Argus Industrial Group Holdings Ltd v Chief Commissioner of State Revenue

Argus Industrial Group Holdings Ltd v Chief Commissioner of State Revenue - [2004] FCA 1570 - FCA 2010 case summary — Zoe

[12]

5 I commence by including clauses 1 to 7 (both inclusive) of AS as follows: 1. On 24th January 2010 the Applicant purchased 100% of the issued shares of Dickinson Autocon Holdings Pty Ltd ('Holdings') in order to acquire it's trading subsidiary Dickinson Autocon Systems Pty Ltd ('Systems'). The purchase was negotiated by private treaty for $4.1m (Bundle page 117) and the Applicant paid $26,400 to the Chief Commissioner in Duty. During the due diligence process it was discovered that although it was incorporated in the year 2000, Holdings had never traded, had no bank account and had never filed any tax returns. In a peculiar disregard of tax and corporations law Systems had declared dividends in favour of the ultimate owners of Holdings and behaved in every way as though they were its' shareholders instead of Holdings. 2. In order to rectify this irregularity the Applicant requested that Holdings file it's outstanding tax returns before settlement took place. The returns (which appear at pages 20 et seq of the bundle) reflected Holdings notional entitlement to receive the dividends declared by Systems even though it had never done so. The Applicant wished Holdings to transfer Systems shares to itself so that Holdings could be wound up. This would mirror how the Applicant holds it's 2 other Australian trading subsidiaries (respectively based in Victoria and WA). 3. The Applicant applied for exemption from duty (Bundle pages 91-96) based on the proposed transfer being a proposed corporate reconstruction. A copy of the letter dated 20th March refusing the application is attached. The application was refused with the words: "… (sic) and that a company that has at any time operated and engaged in commercial transactions has "traded". Therefore, this application is disallowed as it does not meet the guidelines." 4. The Chief Commissioner also advised the Applicant it had a statutory right of objection and used the following words: "Please note that if you do not agree with this decision, you have the right to object under s. 86 of the Taxation Administration Act 1996…" 5. The Applicant sought clarification from the Chief Commissioner of the reference to 'trading' by letter dated 7th April 2009 (Bundle pages 124 et seq) but none was forthcoming. 6. The Applicant tendered an objection in proper form (Bundle pages 122-123) and this was considered by the Chief Commissioner and by letter dated 8th July 2009 (copy attached) he again rejected the application for exemption saying: "Accordingly the under the guidelines (sic) the requirement that the company has 'been dormant since its registration' is essential to the application of the guideline in your client's instance. As the company in question has previously traded it cannot be considered to be dormant." 7. By this letter the Chief Commissioner then advised the Applicant it had a right to have this refusal reviewed by this Tribunal. See the penultimate paragraph and leaflet attached. 6 The terms "Holdings" and "Systems" when used in these reasons have the meanings assigned to them in AS.

[14]

8 I also include the content of RS2 under the head of "History of proceedings" and contained in clause 21 to 40 (both clauses inclusive but without the footnotes contained in it, as follows: -- 21. On 17 March 2009, the Applicant applied for exemption from duty in respect of a proposed corporate reconstruction transaction ("the First Proposal") under s. 281 of the Duties Act. 22. On 20 March 2009, the Chief Commissioner disallowed the claim for exemption from duty ] . 23. The Chief Commissioner considered that the proposed transaction would not meet the exemption guidelines approved by the Treasurer as set out in Revenue Ruling DUT 26 because the relevant members of the corporate group would not: (1) in fact have been members of that group for at least 12 months before the time for the proposed transaction; or (2) be deemed to have been members of that group for at least 12 months before the time for the proposed transaction because the holding company has not been dormant since its registration 24. It is common ground between the parties that (i) did not apply; the Applicant disputes only paragraph (ii). 25. On 14 April, the Applicant objected to the Chief Commissioner's decision ] . 26. On 8 July 2009, the Chief Commissioner disallowed the Applicant's objection ] . 27. On 21 July 2009 the Applicant filed an application for review of the Chief Commissioner's decision in the Tribunal ] . 28. On 30 July 2009, a Notice of Appearance was filed in the Tribunal for the Chief Commissioner and on 12 August 2009, documents were filed and served pursuant to s.58 of the Administrative Decisions Tribunal Act 1997. 29. On 1 September 2009, the Applicant's submissions were served on the Crown Solicitor's Office. 30. On 2 September 2009, the application was listed for Directions before Deputy President Needham. The application was set down for hearing on 23 October 2009. 31. On 6 October 2009, the Chief Commissioner's submissions were filed and served on the Applicant in accordance with orders made on 2 September 2009. The Chief Commissioner's primary submissions were consistent with its earlier position set out in paragraph 7 above, however, at this time the Chief Commissioner also made a submission to the effect that the Chief Commissioner's decision was not a decision under a taxation law but a decision made merely in the general administration of revenue laws. As such it was arguably not one to which the objection and review process in Part 10 of the Taxation Administration Act 1996 would apply. 32. On or about 8 October 2009, the Applicant sought the Chief Commissioner pay its costs and offered to withdraw its application on this basis. 33. On 19 October 2009, the Applicant notified the Tribunal that the hearing should be adjourned and the application listed for further directions pending an alternative transaction structure being submitted to the Chief Commissioner. 34. On or about 26 October 2009, the Applicant submitted a second application to the Chief Commissioner for exemption from duty under s. 281 of the Duty Act in respect of an alternative and different transaction structure ("the Second Proposal") 35. On 2 November 2009, the Chief Commissioner denied an exemption from duty under s. 281 of the Act in respect of the Second Proposal. 36. On or about 6 November 2009, the Applicant submitted a third application to the Chief Commissioner for exemption from duty under s. 281 of the Duty Act in respect of a further alternative and different transaction structure ("the Third Proposal"). 37. On 25 November 2009, the Applicant wrote to the Chief Commissioner indicating that an exemption from duty under s. 281 of the Act had been granted in respect of the Third Proposal. 38. On 15 December 2009, the Applicant made an application in the Tribunal for costs in the proceedings relating to the review of the First Proposal. 39. Also on 15 December 2009 the Applicant filed submissions in relation to its Costs application. 40. On 19 January 2010, the application was listed for directions before Deputy President Needham. Orders were made for filing and service of the Chief Commissioner's evidence and submissions and the application was listed for hearing. 9 The terms "First Proposal", "Second Proposal" and "Third Proposal" have the meanings assigned to them in RS2 That content appeared in similar form in RS.

[25]

In any event, the Applicant's objection is incorrect as a matter of the rules of evidence in NSW. There is an express provision removing, for costs proceedings, the bar to admissibility of "without prejudice" communications - section 131(2)(h) Evidence Act 1995 (NSW). Accordingly, the touchstone for admissibility of such communications is, as with all evidence, merely relevance to the issues. See Silver Fox Company Pty Ltd v Lenards Pty Ltd [2004] FCA 1570; ACCC v Black On White [2002] FCA 1605, which cases concern the equivalent Commonwealth provision. (It was the ACCC case that Counsel for the Chief Commissioner had in mind on the point and it is regrettable that his memory lapse has been criticised by the Applicant in its written submissions). The Applicant, rightly, does not object to the material on the grounds of relevance 20 The Applicant referred to the Respondent's submissions as to the admissibility of the without prejudice evidence at some length; I include clauses 3 , 4 and 5 of AS3 (and clause 5 relates as set out previously specifically to Peng) as follows:: 3. .In paragraph 10 of the Respondent's submissions reference is made to the privilege accorded to without prejudice communications as a '…technical rule of adjectival law…' although, also in that paragraph the Respondent says that the Tribunal is not bound by the rules of evidence (quoting s.73 of the ADT Act). 4. There is thus an apparent inconsistency between a rule of law (whether adjective or substantive) and the statement in s. 73 ADT Act that the Tribunal is '…is not bound by the rules of evidence …. However the fact that the Tribunal is not bound by the rules of evidence does not mean that it should not follow them insofar as it is just and convenient to do so in conducting the business before it. Given the adversarial nature of the questions it must determine, the Tribunal needs to receive evidence from the parties before it and hear arguments as to the interpretation of such evidence. It would be unnecessarily difficult and complicated if the Tribunal sought to develop rules of evidence and procedure different to those that have developed in the courts. 5. It seems that in the Peng case (that was referred to by the Judicial Member at the costs hearing in this matter), counsel for Peng waived the privilege attaching to without prejudice communications to enable the Tribunal access to privileged materials. This shows that the Tribunal acts in accordance with the rules of evidence in the ordinary course of its business. There is no reason why it should not do so in this case and none has been advanced by the Respondent in his submissions. 21 Sections 131(1) and 131(2) of the Evidence Act 1995 (the "Evidence Act") read as follows: 131 Exclusion of evidence of settlement negotiations (1) Evidence is not to be adduced of: (a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute, or (b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute. (2) Subsection (1) does not apply if: (a) the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent, or (b) the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute, or (c) the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced, or (d) the communication or document included a statement to the effect that it was not to be treated as confidential, or (e) the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute, or (f) the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue, or (g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence, or (h) the communication or document is relevant to determining liability for costs , or (i) making the communication, or preparing the document, affects a right of a person, or (j) the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty, or (k) one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power. (Emphasis added by the Tribunal) 22 Specifically as regards section 131(2)(h) of the Evidence Act, the Applicant in clause 10 of AS3 contended: that 10."The common thread that runs through the cases cited is the argument that the Court may receive evidence in appropriate cases to show that the usual order for costs may be rendered inappropriate by intransigence in negotiations. That is not the case in this matter. Neither do these cases support the unconditional statement by the Respondent says in para 12 of his submissions that s. 131(2)(h) Evidence Act 1995 (NSW) removes the privilege accorded to without prejudice correspondence in costs proceedings. It is clearly a matter for the discretion of the Court whether to receive such evidence - whilst still respecting the underlying reasons for the privilege. 23 . Section 131(2)(h) of the Evidence Act sets out that without prejudice material is admissible in applications for costs. It is clear then that whereas material of this type is not ordinarily admissible that rule does not apply in costs applications. Under section 73 of the Act the Tribunal has the powers set out therein as to the admission of evidence. It can for example admit evidence which would not be admissible in a court of law. Superior courts have ruled (in relation to a similar section in the Administrative Appeals Tribunal Act 1975) that the law of evidence which has been developed over a long period should not be lightly disregarded. See for example clause 63 of the judgment by Emmett J in Heyward v Minister for Immigration and Citizenship [2009]FCA 313 reading:' [63] Finally, and this is significant, under s 33(1)(c), the Tribunal is not bound by the rules of evidence, but may inform itself on any matter in such manner as it thinks appropriate. The effect of s 33 is that the rules of evidence do not apply to a proceeding before the Tribunal. That is not to say that the rules of evidence may be totally ignored. The rules of evidence have been developed over the centuries and represent an attempt to evolve a method of inquiry best calculated to prevent error and elicit truth. No Tribunal can, without grave danger of injustice, set the rules of evidence on one side and resort to methods of inquiry that necessarily advantage one party and necessarily disadvantage the opposing party (see R v War Pensions Entitlement Appeal Tribunal (1933) 50 CLR 228 at 256).

[26]

24 Where a tribunal admits evidence which would not be admissible in a court of law (and one obvious example would be hearsay evidence) it must be wary as to the weight to be attributed to evidence of that kind.. It is possible that a tribunal has, at least in theory, the power to reject evidence which would be admissible in a court of law, but it is likely that a tribunal will seldom if ever act in such a manner, and indeed to do so might well amount to a denial of natural justice to the party .who has sought to tender admissible relevant evidence and where admission is refused. It is relevant to note that the powers set out in section 73 of the Act must be exercised subject to the rules of natural justice; section 73(2) provides: The Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice. The Tribunal notes, as did the Respondent in clause 7 of RS2, that it is surprising that the Applicant should seek to exclude such evidence while accepting that it is relevant. The Applicant has, it would seem, confused the manner in which the law of evidence operates in relation to section 73 of the Act. In general terms the law of evidence will often be followed for precisely the reasons referred to in the superior court authority to which I have referred. Hearsay evidence will sometimes be excluded, or will be admitted but with a reservation as to weight, and for the same reason a lawyer representing a party will usually not be allowed to lead a witness. Section 73 allows the Tribunal to depart from the strict rules of evidence when it consider that it is proper to do so. But that said, I repeat that a tribunal is hardly likely to reject evidence which is both relevant and admissible. The Applicant has not advanced cogent reasons as to why the without prejudice material should be excluded. This is in itself surprising; where the Evidence Act specifically allows for the use of material the Tribunal would be very unlikely to exclude it except upon good cause shown.

[27]

25 The relevant provisions (of the Evidence Act) were considered in the context of a mediation agreement which specifically provided that settlement proposals in the course of the mediation were "privileged". In The Silver Fox Company Pty Ltd v Lenards Pty Ltd [2004] FCA 1570, Mansfield J in the Federal Court at paragraph [34] and [35] considered the earlier decision of Goldberg J in Australian Competition and Consumer Commission v Black On White [2002] FCA 1605. In that case, Goldberg J "determined that the designation of the communications as 'without prejudice' did not amount to an agreement that they were not relevant so as not to be probative evidence, and so [were] admitted into evidence on the issue of costs." Mansfield J quoted the following passage at [35]: "The policy lying behind section 131 of the Evidence Act is twofold. First, it is to lay down a statutory basis for excluding evidence of communications relating to attempts to settle disputes. Secondly, it is to provide specific exceptions to such exclusion. The exception found in section 131(2) (h) relates to the probative value or probative nature of the contents of the communication and not to the manner in which the communication came initially to be subjected to the protection from being adduced into evidence found in subsection 1 of section 131. Although a consensual arrangement or agreement underlines the basis or part of the basis upon which 'without prejudice' communications are protected from admissibility, that consensual aspect does not determine the issue of relevance for purposes of section 131(2)(h) of the Evidence Act. The relevance there provided for is to be judged and determined by reference to legal principle rather than the decision of the parties." 26 Such 'without prejudice' correspondence is generally not admissible for the purposes of the substantive proceedings as to liability. But it is admissible, if relevant, on the separate and distinct question of liability for costs. That distinction is made clear by Mansfield J at paragraph [36] of his decision in The Silver Fox as follows: "I think those words [in section 131(2) (h)] are quite clear. Moreover, the relevance to be addressed is relevance to determining liability for costs. Section 131(1), subject to its exceptions, gives effect to the policy of ensuring the course of negotiations - whether private or by mediation - are not adduced into evidence for the purpose of influencing the outcome on primary matters in issue. Clearly, it is in the public interest that negotiations to explore resolution of proceedings should not be inhibited by the risk of such negotiations influencing the outcome on those primary issues. It is equally in the public interest that negotiations should be conducted genuinely and realistically. The effect of section 131(2) (h) is to expose that issue to inspection when costs issues only are to be resolved. There is no apparent public interest in permitting a party to avoid such exposure by imposing terms upon the communication, whether by the use of the expression 'without prejudice' or by a mediation agreement." The relevant subsection in the Evidence Act was considered in the context of a mediation agreement which specifically provided that settlement proposals in the course of the mediation were "privileged". 27 The Tribunal has no doubt that the without prejudice material should be admitted....

[45]

47 The Applicant contends that the actions of the Chief Commissioner were vexatious within section 88 of the Act and referred the Tribunal to a dictionary definition of that word. It is a word of potentially wide import, but one thing is clear and that is that it does on any basis require conduct which in broad terms can be categorised as reprehensible...I refer in this context to clauses 42 and 43 of Kyriacou as follows: 42.With regard to the second ground, the allegation of vexatious conduct, as the parties are aware, the term 'vexatious' is not defined in the ADT Act. I note the discussion of the meaning of 'vexatious' in, for example, Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 (see Deane J at 247: "'vexatious' should be understood as meaning productive of serious and unjustified trouble and harassment"), Commissioner of Police, NSW Police v LZ (GD) [2008] NSWADTAP 22, and the recently enacted Vexatious Proceedings Act 2008, where, at section 6, the following (non-exclusive) definition appears: 6 Meaning of " vexatious proceedings" In this Act, "vexatious proceedings" includes: (a) proceedings that are an abuse of the process of a court or tribunal, and (b) proceedings instituted to harass or annoy, to cause delay or detriment, or for another wrongful purpose, and (c) proceedings instituted or pursued without reasonable ground, and (d) proceedings conducted in a way so as to harass or annoy, cause delay or detriment, or achieve another wrongful purpose. The proceedings were not "productive of serious and unjustified trouble and harassment" 43 I also note the decision in Falconbridge , where, at [11], VCAT referred to the need: "to produce evidence of motive other than the fact that the parties are in dispute and that the applicant has taken advantage of proceedings available under relevant legislation which are open to the applicant in the circumstances." 48 In my view the actions of the Chief Commissioner in raising the jurisdiction issue when he did and in the circumstances which obtained when he did so did not offend in terms of section 88 of the Act and in fact there were no acts by the Chief Commissioner which could be said to have done so

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