant in writing of its having done so.''
There is provision in later subsections for the appointment of a ``designated person'' to deal with applications under sec. 265 but it is unnecessary to set that out.
On 26 April, a fortnight after the making of the application under sec. 265, the respondent wrote to the applicant asking for information
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about the application for release. The respondent's letter was not in a standard form, but directed the applicant's attention to some of the information which went in with the application for release and asked for further elaboration of it.The respondent's request was ignored by the applicant until 7 November, after the institution of the proceedings in this Court.
The next relevant communication after the respondent's request was that on 21 September 1988 the Board established under sec. 265, part of which I have quoted, wrote to the applicant informing him that his application for ``relief'' had been referred to the Administrative Appeals Tribunal, Brisbane.
On 28 October, the respondent, the plaintiff in the Supreme Court proceedings, filed a summons in that Court asking for summary judgment. The proceedings in this Court were begun on 4 November and after being twice adjourned came on for hearing before me on 16 November. In the meantime, the application for summary judgment in the Supreme Court had been adjourned and I assume it still stands adjourned.
Mr D.R.M. Murphy, who appeared for the applicant, contended that there are serious questions to be tried and that the balance of convenience plainly favours holding up the proceedings in the Supreme Court until the resolution of the matter in this Court. One of the reasons for my decision that the application for interlocutory relief should be refused is the weakness of the grounds advanced by way of attack on the respondent's decision to proceed in the Supreme Court. Consideration of that point requires some account of the process by which that decision was made on behalf of the respondent, so far as that is revealed by the material presently before this Court.
Ms M.G. Greig, an officer of the Taxation Department, swore in the Supreme Court proceedings that on 5 May 1988 the respondent ``gave the necessary approval for the continuation of recovery action...'' About that time, inquiries had been set in train to check the accuracy of the application for release which had been made by the applicant. Rough valuations were made of property in or thought to be in the ownership of the applicant or interests associated with him and other investigations of a similar kind were done. Some reference to results of these investigations is made below.
On 15 August 1988, according to an affidavit of Ms Greig in the Supreme Court, the office of the Australian Government Solicitor ``was instructed to enter judgment against'' the applicant - which presumably means, instructed to apply for judgment. As I have mentioned above, that application was not made until 28 October.
In these proceedings, Ms Greig has sworn that she had regard to the results of the Department's investigation before seeking and obtaining the respondent's signature to a certificate under reg. 53 in support of the application for judgment in the Supreme Court. Under that regulation, to put it briefly, the respondent is empowered to give a certificate relating to a tax assessment which is prima facie evidence of the facts stated in it. Ms Greig's assertion that she had regard to the results of the investigation is not, on the face of it improbable, although I have noted that some months earlier (on 5 May) the respondent is said to have given the necessary approval to the continuation of the recovery action.
There appears to be nothing to support the suggestion made on behalf of the applicant that the decision to proceed to apply for summary judgment was made by application of a policy of the respondent or of the Commissioner of Taxation, without regard to the merits of the individual case. The point of substance requiring consideration is whether the respondent's decision to proceed in the Supreme Court was unreasonable, or, to be more precise, whether it was an improper exercise of power within the meaning of sec. 6(1)(e) of the Administrative Decisions (Judicial Review) Act 1977, as being an exercise ``so unreasonable that no reasonable person could have so exercised the power'' within the meaning of para. (2)(g) of the same section. Mr Murphy's contention was it is at least arguably unreasonable, in the relevant sense, to proceed to judgment in the Supreme Court when there is still pending and undealt with an application for release under sec. 265 and the circumstances giving some hope of success.
Ms Greig swore in the Supreme Court proceedings that the respondent's investigations ``yielded information that indicated that the relief application made... was frivilous'' [sic].
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I cannot agree that it is frivolous, but think that some of the information obtained tended to support the decision to proceed in the Supreme Court.Assets
The respondent claims there was a lack of candour in the application for release; that appears to me to be so and some examples are given now.
The applicant owns a block of land on Macleay Island, which he valued in his application under sec. 265 at a net figure of $1,000 - a market value of $45,000 with $44,000 owing on mortgage. The respondent's investigations disclose that it was bought early last year for $55,000. In his affidavit filed in these proceedings the applicant said the property was bought ``as a means of recovery of fees owed to me by a client totalling in excess of $20,000.00. The consideration paid for the property was reduced by the amount owed to compensate me for those outstanding fees''.
That seems to imply that the consideration was reduced by about $20,000, from which one might infer that the ``true'' sale price was $75,000. However, it is not absolutely clear what the applicant means by the statement just quoted; he goes on to say, in effect, that the $45,000 he placed on it was the true value. I think the respondent was at least entitled to take note of the fact that the sec. 265 application put a value on the land of $10,000 less than the recorded purchase price - during a period of generally rising real estate values.
The form of application under sec. 265 had a space for any boats owned and the applicant wrote ``nil''. It turns out that when the applicant applied, last year, for a loan on the security of the Macleay Island land, he listed as an asset a ``motor vessel'' worth $30,000. In an affidavit filed in these proceedings the applicant says the boat was acquired by a company named Deputee Pty. Ltd., as trustee of the J.D. McGuire Trust and that a one-half interest in it was sold about 12 months ago for $15,000. That sum was applied to the general account of the applicant's firm (he is a solicitor) ``for assistance in the practice and payment of other general family expenses''. By way of explanation of the boat's having been included in the application for finance, the applicant swore that it was so mentioned ``as being part of my and my wife's assets, she being what one might describe as the principal beneficiary of the J.D. McGuire Trust''.
In fact, the form of the sec. 265 application provided for listing of Mrs McGuire's assets. It seems to me that the respondent was reasonably entitled to take into account against the applicant the failure to mention the interest in the boat.
The application under sec. 265 made no mention of any motor vehicles. Mrs McGuire has a Honda Accord, first registered in January this year, and bought for about $35,000, largely from moneys provided by her parents. There is also a 1985 Ford Falcon station sedan registered in the name of Deputee Pty. Ltd.; presumably, that is the family car.
Lastly, the information supplied as to the activities of Deputee Pty. Ltd. seems rather skimpy. I have mentioned that the applicant described his wife as the principal beneficiary of the J.D. McGuire Trust. Deputee Pty. Ltd., it appears, acts or has acted as trustee for that trust and also for the P.C. McGuire Trust. These trusts have interests in a number of mining leases acquired in August last year and, according to the applicant, burdened by a debt ``supported by more than 28 personal guarantees''. One would think that a debt requiring so many guarantees must be a substantial one. Deputee Pty. Ltd. also has registered applications for a number of mining leases.
As to the mining interests, the applicant says:
``Although some assessment of the leases has been undertaken, reserves still have not been fully proven up nor has plant been installed or a mining operation commenced though all these steps are under way. The joint venture still has no positive cash flow. At the time the application was made, the debt clearly outweighed the asset value of the leases and was supported by more than 28 personal guarantees.''
No figures are given, even at this stage, on which the respondent could possibly assess what significance the mining interests have in the scheme of things.
The applicant said that he had no beneficial interest in the trust funds. The respondent was reasonably entitled to take the view, nevertheless, that this non-disclosure of the
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mining interests was relevant to the exercise of the discretion whether or not to proceed in the Supreme Court. For one thing, the $15,000 which came from the sale of a half-interest in the boat (owned by a trust) went towards part-payment of practice and family obligations, suggesting that the trust's assets are, in practice, under the applicant's control. More importantly, Mrs McGuire's assets should have been disclosed and she is said to be the ``principal beneficiary'' under one of the trusts. The applicant made some disclosures about Deputee Pty. Ltd., but they were insufficient.Policy of Act
Mr Murphy pointed out that there is, as to sec. 265 applications, no provision corresponding to sec. 201(1), which says:
``The fact that a review or appeal is pending in relation to an assessment does not in the meantime interfere with, or affect, the assessment and income tax may be recovered as if no review or appeal were pending.''
In
D.F.C. of T. v. Jonrich Pty. Ltd. 86 ATC 4560, the Full Court of the Supreme Court of Queensland had to consider a question relating to recovery of additional tax under sec. 207 of the Act. It was pointed out to the Court that sec. 201 had no express application to additional tax under sec. 207 before the 1984 amendment. Connolly J. said (at pp. 4573-4574):
``Section 207(1) has, since 1982 provided that if tax remains unpaid after the time when it became due and payable, additional tax is due and payable. One would think that in the absence of some provision arresting or suspending the liability a sum which is due and payable is immediately recoverable...
...
What is to be borne in mind, in my opinion, is that sec. 201 was, in one sense, otiose in providing that income tax might be recovered notwithstanding the pendency of an appeal or reference as by sec. 204 income tax is and was due and payable on the date specified in the notice or if no date was so specified on the 30th day after service of the notice. For this obligation to be intercepted or suspended would have required a positive provision of the legislation. The real effect of sec. 201 was to state a policy; and its practical consequence was to provide a powerful factor influencing the courts against staying proceedings pending appeal or reference.''
The other members of the Court agreed with his Honour's reasons as to this aspect of the matter and French J., in
Snow v. D.F.C. of T. 87 ATC 4078 at p. 4093 said that in the Queensland case:
``... Connolly J.... stated correctly in my respectful opinion, that sec. 201 was in one sense otiose in providing that income tax might be recovered notwithstanding the pendency of an appeal or reference.''
Although the Court has a discretion, it appears to me that a strong case must be advanced to justify restraining the respondent from pursuing an application to the Supreme Court for judgment on a tax assessment. That Court has, itself (as Jonrich's case recognises at p. 4574) a discretion to stay proceedings in appropriate circumstances. The applicant's contention is that the respondent should be restrained from even endeavouring to persuade the Supreme Court to enter judgment.
Different considerations may apply if judgment is obtained and the dispute comes before this Court on, for example, an application to adjourn a petition for sequestration - a matter involving a change of status. In those circumstances it would be necessary to give consideration to the question whether the principle laid down by the Full Court in
Ahern v. D.C. of T. (Qld) (1987) 76 A.L.R. 137 at p. 148 should be extended so as to cover applications under sec. 265, as well as appeals:
``... in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds...''
It is unnecessary to attempt to predict the outcome of an argument on that issue. For present purposes, it is enough to say that in my view the policy referred to in the Jonrich case operates strongly against granting the applicant interlocutory relief.
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General
I have set out above the three main grounds on which my decision is based. I would add, as to the first, that the insubstantiality of the applicant's allegation of unreasonableness arises from the circumstances that the application under sec. 265 of the Act gave insufficient information and a request to supply more was ignored for over five months. In those circumstances, I find it difficult to see how the respondent's decision to proceed in the Supreme Court could be described as ``so unreasonable that no reasonable person could have so exercised the power''.
The applicant swore that an officer of the Australian Government Solicitor's office has asserted that the application for relief might take up to four years to be determined by the Administrative Appeals Tribunal. Ms Greig swore that she has been told by one of the members of the Board established under sec. 265 that on 7 November 1988 there were 2,000 to 2,500 cases waiting to be heard by the Board and that matters requiring reference to the Administrative Appeals Tribunal - involving more than $10,000 - ``may take up to two years before they are returned for hearing to the Relief Board''. Other information obtained from the Board is that it currently hears between 20 and 40 cases a day. One would hope that consideration could be given to giving priority to matters in which proceedings for recovery of tax have been instituted.
This prospect of substantial delay appears to me to assist the applicant's case; it would be an odd result if the Board released the taxpayer substantially from his liability to the respondent after his estate has been sequestrated or his property sold by way of execution to satisfy that liability. On the other hand, it can hardly by the law that any taxpayer with an arguable case for the exercise of the discretion under sec. 265 can absolutely prevent the respondent from proceeding against him by applying under that section. In the particular circumstances of this case, it seems clear that interlocutory relief should not be granted.
The application for interlocutory relief will be dismissed and the costs will be the respondent's costs in the principal proceedings.
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