Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation

Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation - [2001] HCA 26 - HCA 2001 case summary — Zoe

[24]

The respondent disallowed the objection of Arundel on or about 7 May 1999. On 10 May 1999, ITR requested particulars of "the authority which allowed the respondent and the ATO to override decisions of the High Court of Australia already made and to pre-empt decisions which were still before the Court".
On 22 May 1999, the respondent wrote to Arundel, care of ITR, giving notice of intended legal action for the recovery of the amount outstanding for income tax payable by Arundel.
On 28 May 1999, ITR informed the respondent in writing that the disallowance would "be placed before the Administrative Appeals Tribunal or the Federal Court of Australia as decided by legal counsel". In the same letter, ITR alleged "deliberate deception of the public" and gave notice that it would immediately initiate action against the issuing officers under the relevant sections of the Public Service Act 1922 (Cth).
The file kept by ITR with respect to the affairs of Arundel contains a letter by Dr Brown to Mr Henke who is the controlling mind of ITR, dated 2 July 1999, in which Arundel seeks advice from ITR as to how to deal with the creditor's statutory demand made by the respondent.
On 5 July 1999, ITR sent a document to the respondent entitled "Notice to cease action" on behalf of Arundel. It again threatened officials with legal action and said in terms that it was issued on behalf of Arundel. The document was signed by Mr Henke as Executive Director of ITR.
Mr Brooke, a solicitor, had become involved in the matter by 22 July 1999. On that date he wrote to ITR to report that documents in relation to Arundel had been filed and served. Mr Brooke inquired in his letter whether he or ITR would advise Arundel of the hearing date, and informed ITR that filing and service fees of $246.50 had been incurred.
Even though a solicitor on behalf of Arundel had become involved in the matter, ITR remained active. On 3 August 1999 ITR wrote to the respondent on behalf of Arundel contending that the respondent was misrepresenting the legal position and wishing the ATO "good luck in dealing with [its] looming problems".
Notwithstanding that Dr Brown in evidence said that Mr Brooke the solicitor was acting on his instructions, the latter maintained a close liaison with ITR. Each step that was taken in the matter was the subject of a report to ITR. And, tellingly, on about 16 August 1999, ITR in writing authorised Mr Brooke's firm "to act on behalf of ITR in relation to the matter of Arundel and to pay … accounts on behalf of Arundel and ITR for legal fees owed to counsel and town agents". Contemporaneously, ITR persisted in writing on behalf of Arundel to threaten the respondent with proceedings and contending that the respondent was acting unlawfully. It is unnecessary to go any further into the contents of the barrage of letters that ITR sent to the respondent.
In due course, Arundel engaged another firm of solicitors, Tavoularis & Company. That firm however, had no instructions in respect of the application which had been filed in the High Court by Mr Brooke on behalf of Arundel. The winding-up proceedings which had been commenced in the Supreme Court of Queensland were settled and dismissed on 17 September 1999 following on the dismissal by Muir J in that Court of the application to set aside the statutory demand. The proceedings in the Supreme Court were then purportedly made the subject of an application filed on 25 October 1999 for removal to this Court. On 12 January 2000, the Australian Government Solicitor advised Mr Tavoularis that he had been instructed to file a notice of motion to have Arundel's application for removal struck out, and to seek indemnity costs against either Dr Brown or Mr Brooke.
By this time, Mr Brooke was becoming anxious about his own position. On 28 January 2000, he asked ITR for confirmation that he would be indemnified by it in relation to costs and "other detriment" that might be suffered by him by reason of the application of the respondent which had been filed on 19 January 2000.
There are some other matters which I should mention. ITR had a practice of sending circulars to its "clients". One such circular which was probably sent to Arundel, of 5 August 1999, recorded that:

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I would accept that although Dr Brown had a financial interest in ITR's business in the sense that whilst it continued to operate, he might be able to refer clients to it for a commission, he also stubbornly and totally unreasonably believed that the statutory scheme for the imposition and collection of income tax in this country was invalid. I would also accept that he did look to Mr Brooke, his solicitor for advice, but I do not accept that Mr Brooke's views would have had the greatest, or indeed very much influence on him. The correspondence to which I have referred between ITR and Mr Brooke shows that the latter was little more than a postbox for, and legal functionary on behalf of, ITR: that in fact Mr Brooke was exercising little or no independent judgment, let alone informed legal judgment on any of the relevant matters; and that he (Mr Brooke) and ITR were reporting to Dr Brown in such a way as to make it unmistakably clear that ITR was making the running on behalf of Arundel in all relevant respects. Mr Brooke's plaintive request for indemnity from ITR, and the written materials to which I have referred all support these inferences.
There is no doubt that the so-called arguments which were to be presented on behalf of Arundel in this Court had, in part at least, been formulated by ITR. They reflected the language and form of much of the correspondence sent by ITR to the respondent. Indeed, the summary of argument which had been requested by the Registrar of this Court was filed in the Court when Mr Brooke was overseas. There is no suggestion Mr Brooke himself participated in the preparation of any argument. And, furthermore, a file sheet in evidence notes that ITR sent the notice of motion to Mr Brooke to issue. That Dr Brown was aware that the notice of motion had been prepared by ITR was accepted by him in his oral evidence.
I should say a little about Mr Henke's evidence. I do not doubt that ITR is a money-making enterprise and that he stood to, and wished to gain from the promotion of proceedings of the kind which Arundel brought here. It may well be that he also genuinely holds a conscientious belief that he and those gullible people who rely upon ITR are pursuing a cause for the benefit of other Australians. Even if that be so, such a belief cannot justify or excuse the conduct of ITR, particularly as Mr Henke well understands the consequences of activities of the kind which ITR has promoted. This appears clearly from this evidence which was given by Mr Henke:

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Mere encouragement of litigation would not suffice to attract liability for costs. But ITR has gone far beyond mere encouragement. It has been, in the clearest way, a promoter of this litigation. It is relevant that it had a direct financial interest in its promotion and its outcome. It acted as the de facto solicitor in the matter. It was either the author, or the major participant in the preparation of, the arguments to be advanced in this Court, and the tactics to be employed in the proceedings and activities leading up to the initiation of proceedings in this Court, these being the fusillade of letters to the respondent and the proceedings which came before Muir J in the Supreme Court of Queensland. ITR insisted upon persisting in these notwithstanding that various courts in this country had consistently held the claims made here and like claims to be utterly untenable. The impact upon the courts and upon the respondent as the responsible revenue-collecting authority has been very considerable. ITR used the proceedings to pursue its own interests, of vindicating a totally misconceived and irresponsible opinion that it held and was determined to pursue, about the taxation laws of this country.
It seems to me, therefore, that this is a case par excellence for the making of an order for costs, even though Arundel is neither an insolvent company nor Dr Brown a man of straw. An order for costs has been made against Mr Brooke but the evidence is that he has left Australia, and it seems rather unlikely that anything will be recovered from him. Although it may not be possible to say that ITR was the only real party in the relevant litigation, it was nonetheless in the nature of a party in the sense that it so heavily promoted, intermeddled in, had a continuing role in, and stood to benefit from it, and to benefit from it I might say, even if the litigation failed, because part of its charges was secured in any event. In Knight v FP Special Assets Ltd[6], Mason CJ and Deane J (Gaudron J agreeing) said this[7]:

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