Gemelle Investments Pty. Ltd. v. Federal Commissioner of Taxation.

Judges:
Anderson J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 12 August 1982.

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Anderson J.

The Commissioner of Taxation has assessed a company, Gemelle Investments Pty. Ltd., for income tax for the year ended 30 June 1978 in the sum of $7,300.20. The company seeks to appeal to the Supreme Court against such assessment and that appeal is underway. It is not disputed that the assets of the company amount of $102, that the company is virtually defunct, or if not defunct at least is inactive and has been inactive for a few years.

The Commissioner seeks security for costs of the appeal under sec. 533 of the Company (Victoria) Code which replaces sec. 363 of the Companies Act 1961. Section 533 of the Code is in these terms:

``(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until security is given.

(2) The costs of any proceeding before a court under this Code shall be borne by such parties to the proceeding as the court in its discretion directs.''

There was argument before me as to whether the appellant company was a ``plaintiff'' within the meaning of sec. 533. A number of cases were referred to, which I do not propose to analyse, but I am satisfied that the plaintiff falls squarely within the meaning of the expression ``plaintiff'' in sec. 533 and I need not develop my reasons further, because they will be found in the cases to which Mr. Young referred.

Obviously, of course, there is evidence before the Court which is credible testimony that the company would be unable to pay the costs of the Commissioner if the Commissioner were successful in the pending appeal, and I think therefore sec. 533 is relevant and material to the question which is before me now.

The Supreme Court Rules take over at some stage of the matter, O. 65 r. 6 being the relevant provision and that is in these terms:

``In any cause or matter in which security for costs is required the security shall be of such amount and be given at such time or times and in such manner and form as the court or a judge shall direct.''

Order 65 r. 7, perhaps, is to be considered:

``Where a bond is to be given as security for costs it shall, unless the court or a judge otherwise directs, be given to the

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party or person requiring security and not to an officer of the court.''

There are some unusual features about this matter. The appellant company has minimal assets and yet it has a bill for a large amount of tax which it seeks to resist. It has no means of its own to meet any order for costs which may be made, and if one were to look at the matter in a detached way, which is different from the view which both parties appear to take, one would wonder why the company was so concerned to appeal against something which manifestly it could not pay, and why the Commissioner is so concerned to have a ruling against a company which apparently has no assets. No doubt, each has its own good reasons. The company has decided to appeal against the assessment, and having made its intention clear during the time which preceded the formal notification by the Commissioner of the assessment, the company thereafter, upon being notified on 26 August 1981 of the disallowance of the objections which the company had taken against the assessment, notified the Commissioner on 27 August 1981 that it intended to appeal to the Supreme Court, and that appeal was finally instituted on 27 January 1982. The application for security is opposed, and one of the grounds on which it was opposed is that there would be prejudice to the appellant because of the delays which had occurred between the company making known that it desired to appeal and the stage at which the Commissioner indicated that he wanted security for costs. Now it is quite clear from the material before me that very shortly after 27 January 1982, the day on which the appeal was instituted, the Commissioner was asking for security for costs and arguments then proceeded for some months between the parties as to the amount of security. Finally, there being no agreement as to amount, the offer by the company to provide a particular amount of security was withdrawn.

As I see it, it was not until argument proceeded before me this morning that any question of prejudice was raised in relation to the company having a choice between an appeal to the Taxation Board of Review without costs, on the one hand, and an appeal to the Supreme Court with risk as to costs, on the other hand, was raised.

It was submitted this morning by Mr. Pose that had the Commissioner informed the company shortly after August 1981 that it would require security for costs if the appeal proceeded in the Supreme Court, then the company might have had an opportunity of altering its course and appealing instead to the Taxation Board of Review where it is said each party provides its own costs; whether or not that is the case, I am not concerned to investigate, but the fact of the matter is the company promptly made its decision to appeal to the Court, and this is the first time that such an argument has been advanced.

On the facts of the case I consider that the fact that the Commissioner did not, before January 1982, indicate that he would require security for costs, is immaterial. In fact, what did happen was that the company very promptly elected to appeal to the Supreme Court and when later the question of security for costs was raised, apart from objecting that there should not be security, no other argument was advanced except as to the amount of security that should be provided. Accordingly, so far as prejudice in that regard is concerned, I see none arising so far as any delay on the part of the Commissioner to require security is concerned. On the facts of this case, I think time may be said to run from a time when the appeal was formally instituted in the Supreme Court, which was, as I say, 27 January 1982.

There were other arguments before me as to the justification for security in the circumstances of this case. It was said that other cases may be dependent upon the result of this appeal and indeed, if this case goes as far as it may, it may be an authority on tax law; I do not know whether it will be or go that far, but this case is essentially different from the ordinary case in which an impecunious appellant seeks to appeal, and is seeking to regain an asset or other advantage which an adverse judgment denies him. In such a case the Courts on occasions have declined to order such an impecunious appellant to provide security. There are other cases, too, in which the Court has refused to order security for costs; they need not be enumerated, but none of the cases that have been referred to in the books as justifying the Court in declining to order security is really appropriate here.

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As I have said earlier, looking at it in a detached way, one is surprised that the company would be concerned itself to go to the expense of pursuing its appeal, because it is inactive and has no assets.

I think this is a case in which the company should be required to provide security for costs, and I say that after giving due regard to the submissions made by Mr. Pose, which I need not enumerate.

Although the discretion to be exercised is said to be an unfettered discretion, discretions are constantly fettered by the observations of judges who, having said the discretion is unfettered, then sometimes seek to lay down principles which, however, are not applicable in all cases, but only to the circumstances then before them. Indeed, each case must depend upon its own circumstances, and the approach which I make to this case is that, paying due regard and respect to the views expressed by judges in other circumstances, I think that there should be an order made for security of costs.

I do not propose to approach this matter with any predisposition, that an applicant for security has an advantage, because the company fits clearly within the impecuniosity provisions of sec. 533; again, poverty of itself is not a ground for ordering security for costs. The case of
Smail v. Burton (1975) V.R. 776 was referred to. The facts of that case were special in the circumstances; one has only to look at it to see that it is quite distinguishable from the present case.

There was argument before me at length as to what the appropriate amount of security should be, in the event that I should order security for costs. Again the cases were referred to and they indicate the appropriate order for security for costs is for an amount which may fairly be an approximation of what the party and party costs of the successful respondent would be if the respondent were successful. In this particular case, both parties have made their own provisional assessments of the costs likely to be involved if and when this case goes to hearing. There is a marked difference in the costs which have been assessed by the solicitors for each party. The solicitor for the Commissioner of Taxation gave details of the costs of the appeal which, if the respondent Commissioner were successful, would be likely to be at least $18,100. The solicitor for the company, on the other hand, making his assessment, reaches the relatively modest figure of $7,500, and again he gives particulars.

During the course of negotiations as to the amount of security for costs between the parties, the Commissioner was demanding $10,000 and the largest amount which the company would offer was $9,000. Apparently at that stage, had it been accepted, $9,000 would have been forthcoming. One does not know where it would have come from, but apparently there was money available to meet the offer of $9,000. But the difficulty here, of course, is the great disparity between the two estimates which the solicitors concerned have made. A judge, sitting as I am here with a little knowledge of what is involved in costs in days far removed from the modest competence of lawyers of my generation in practice, cannot reach any precise figure. I think the best course - and do not quote me as an authority hereafter saying it - is for me to take a stab in the dark and say the sum of $12,000 appears to me to be an appropriate amount. The amount of the security is only approximate and one does not know what the costs would be if the respondent Commissioner were successful. The security that may be given for costs may be in the form of a bond or otherwise as the Master may consider satisfactory. It is for that reason that I read out O. 65 r. 7, so that it need not be a question of putting up hard cash but of giving appropriate security. The rule does provide that if security is given by way of bond the bond is held by the party in whose favour it is provisionally made. But the form of the bond if it is to be a bond, is something which is to be approved by the Master.

I have in mind in the circumstance that it is provision of security that I am ordering in the event that the trial judge should order the company, if it is unsuccessful, to pay costs.

In the course of the argument before me Mr. Pose indicated that there are at least some occasions when the Commissioner is prepared to bear his own costs. I am requiring security for the costs which the trial

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judge may, but will not necessarily, order in favour of the Commissioner should the appeal fail. What I am saying is not in any way to be taken as an indication to the trial judge that he should or should not order costs - and I am sure I will not be quoted as intending to say that - for costs are finally the consideration of the trial Court and if this case is to be a test case, and some suggestions were made that it is, well it is then up to the trial judge to decide what he would do as to costs.

The order is that the appellant company provide security in cash, or in such form of security as satisfies Master Barker, in the sum of $12,000. That further proceedings in this matter are stayed until such security is so provided. Costs of this summons reserved. Certify for counsel.