Bailey v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT 1 This is an application for leave to 'appeal' from a decision of a Federal Magistrate delivered on 4 November 2005. For reasons given in that decision it was ordered that a sequestration order be made against the estate of the applicant. A costs order followed the event. 2 The issues which were before the Federal Magistrate were twofold. Firstly, there was an application by the applicant for an adjournment of the hearing of a creditor's petition presented by the respondent on 30 June 2004. Secondly, there was an application by the respondent for a sequestration order against the applicant's estate. The appeal relates essentially to the former matter but it has a consequence in respect of the latter matter. If the hearing of the creditor's petition should have been adjourned and is found on appeal to have required adjournment, then the sequestration order should not have been made. The orders sought are therefore that the orders of the Federal Magistrate be set aside and that the respondent's application for a sequestration order be stayed, pending the determination of the applicant's appeal to this Court in proceeding WAD 190 of 2005. That is an appeal from the Administrative Appeals Tribunal ('the Tribunal'). 3 The Tribunal decision relates to objections by the applicant to amended assessments for income tax purposes which were disallowed and in relation to which the applicant applied for review. The decision of the Tribunal on 29 June 2005 was to affirm the objection decisions under review in respect of certain assessments and to set aside the applicant's objection. 4 The questions of law said to be raised in respect of the Tribunal decision are twofold. The first is that in applying the burden of proof pursuant to s 14ZZK(B)(1) of the Taxation Administration Act 1953 (Cth), the Tribunal erred in law by breaching a duty to arrive at the correct or preferable decision in the case before it according to the material before it. Secondly, that the Tribunal erred at law in applying the wrong question of whether the decision of the respondent, pursuant to s 170 of the Income Tax Assessment Act 1936 (Cth) was properly made and in particular whether the finding that on the material before it there was a proper basis to justify finding evasion on the part of the applicant. Those issues do not arise on this 'appeal' from the Federal Magistrate. Their relevance is only to demonstrate what is sought to be put in issue in relation to the Tribunal's reasoning and to demonstrate what it is that the stay now sought seeks to again have put in issue on appeal before any sequestration order is made. 5 The background circumstances to the present issue were set out by the Federal Magistrate at [1]-[17] of his reasons, to which reference may be made. It is not necessary to retrace them here. Those background circumstances are also set out in written submissions before this Court on behalf of the applicant at [2]-[12] with some small amendments in the submissions of the respondent, resulting in the respondent's agreement with those statements. 6 The Federal Magistrate saw the issue before him for determination as being whether the creditor's petition ought to be adjourned until the Federal Court could hear and determine the appeal against the decision of the Tribunal. If not, then the applicant had advanced no reasons why a sequestration order should not be made in respect of his estate. 7 The circumstances before the Federal Magistrate importantly included the fact that the creditor's petition was founded on a judgment in the Supreme Court of Western Australia obtained on 11 April 2002, against which no appeal had been lodged. Additionally the bankruptcy notice served on the applicant on 19 January 2004 had not had any application in relation to it to be set aside. The petition has been extended to 29 June 2006. 8 The Federal Magistrate also had regard to the grounds of appeal in WAD 190 of 2005. They were, firstly, that the Tribunal had failed to deal with the applicant's objections for the years 1983, 1984, 1985 and 1987 as separate individual years. Secondly, the Tribunal had erred in the absence of any proper basis for so doing in assessing the applicant's evidence as to his assessable income as 'a series of remarkable serendipities'. Thirdly, the Tribunal failed to attribute any or any sufficient weight to the fact that the applicant's obligation to discharge the burden of proof should be viewed in the context of certain events that were set out in detail and which derived from the evidence, in particular that the applicant's inability to produce documentary evidence had been due to the passage of time and the lack of success in efforts made by him to seek to recover them from former solicitors and accountants. 9 In his reasons the Federal Magistrate set out the submissions for the applicant and the submissions for the respondent. He preferred the submissions of the respondent. He then proceeded to address individually each of the matters before him. In relation to the first of them, he said that it had not been an issue pressed by counsel for the applicant and it was clear the Tribunal did deal with it appropriately. On the 'remarkable serendipities' issue, he said it was clear that the Tribunal's use of that description had not been made in a vacuum. He referred to relevant evidence which he said made the reference unexceptional and unexceptionable. He did not accept therefore that the characterisation of the applicant's evidence in that way was unsupported by any facts. He concluded that this therefore did not amount to a genuine or arguable ground of appeal before him. 10 In relation to the third ground before him, the Federal Magistrate concluded that the matters had been adequately dealt with in the submissions made to him and he did not propose to deal with them in detail. 11 He therefore concluded that there was no dispute based on genuine and arguable grounds between the applicant and the respondent concerning the matters forming the subject of the applicant's appeal to the Federal Court. He said that in essence the appeal did no more than invite the Federal Court to engage in (impermissible) merits review. He then consequentially moved to the issue of whether there were any discretionary matters inhibiting the making of a sequestration order and he found that there were none. 12 When his Honour found that the grounds did not amount to 'genuine or arguable grounds of appeal' he was relying on a statement of law which is not in dispute before the Court. He set this out in [20] and [21] of his reasons. At [20] he relied on Ahern v Deputy Commissioner of Taxation (Queensland) (1987) 76 ALR 137 at 147-148. There the Full Court said that there was 'undoubted discretion to go behind a judgment', even where the judgment was obtained following a hearing on the merits where both parties appeared, if there were 'substantial reasons for questioning whether behind the judgment there was in truth and reality a debt due to the petitioning creditor'. The passage relied on also stated that it was 'well established that 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'. The authorities cited for that by the Full Court were Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49, Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte Deputy Commissioner of Taxation (1985) 4 FCR 181. His Honour also cited Adamopoulos v Olympic Airways (1990) 95 ALR 525 per Pincus J at 526 and Burchett and Gummow JJ at 531-532 applying Ahern, which they described as having laid down the governing principle. His Honour therefore concluded that a critical question for him to determine was whether there is a dispute based on genuine and arguable grounds; that is, whether the applicant's appeal was based on genuine and arguable grounds. He reached an adverse conclusion as I have already stated. 13 The present grounds before me are that the learned Federal Magistrate erred in law in finding there is no dispute based on genuine and arguable grounds and his Honour should have found that the grounds of appeal were genuine and arguable and that the application for adjournment of an application for a sequestration order should be allowed. The notice itself does not disclose arguable grounds for that, save asserting that the quality of genuineness and arguability should have been found by his Honour. However, in oral argument counsel for the applicant relied on two interwoven contentions. The first was that there was no reason for the learned Federal Magistrate to have rejected evidence given independently of the applicant without having referred to it and engaged in logical analysis of it. It is said that such a failure constitutes a failure to take into account a relevant consideration and hence constitutes an error of law. Reliance in place on Brackenreg v Comcare Australia (1995) 56 FCR 335. There his Honour examined the obligation of the Tribunal to furnish reasons under s 43 of its Act. He held that it had failed to consider material facts. In the opinion of Burchett J, in Waldron v Comcare (1995) 37 ALD 471 the case before him involved a failure which exceeded that referred to in Brackenreg. Burchett J said that before him there was material evidence not of the applicant but of a witness who was ideally placed to observe the applicant. He referred to the fact that Sheppard J in Brackenreg had thought that justice cannot be seen to have been done where evidence reasonably being relied on by an applicant was ignored whilst his case was rejected. Burchett J held that the same consideration applied in Waldron. He said that as in the case of Brackenreg, the evidence went to the heart of the matter. If it had been fully considered, it may have been that it would have been accepted or at least have had the effect of cutting down the absolute proposition which the Tribunal had arrived at. 14 These submissions were also interwoven with the further contention that the reasons of the Tribunal, while not requiring close analysis and to be approached in the manner addressed in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259, nevertheless, ought to have disclosed logical analysis by his Honour of the evidence which I previously identified. 15 These submissions require regard to be had to the character of the reasons of the Tribunal. The reasons commence with some background then the heading 'Agreed Facts', with a reference to each of the years in contention and the amount and issues in contention in relation to that income year. Additionally, the Tribunal member set out the applicant's explanation in relation to each of those years. The Tribunal then recounted the personal circumstances of the applicant and cited at some length his witness statement. In that statement lay the evidence where he asserted that his income had been derived from such things as gambling winnings, share investments and other matters. He also touched on the subject relating to his inability to produce documents and addressed it in different ways. 16 The reasons of the Tribunal next set out the testimony on behalf of the applicant by other witnesses. Then follows the evidence called for the respondent from a number of witnesses. 17 At [66], the Tribunal said that the nature of the burden of proof carried by a taxpayer in the position of the applicant was well-established. It said the respondent is not required to show that the amended assessments are correct but rather, it is for the applicant to prove that they are incorrect because he is presumed to know his own financial affairs and the respondent is not generally in a position to establish them independently. Citation is made of a number of authorities, including McCauley v Federal Commissioner of Taxation (1988) 88 ATC 4605, where at 4613 Lockhart J referred to the fact that the source of funds in issue there was peculiarly within the knowledge of the taxpayer and it was for the taxpayer to establish that the unexplained increment in his wealth was due to betting wins. 18 At [68] of its reasons the Tribunal said that when the applicant had been pressed in cross-examination to explain some of the details of the transactions he had not been forthcoming. It said that he attributed this 'somewhat disingenuously' to the passage of time, the loss of relevant documents and the fact that he had none, or very little, knowledge of the investment decisions made by his brokers. It said also the applicant testified to a series of fortuitous transactions occurring within a short space of time by which he became a millionaire at age 25. The Tribunal said it was not unreasonable to expect at least some of the circumstances of those remarkable events, if they occurred and despite the effluxion of time, to be indelibly impressed on the applicant's memory. The member stated that the evidence of two of the witnesses for the applicant were similarly devoid of relevant corroborating detail. He additionally recited at [69] that when confronted by the evidence of two of the respondent's witnesses, the applicant suggested that his shareholdings had been held in some other way. 19 The Tribunal then concluded [70]: 'After careful consideration of all the evidence the Tribunal rejects the applicant's explanation of how he derived his accumulated wealth, referred to in his evidence and para 10 of his Statement of Facts and Contentions, as not credible, and so finds that he has not discharged the onus of showing positively the amount by which the assessed taxable income for the years [in question] was greater than his actual taxable income in those years.' 20 At [79], the Tribunal repeated that it had found that the evidence adduced by the applicant in a certain regard was not credible. The relevant regard was that it had been the contention of the applicant that the amounts treated as undisclosed income by the respondent in the amended assessments were correctly not disclosed because they were principally referable to non-assessable windfalls and subsequent gains in capital. 21 Having regard to the way those reasons are structured, I am not able to share the view pressed by counsel for the applicant that the Tribunal did not engage in logical analysis to reach its conclusion at [70]. It is apparent from what I have referred to at [68], [69] and [79], that the Tribunal was weighing the evidence which was before it and was thereby engaging in logical consideration of the evidence in the manner in which it was required to do so. 22 Turning then to the conclusion of the Federal Magistrate, I do not consider that it can be found to be in error of law for the reasons advanced in expansion of the present notice of appeal. 23 There are other considerations which pertain as to how I should approach this application in any event. The refusal of his Honour to grant the applicant the adjournment of the application which is re-raised before this Court, is in the character of an interlocutory decision: see s 24(1A) of the Federal Court of Australia Act 1976 (Cth). Therefore, I am in agreement with the respondent that I should approach the application to this Court on the basis that it must be established that his decision is attended with sufficient doubt in order to warrant reconsideration on appeal and that substantial injustice would result if leave were refused. For the reasons I have already given it is clear what has been argued cannot satisfy that test applicable to the grant of leave to an interlocutory matter. See Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. 24 Furthermore, the basis on which appeals may be conducted from the Tribunal pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) is on the existence of error of law. The reasons I have already given disclose that the contentions made today by counsel for the applicant do not satisfy the establishment of an error of law and consequently, there must be further doubt as to whether the appeal from the Tribunal itself would ultimately succeed. 25 There is a further consideration raised in the submissions and that is that the decision by the Federal Magistrate is one relating to practice and procedure of the Court in relation to which the Court must exercise particular caution. See Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177, recently applied by the Full Court in Capital Webworks Pty Ltd v Adultshop.com Ltd [2005] FCAFC 232 at [34] and [38] per Moore J and Finn J respectively. In my view, that adds yet a further level of difficulty which the applicant cannot overcome. 26 For those reasons, I consider that the application to appeal from the decision of the Federal Magistrate in respect of the refusal to adjourn the application for the creditor's petition and consequently from the orders which he made on 4 November 2005 must be refused. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson.