Carter v Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 9 May 2001 the applicant filed in the Victoria District Registry of the Court an application in the form of Form 55D in the Federal Court Rules, pursuant to O 52B, r 4(3) of the Rules, in which he appealed to the Court against an appealable objection decision of the respondent ("the Commissioner") in respect of the applicant's objection dated 19 December 2000 against an amended assessment issued on 14 November 2000 for the year ended 30 June 1999. In that year, the applicant claimed the following deductions in relation to what he described as the "Australian Beach Tales Film Project" ("the project"): (a) $25,000 under Division 10B of Part III of the Income Tax Assessment Act 1936 (Cth) ("the ITAA 36"); (b) $3,375 under s 8-1 of the Income Tax Assessment Act 1997 (Cth) ("the ITAA 97") for interest expenses in connection with the loan advanced by Camora Finance Pty Ltd ("Camora"); (c) $40 under s 25-25 of the ITAA 97 for borrowing expenses in connection with the loan by Camora. 2 On the same day as the application was filed, the applicant filed a Notice of Motion seeking orders that four named persons ("the proposed applicants") be joined as applicants in the proceeding pursuant to O 6 r 2(b) of the Rules. 3 The application for joinder has been made because the applicant and the proposed applicants, together with other investors (approximately 320 in all), invested in the project which comprised five films that were produced and owned by Village Roadshow Motion Pictures Pty Ltd ("Village"). The project manager was Millennium Investments Limited. 4 The applicant has described the investment in the following terms. In consideration of the payment of a sum of money, each investor acquired an interest in the copyright of each film. Each investor entered into an identical agreement with Village whereby the investor acquired a proportional licence in the copyright of each film. The licence enabled each investor to exploit the copyright in each film until 1 December 2009. For each $100,000 invested, the investor would receive a 0.15385 per cent interest in the copyright of each film, subject to existing rights. 5 Each investor entered into an identical distribution agreement with Film Services (Australia) Pty Ltd ("the distributor") giving the distributor an exclusive licence to market, distribute, exploit and exhibit the investor's copyright interests in the films in Australia and overseas. The distributor agreed to pay each investor a licence fee equal to the investor's share of the net proceeds relating to the film copyright. The distributor also guaranteed a minimum payment to each investor equal to 156 per cent of the amount invested payable during the period of each investor's licence and an opportunity to share in what the applicant described as "blue sky" income. 6 Each investor financed all of their investment by borrowing funds from Camora and the terms of finance were the same for each investor. They included terms that: · the investor would assign certain distribution rights to Camora; · the investor would mortgage and charge the investor's copyright as security for the loan; · the investor would repay the loan by 1 December 2009 in addition to payment of interest at nine per cent per annum and a line fee of one per cent per annum. 7 A number of transaction documents evidenced the investment acquired by each investor. They are in the same terms (other than in relation to the amount invested) for each of the proposed applicants and presumably for all the investors. Those documents include a prospectus, a film investment deed, certificates under s 124(K)(1) of the ITAA 36, an option agreement, a licence agreement, a distribution agreement and financing documents. 8 The applicant acquired his investment in May 1998, and claimed a tax deduction for the financial years ended 30 June 1998 and 30 June 1999 in respect of his investment in the project. The particular deductions claimed in respect of the year ended 30 June 1999 are set out in par 1 above. 9 On 20 October 1999, the Commissioner issued a notice of assessment for the year ended 30 June 1999 which allowed the deductions which had been claimed by the applicant. On 14 November 2000, the Commissioner issued a notice of amended assessment disallowing the deductions which had been claimed by the applicant. On or about 19 December 2000, the applicant lodged a notice of objection against the amended assessment and subsequently received a notice of decision on objection dated 29 March 2001 from the Commissioner disallowing the objection. This proceeding is an appeal against that decision. 10 In general terms, the applicant's objection was disallowed by the Commissioner on the following bases: · the applicant was not the owner of a unit of industrial property in the year of income. If the applicant did acquire a unit of industrial property, alternative bases for disallowance were advanced; · the amount paid for the grant of the licence was not allowable as a deduction under s 8-1 of the ITAA 97; · the interest acquired was not used to produce income because it was disposed of immediately by way of assignment to Camora; · the applicant did not incur capital expenditure as the interest acquired was the subject of finance; · the applicant paid a contrived value for the interest acquired; · there was a scheme to which the provisions of Part IVA of the ITAA 36 applied. 11 Each of the proposed applicants invested in the project for the financial year ended 30 June 1998 and claimed a tax deduction for that financial year and for the financial year ended 30 June 1999 on the same basis as the applicant, although the amounts claimed by each of the proposed applicants were different. Each of the proposed applicants received a notice of amended assessment in respect of the financial years ended 30 June 1998 and 30 June 1999 disallowing the deductions claimed in respect of the investment in the project. Each proposed applicant lodged a notice of objection against the amended assessment and received a notice of decision on objection from the Commissioner disallowing the objection. Save for the amount of the investment involved and the amount of the deductions claimed, the notices of decision on objection received by the proposed applicants are in substantially identical terms to the notice received by the applicant. 12 Order 6 r 2 of the Federal Court Rules provides: "Two or more persons may be joined as applicants or respondents in any proceeding - (a) where - (i) if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do." Order 52B r 3 provides, relevantly: "Subject to this Order and to any other law of the Commonwealth, the following provisions of Order 52A apply to an appeal against an appealable objection decision: rule … 13 …" Order 52A r 13 provides, relevantly: "(1) On a directions hearing under this Order the Court or a Judge shall give such directions with respect to the conduct of the proceeding as is thought proper. (2) Without prejudice to the generality of sub-rule (1) the Court or a Judge may- (a) … (b) direct the joinder of parties; (c) …" 13 The applicant did not seek to rely on subr 2(a) of O 6 in support of the application for joinder, recognising that the decision in Payne v Young (1980) 145 CLR 609 limited the class of cases which might be said to fall within the description of "the same transaction or series of transactions". Although there were some documents common to each investor, the project involved each investor entering into an individual licence agreement, distribution agreement and financing agreement. 14 The applicant submitted that I should exercise the discretion committed to me under O 6 r 2(b) and O 52A r 13(2)(b) and allow the joinder on the basis that common questions of fact and law arise in relation to the appeal by the applicant and the appeals proposed to be made by the proposed applicants, and that joinder of the proposed applicants would allow the matter involving the applicant and the proposed applicants to be conducted in a most efficient and expeditious manner in that it would limit, as far as practicable, the costs and delay of the litigation. 15 In support of his submission that common questions of fact and law arise, the applicant relied on the following matters: · the nature of the investment acquired by each investor was the same; · the agreements entered into by each investor to acquire their investment were the same; · each of the investors financed the acquisition of their investment through the same financier and on the same terms; · the type of expense incurred by each investor in relation to the acquisition of their interest in the copyright in the five films was the same; · each investor claimed similar types of tax deductions for their investment pursuant to the same provisions of the ITAA 36 and ITAA 97; · the Commissioner disallowed the deductions claimed by the applicant and each of the proposed applicants for the years ended 30 June 1998 and 30 June 1999 and disallowed their objections (except in the case of the applicant in respect of the year ended 30 June 1998, as the Commissioner has yet to respond to his objection in respect of that year) to their amended assessments on the same grounds; · each investor proposed to challenge the Commissioner's decision in their appeal to the Court on the same grounds. It was submitted, therefore, that the basis upon which the investors have sought deductions is common, they have sought deductions under the same provisions, and the basis upon which the Commissioner has disallowed the deductions is common. 16 In support of the submission that the joinder of the proposed applicants would allow the matter to be conducted in a most efficient and expeditious manner, the applicant relied upon the following matters: · the same firm of solicitors acts for the applicant and each of the proposed applicants and if the proposed applicants are joined in the proceeding, the same counsel will be retained to represent all the applicants with a consequent saving in costs; · the existence of one proceeding for the applicant and the proposed applicants will save the parties court filing fees, setting down fees and daily hearing fees. If the order for joinder is made, the average cost burden for the applicants and the proposed applicants will be reduced; · the solicitors for the applicant expect to receive instructions from the other persons (numbering approximately 320) who acquired a copyright interest in the project who are in the same position as the applicant and the proposed applicants, and who propose to appeal against the decisions of the Commissioner disallowing their objections to assessments or amended assessments. If the solicitors receive those instructions, it has been foreshadowed that a similar joinder application will be made in respect of those investors. If such a joinder application was successful there would be a significant reduction in the costs incurred by those investors. For example, the filing fees for 320 applications would cost $168,320. · there would be no repetition of evidence; · there would be consistency in the findings made by the Court; · there would be expedition in the determination of all applications. 17 Although the applicant submitted that there were common questions of fact and law involved in the appeal brought by the applicant and the appeals to be brought by the proposed applicants and the other investors, the applicant did not exclude the possibility that evidence, albeit limited evidence, might be called from each applicant. It was said that evidence might be called as to whether, for the purposes of Part IVA of the ITAA 36, each investor had a purpose, in investing in the project, of obtaining a "tax benefit". To that extent it was accepted that there may be evidence from each investor which might be different. Counsel for the applicant, quite properly, could not say that the 320 investors would not be called to give evidence. However, he submitted that the extent to which such evidence might be called, it could be dealt with by affidavit and that the Commissioner would have the opportunity to consider whether he wished to cross-examine any deponent. This was the approach taken by Wilcox J in Bishop v Bridgelands Securities (1990) 25 FCR 311. His Honour said at 316. "The major complication of the joinder of the additional applicants would be in connection with the reliance evidence. However, it seemed to me that, whilst it would be burdensome to challenge evidence of reliance from 114 separate applicants in one proceeding, the burden was not so great that this factor ought to be determinative. I had in mind that affidavits could be directed and that the respondents could determine which, if any, of the applicants would be required for cross-examination. Even if all applicants were cross-examined on this point, the length and cost of the proceeding would be much less than if 114 separate claims were litigated." 18 In that case, the proceeding was commenced by a person who had deposited money with a company, which had persuaded the investor to deposit the money with another company which became insolvent. The depositor alleged misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). The applicant sought an order to join 113 other depositors who had lost money. One of the issues which would arise in the proceeding was whether the depositors had relied upon the conduct of the respondents in depositing their money with the other company. 19 The applicant pointed to the fact that although the Commissioner in his notices of decision on objection had raised the issue that the applicant and the proposed applicants had obtained, or would obtain, but for s 177F of the ITAA 36, a "tax benefit" within the meaning of s 177C of the ITAA 36, the Commissioner, in relation to each of the applicant and the proposed applicants relied upon the same matters, for each of them, for the purposes of s 177D(b) of the ITAA 36. 20 The applicant submitted that there would be no prejudice or unfairness to the respondent if the joinder application was granted as the issues of law would be the same for each investor. The applicant analysed the basis for disallowance of the objections relied upon by the ATO to demonstrate that resolution of the matters raised was substantially dependent upon the documentary evidence which was in a common form. 21 The applicant submitted that if the joinder application was not granted, then the alternative would be that each application by the applicant and the proposed applicants would have to be heard separately with the result that there would be four sets of costs incurred and a longer time would be taken to determine all matters. 22 The discretion conferred by subr 2(b) is not constrained by any particular consideration. In Bishop v Bridgelands Securities (supra) Wilcox J set out two principles which guided him as to the way in which the Court should exercise its discretion. His Honour stated at 314-315: "The basic principle, as it seems to me, is that the Court should take whatever course seems to be most conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation. Considerations of costs and delay may often support the grant of leave under subr (b); but, in my opinion, leave ought not to be granted unless the Court is affirmatively satisfied that joinder is unlikely to result in unfairness to any party. Secondly, regard must be had to practical matters. For example, it would normally be inappropriate to grant leave for the joinder of applicants who were represented by different solicitors. There must be a single solicitor, or firm of solicitors, who is accountable for the conduct of the proceeding on the applicants' side of the case. Similarly, although all applicants might propose to rely upon some common, or similar facts, there may be such differences between the evidence intended to be relied upon in support of the claims of particular applicants as to make it inexpedient to join the claims. The discrete material may overbear that which is common to all the claims. Again, there may be cases in which the sheer number of the claims, if joinder is permitted, will impose an undue burden on the respondent; although it seems to me unlikely that this will be so except in cases where separate evidence is proposed to be adduced in support of individual claims." 23 I would add to these principles that the Court should also be concerned to determine what is the most efficient use of the resources of the parties and also of the Court. 24 The Commissioner's position on the application was that he did not oppose, nor did he consent to, the application for joinder. However, he submitted that he had a concern that unless an applicant instituted an appeal by lodging an application in the applicant's name in the form of Form 55D in the Federal Court Rules, the Court may have no jurisdiction to deal with an appeal against the Commissioner's decision on an appealable objection. The Commissioner did not go so far as to submit that the Court would have no jurisdiction to deal with an appeal against an appealable objection which was joined by way of a joinder order made by the Court to an existing application which had been lodged against an appealable objection by a taxpayer. Nevertheless, the Commissioner raised the matter and as it raises issues of jurisdiction I must determine the matter. 25 Counsel for the Commissioner said that he did not have instructions whether the Commissioner would in the future contend that the only manner in which an appeal could be instituted in the Court was by filing an application in the name of the appellant in the form of Form 55D and that an appeal was not lodged with the Court, in the terms of s 14ZZN of the Taxation Administration Act 1953 (Cth), if an appellant was joined as an applicant to an existing application. 26 Part IVC of the Taxation Administration Act contains provisions relating, inter alia, to objections to assessments and private rulings, decisions on objections and appeals against objection decisions. Section 14ZZ provides: "If the person is dissatisfied with the Commissioner's objection decision, the person may: (a) if the decision is both a reviewable objection decision and an appealable objection decision - either: (i) apply to the Tribunal for review of the decision; or (iii) appeal to the Federal Court against the decision; or (b) if the decision is a reviewable objection decision (other than an appealable objection decision) - apply to the Tribunal for review of the decision; or (c) if the decision is an appealable objection decision (other than a reviewable objection decision) - appeal to the Federal Court against the decision." Section 14ZZN provides: "An appeal to the Federal Court against an appealable objection decision must be lodged with the Court within 60 days after the person appealing is served with notice of the decision." 27 Order 52B of the Federal Court Rules is headed "Appeals Against Appealable Objection Decisions made under the Taxation Administration Act 1953". Order 52B r 4 provides, relevantly: "(1) An appeal must be commenced by filing an application in accordance with subrule 1(1) of Order 4. … (3) An application must: (a) be in Form 55D; and (b) set out: (i) brief details of the appealable objection decision; and (ii) the address of the office of the Australian Taxation Office shown on the written notice of the appealable objection decision served on the applicant under the Taxation Administration Act; and (c) be filed in the Registry of the Court in the State or Territory in which the Taxation Office is located." 28 The issue arises whether the provisions of s 14ZZN are mandatory not only as to the time period within which an appeal to the Court has to be lodged: Bayeh v Commissioner of Taxation (1999) 100 FCR 138,but also as to the form or manner in which the appeal is to be instituted. I use the term "mandatory" in the sense that the consequence of a failure to comply with the requirement as to lodging an appeal, where an applicant wishing to appeal is joined to an existing appeal, is that the joinder of the appeal to the existing appeal will be void and of no effect: see Accident Compensation Commission v Murphy [1988] VR 444 at 447; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390. 29 If the only manner in which an appeal against an appealable objection decision may be instituted in the Court is by the taxpayer who is dissatisfied with the Commissioner's objection decision lodging with the Court a separate application in the taxpayer's name in the form of Form 55D, then it would not be a proper exercise of discretion to permit joinder under O 6 r 2(b) or O 52A r 13(2)(b) of applications by other applicants who were dissatisfied with similar objection decisions by the Commissioner. The joinder would be a nullity and would be pointless. If I were to allow the joinder and the proposed applicants did not lodge with the Court an application in the form of Form 55D in their own names, the joinder would not enable the Court to exercise jurisdiction in relation to the joined applicants and they would be well out of time for subsequently lodging an appeal in accordance with s 14ZZN. It is not to the point that the Commissioner has not yet decided whether he would challenge a joinder, in the manner sought, as the proper institution of an appeal by the joined applicants. If the Court does not have the jurisdiction, the Commissioner cannot by inaction confer that jurisdiction. 30 I consider that the Court only has jurisdiction to entertain an appeal against an appealable objection, if the application is lodged in the name of a dissatisfied taxpayer in the form of Form 55D within the prescribed period of sixty days. In Bayeh v Commissioner of Taxation (supra), Beaumont J held that there could not be implied in the Taxation Administration Act a power to grant an extension of time within which an appeal might be lodged as an incident of the Court's jurisdiction under s 14ZZN. His Honour said at 140: "But the use of the verb 'must' in s 14ZZN is, I think, consistent only with an intention on the part of the Parliament to require, as a jurisdictional fact, that the appeal has to be lodged with the Court within the 60 day period there specified, if the Court is to have any jurisdiction in the matter at all." 31 The reasoning of Beaumont J as to the time within which an appeal is to be lodged is equally applicable to the manner in which an appeal is to be instituted. The appeal has to be lodged with the Court. As Beaumont J observed in Re Dalton (1995) 120 FLR 408 at 411: "… the word 'must' is, in my view, the word of most insistent obligation in the English language, and is, if anything, stronger than the word 'shall'." 32 It is also significant that the requirement in s 14ZZN is one which relates to the commencement of an appeal, an initiating court process, rather than one which relates to the taking of a step in an existing proceeding. The provision therefore leaves little room for the argument that an appeal may be instituted in a manner other than that specified in the provision. 33 The provisions in s 14ZZN cannot be characterised as procedural, but are more appropriately described as substantive or jurisdictional. Support for this view may be found in the reasoning of Gummow J in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397. The issue under consideration was whether the applicant was a "person dissatisfied" with a particular objection decision of the Commissioner within s 14ZZ. His Honour said at 405: "Further, in its application to the Court, the provision [s 14ZZ] is one of that class identified by Dixon J in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 165-166, as both dealing with substantive legal relations and giving jurisdiction under s 77 of the Constitution to a federal court with reference to them. The section does so partly by identification of the class of persons entitled to apply and may be compared with s 58E of the Conciliation and Arbitration Act 1904 (Cth), considered in Barrett (supra). This posited jurisdiction of the Commonwealth Court of Conciliation and Arbitration upon 'complaint by any member of an [registered] organisation'. In that special sense it is appropriate to speak of s 14ZZ as a law with respect to standing." 34 I do not consider that the imperative command in s 14ZZN that an appeal must "be lodged with the Court" is answered by ordering that a taxpayer dissatisfied with the Commissioner's decision on the taxpayer's objection to an assessment or an amended assessment be joined as an applicant or appellant in an existing appeal which was itself lodged in the form of Form 55D to the Rules within the required time. The notion of "lodging" an appeal with the Court connotes the filing or depositing of a document with the Court in the name of the appellant, rather than the joinder of the person to a proceeding initiated by a document or application previously lodged or deposited with the Court. 35 Neither s 14ZZN, nor any other provision in the Taxation Administration Act, prescribes the manner or form in which the appeal is to be lodged with the Court. That prescription is left to O 52B of the Federal Court Rules, and in particular to rules 4(1) and 4(3) of that Order (par 27 above). Again, the word of most insistent obligation, "must" is used in those rules. In Posner v Collector for Inter-state Destitute Persons (Vic) (1946) 74 CLR 461, Williams J (who dissented on a different issue) described "must" as "a word of absolute obligation". Do O 52B r 4(1) and r 4(3) have the consequence that the only means by which an appeal against an appealable objection decision can be instituted is by the applicant filing a Form 55D application in the applicant's name? 36 The applicant submitted that the requirement to file an application (O 52B r 4(1)), and the requirement for the application to be in the form of Form 55D (O 52B r 4(3)), was a matter of procedure and did not require, in the case of multiple applicants, the filing of separate applications. The particular rules are aptly described as procedural, but that does not answer the question whether the requirement in them is that each appellant or applicant must file his, her or its own application. Nor does it answer the question whether the requirement is mandatory, so that disregard of the requirement will render void and ineffective what is otherwise done, such as joinder to an existing appeal, or whether it is directory only in which case non-compliance with the requirement will be treated as an irregularity, with the result that the validity of the joinder of the appellant or applicant will not be affected. 37 The answer to those questions depends upon a consideration of the scope and purpose of the Rules, recognising that they are designed to implement an appeal process provided for by ss 14ZZ and 14ZZN of the Taxation Administration Act. 38 Although O 1 r 8 enables the Court to dispense with compliance with any of the requirements of the Rules and although the Court has the power under O 52A r13 (through O 52B r 3) to direct the joinder of parties in an appeal against an appealable objection decision, I do not consider that these powers extend to dispensing with the requirement in O 52B r 4 that an application be filed in the form of Form 55D in order for an appeal to be instituted for the purposes of ss 14ZZ and 14ZZN. 39 The scheme of the Rules, taken in conjunction with the jurisdiction created by s 14ZZ and the mandatory requirements of s 14ZZN, leads me to the conclusion that the only way in which an appeal may be instituted in the Court against an appealable objection decision of the Commissioner is to file or lodge with the Court an application in the form of Form 55D. An application for joinder in an existing appeal, if granted, would not constitute the institution of such an appeal by the joined applicant. 40 In the circumstances, I propose to refuse to order the joinder of the proposed applicants. It is therefore not necessary to consider the other issues raised by the applicant as justifying an order for joinder, nor do I need to consider the Commissioner's submission that I should not make an order for joinder which is inconsistent with Practice Note 18 relating to the Tax List. 41 The applicant's motion for joinder of the four proposed applicants as applicants in the proceeding will be dismissed. As the Commissioner did not oppose the application, the appropriate order as to costs, subject to any submission the parties may wish to make, is that there should be no order as to the costs of the motion.