RAFFAELE v DFC of T
Judges:Beaumont J
Foster J
Moore J
Court:
Full Federal Court
Beaumont J
There are two appeals before the Court. The first is an appeal, as of right, from the decision of Davies J. given on 25 October 1994, in which his Honour dismissed with costs an application made in connection with a decision of the Commissioner of Taxation (``the Commissioner'') to disallow an objection to an amended default assessment in the sum of $25,400 as income. The second is an appeal by leave granted against an order made by Davies J. on 12 July 1994 in which his Honour ordered that the appellant taxpayer pay, on an indemnity basis, the costs of the Commissioner of two interlocutory hearings which will be described later.
In order to understand the context in which the two appeals arise, it will be necessary to describe briefly the history of the matter.
That history commences with the making of the assessment on 28 July 1992, followed by the appellant's lodging an objection against the assessment on 18 August 1992. On 3 February 1993, that objection was disallowed by the Commissioner. On 5 April 1993 the appellant taxpayer commenced the principal proceedings in this Court.
In accordance with the usual direction given in taxation matters, on 7 September 1993, the solicitor then appearing for the appellant, Mr Bartalesi, filed the appellant's statement of facts, issues and contentions. The facts there alleged were that the appellant had, over a number of years, put moneys aside from her wages for safekeeping in the family home; that in early 1990 the appellant's home was burgled; and that, as a result of the burglary, the appellant removed the cash savings which she had hidden in her home and deposited them by eight separate payments in a bank account in the period between the 2 May 1990 and the 15 June 1990. The largest of those payments was in the sum of $5,000, the smallest in the sum of $1,700.
The appellant's statement of facts, issues and contentions alleged that in August 1990, the appellant lodged a tax return for the year ended 30 June 1990 disclosing a taxable income of $15,953, but stated that she had inadvertently failed to disclose interest in the sum of $14,861 in that return. It was further alleged in the statement that on 28 July 1992, the Commissioner issued an assessment in the sum of $56,214. The contention in the appellant's statement was that she was entitled not to include the sum of $25,400 in her return since:
``... [ t]his sum represented savings derived from income on which (the appellant) had previously paid tax as a pay as you earn taxpayer.''
At first instance, the appellant's case was sought to be made by an affidavit sworn by her. She stated that, in or about 1970, she and her husband had begun to experience marriage difficulties, and that from about that time she put aside small sums of money from her wages which moneys she hid in her house ``so that [ her] husband would not gain access to them''. She did this in order that she might have something to live on should her marriage fail.
Paragraph 4 of her affidavit was as follows:
``4. Between 1970 and 1990 I estimate that I would have put aside approximately $30.00 per week from my wages.''
In her affidavit, the appellant went on to state that she was employed as a machine operator for approximately 12 years ending in 1980, and that since 1981 she had been employed as a cafeteria assistant. She further said that, in early 1990, her house was broken into and some items were stolen, although the thieves did not discover the place where she had hidden her cash savings. As a result of the burglary, she said, she no longer considered that her house was sufficiently secure to keep her savings. In May 1990, she, therefore, began to remove her savings from the house and to deposit them into a bank account as indicated in her statement of facts, issues and contentions. She noted that during her employment she had been a ``pay as you earn'' taxpayer and had derived no income
ATC 4652
from any other source. In her affidavit, the appellant recognised that in her 1990 tax return she had inadvertently failed to disclose interest in the sum of $14,861.The application at first instance was fixed for hearing on 16 June 1994 before Davies J. On that occasion there was no appearance by, or on behalf of, the appellant. Accordingly, his Honour dismissed the application. The matter was restored to the list on 12 July 1994, when his Honour heard an application to set aside his previous order. On that occasion, his Honour set aside his order dismissing the application, but ordered that the appellant pay the costs of the Commissioner on 16 June 1994 and on that day. Davies J. gave the Commissioner permission to tax the costs on an indemnity basis. This special costs order is the subject of the second appeal.
In the course of his reasons given on 12 July 1994 Davies J. said:
``This present application is a motion to set aside the orders which were taken out and entered on 30 June. The basis on which the motion is put is that Mrs Raffaele made an error about the date. I am not satisfied that there was an error. It is clear that Mrs Raffaele understood that the matter was for hearing on 16 June. The explanation which she gave as to what occurred after 16 June suggests that she did not appear on 16 June but had an inquiry made subsequently as to what had occurred on that day.
It seems to me that the position may well be that Mrs Raffaele stood back to see what would happen and whether the Commissioner of Taxation would be able to establish his case and was hoping that if she did not appear the matter might go in her favour.''
His Honour noted that, notwithstanding this, the appellant did not appear and thus the order dismissing the application was made without hearing her. His Honour said that if she had been represented, there would be no question in his mind that, in such circumstances, the judgment would not be set aside. However, having regard to the fact that she was then unrepresented, his Honour accepted that there may have been factors which led her into some misunderstanding as to what the processes of the law would be and as to how important it was that she attend. For those reasons, the previous orders were set aside, but costs were ordered on an indemnity basis.
The application was again fixed for hearing before Davies J. on 27 July 1994. On that occasion, the appellant was not represented, although her husband assisted, as he has done before us today. The appellant was cross- examined at some length on her affidavit by counsel for the Commissioner. Davies J. reserved his decision.
On 25 October 1994 his Honour ordered, as has been said, that the application be dismissed for the reasons his Honour then gave in writing. In essence, his Honour held that the appellant had failed to discharge the statutory burden of proving that the amended assessment was excessive. His Honour indicated nine factors which, together, made it difficult to accept the appellant's evidence. Those factors are set out in the appeal book at pp. 157-161. Again, I will not attempt to summarise them, save to note that the second factor described by his Honour was in these terms:
``Early in her coss-examination, Mrs Raffaele withdrew the estimate of $30 per week which was expressed in para. 4 of her affidavit. For example, Mrs Raffaele gave this evidence in cross-examination: -
`Have you any approximate idea? Well, can you remember in 1970 actually taking $30 out of your pay on a weekly basis or approximately $30 and putting it aside? - Probably not because then the wages was smaller but as I said before, this was the solicitor's idea because he said, have to put roughly how much a week from then to there to make up the figure but I pointed to this to my solicitor but he said, we have to put roughly one figure. I'm not solicitor so I - I believe I have to - I mean, to say yes, whatever he -
Is that paragraph of your affidavit wrong then or would you like to change it in some way? - Well, it's not wrong and I - it's no need really to change. This is just to say roughly, you know, how much I can provide from the savings until - where was it - see, it's been long time. I mean, I can't remember exactly what the wages was and how much put that here and here after but I only say that was savings and not income... I will say that
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all the time because that's what it is'.''
(Emphasis added by Davies J.)
When the appeal was called on for hearing, Mr Michael Maher, solicitor, announced that although he had been previously instructed to appear for the appellant and to retain counsel on that behalf, he sought the leave of the Court to withdraw, indicating that difficulties had risen in connection with the retainer of counsel.
Although Mr Maher did remain in court during some of the submissions this morning, ultimately the court granted him leave to withdraw. It was indicated to us, and it is common ground, that Mr Maher had been retained by the appellant for some months previous to the hearing. As has been said, Mr Bartalesi had previously been retained in the matter. Mr Maher mentioned at the outset that he anticipated that the appellant would wish to apply for an adjournment of the appeal.
This application for adjournment was then developed by Mr Raffaele on behalf of the appellant. In particular reference was made to a desire not only to retain professional assistance to prosecute the appeal, but also to have the opportunity to locate a letter which, it appears, was written by the Department of Social Security, and which Mr Raffaele said, provided evidence by way of a record of a discussion that took place in 1986 between himself and that Department in which reference was made to some of the matters which, in his submission, were material for present purposes.
In further support of the application for the adjournment, Mr Raffaele sought to rely upon an affidavit sworn by Mr Richard Bartalesi on 11 April 1995 in the following terms:
``1. The Affidavit sworn on 20 October, 1993 which I prepared for Mrs Raffaele referred to an amount of $30.00 in respect of monies saved by Mrs Raffaele over a period of approximately 20 years.
2. As Mrs Raffaele was unable to recall the exact amount she saved weekly over a period of 20 years I advised her to include an estimate of her savings throughout that period calculated in the sum of $30.00 per week.
3. At the time of preparing the said Affidavit I was also instructed by Mrs Raffaele that the sum of $12,000.00 received by Mrs Raffaele as a redundancy payment from Nestle Australia as well as the sum of $5,469.53 in respect of superannuation payment from Nestle Australia received by Mrs Raffaele was part of the calculation of the estimate of the said $30.00 per week. Mrs Raffaele was however unable to quantify with precision the proportion of the amount which she received from Nestle Australia that was included in the estimate of $30.00 per week.
4. I was further instructed by Mrs Raffaele that monetary gifts received by her from her mother were also included in the said sum of $30.00 per week.''
On behalf of the Commissioner, objection was taken to what was said to be an impermissible attempt to adduce fresh evidence in the appeal (assuming the adjournment application was refused) but, in any event, objection was taken to the use of the material in the adjournment application itself.
Insofar as fresh evidence in the appeal itself is concerned, it was submitted on behalf of the Commissioner that this material did not comply with the well established test; that is to say, that fresh evidence must not only be of a kind that, if adduced, it would have produced an opposite result or, if it is not reasonably clear that it would have produced that result, it must have been so highly likely as to make it unreasonable to suppose the contrary. Moreover, the further well established requirement in this area, the Commissioner submitted, was not satisfied; that is to say, it had not been shown that reasonable diligence had been exercised to procure the evidence which the defeated party failed to adduce at the trial.
Insofar as the second requirement is concerned, I am of the view that there is considerable force in the submission, but I need not express a final view on it. I am prepared to assume in the appellant's favour that the affidavit, MFI 1, should be received into evidence for the purposes of the appeal.
In further support of the application for the adjournment, Mr Raffaele himself gave evidence before us outlining the matters on which he would seek to rely, if he had an opportunity to give evidence on the merits of the appeal. (As has been noted, the only evidence that was called in support of the application before Davies J. was from the appellant herself.) Mr Raffaele was cross- examined upon his evidence before us by the
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Commissioner's counsel. That material, as in the case of MFI 1, was of course received on the voir dire, both in aid of the adjournment application and, if that were to be refused, in the appeal itself.Having heard further submissions from Mr Raffaele in support of the application for adjournment, the Court indicated that it was of the view that the adjournment should be refused, but that we would give reasons for that later. What now follows are my reasons for refusing the adjournment.
In my opinion, there are two main reasons why the adjournment should be refused. The first is that the history of the matter indicates that the appellant has already had several opportunities in which to present a proper case and to adduce material along the lines of that now sought to be obtained. The second principal reason why I refused the adjournment is that I am by no means persuaded that the appellant has any real prospect of advancing her chances of succeeding on the appeal even if the adjournment were to be granted. That is to say, as will appear shortly, since the real issue before the Trial Judge was a question of credibility, it seems to me that, with the exception of MFI 1, the inquiries of the kind that Mr Raffaele would now wish to undertake seem unlikely in the extreme to be capable of affecting the outcome of the substantive appeal.
So far as concerns the application for further time in which to obtain legal representation, I do not think that it would be fair to the other party to the litigation to allow further time for this purpose. As I have said, the appellant has now had not only several opportunities to present her case, but has had some years in which to obtain legal representation; indeed she has been able to retain solicitors on two occasions. I think it would be unfair to the Commissioner to allow that process to be further protracted. For those reasons, I concurred in the refusal of the adjournment application.
I turn now to the principal appeal, that is the appeal against the order made on 25 October 1994.
In my opinion, his Honour correctly stated the relevant legal principles in this area. They were cited by his Honour, clearly explained by Brennan J. in
FC of T
v
Dalco
90 ATC 4088
at 4093;
(1989-1990) 168 CLR 614
at 624-625
.
The real issue for Davies J. was whether, in accordance with the statutory burden of proof, the taxpayer had shown that the amended assessment was excessive. In that behalf, the taxpayer sought to make a positive case in order to explain the source of the moneys in question. But his Honour found that there were nine reasons why that case should not be accepted. With one exception, those reasons, in my opinion, having reviewed the evidence, stand as cogent and convincing reasons to support the conclusion at which his Honour arrived. The exception, of course, is the material in para. 2 of the primary Judge's reasons, which I have set out above. In that connection, Mr Bartalesi's affidavit of 11 April 1995 certainly provides an explanation which, in the absence of cross- examination (and the Commissioner did not seek to cross-examine), means that it may not, and indeed perhaps should not, be permissible to place any reliance on the language of para. 4 of the affidavit. I am prepared to make that assumption in the appellant's favour. Nonetheless, as I have said, the other eight reasons given by his Honour, taken either individually or collectively, provide effective answers to the claim which the taxpayer sought to make. Where, as here, the question is one of credit, and the credibility of the taxpayer's case, and where the trial Judge has relied, as indeed in this case he had to do, upon the demeanour and impression of the witness and of the tenor of that evidence, it would have to be a most exceptional situation before an appellate court would intervene. This is especially so where the issue at first instance was whether the taxpayer had discharged the statutory burden of showing that the assessment was excessive. In my opinion, no reason exists why this Court should interfere with his Honour's decision. I would therefore dismiss the principal appeal, with costs.
I come now to the appeal, by leave granted, on the question of costs. There can be no doubt that it was open to his Honour to order that the taxpayer pay the costs thrown away on both the occasions in question. The only issue is whether his Honour was justified in doing so on an indemnity basis. It is true that the authorities in this area indicate that such an order should not be made as of course. On the other hand, the appellant sought to make a case positively before his Honour that she had mistaken the date and sought to justify that mistake. His
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Honour found against her on the merits of that issue and in those circumstances, given especially the nature of this appeal, that is to say, an appeal against the essentially discretionary order of costs; again, no reason for interference by this Court has been made out. I would again dismiss that appeal.This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.