Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd

1. The applicant be granted leave to begin and proceed with these proceedings as against the first respondent pursuant to s 471B of the Corporations Act 2001 (Cth) on condition that the applicant will not take any step to enforce against the First Respondent any order for the payment of any amount of money, whether by way of penalty, costs or otherwise, without the further leave of the Court.
2. Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

LOGAN J: 1 History records that upon the restoration of the Monarchy, the Restoration Parliament, in 1660, made provision for the exhumation and trial of the four principal regicides, each of whom was by then deceased: Lord Protector Oliver Cromwell, John Bradshaw, the President of the High Court of Justice for the trial of King Charles I, Henry Ireton, Cromwell's son-in-law and a general in the New Model Army during the English Civil War, and Colonel Pride. Perhaps because the latter's corpse was too badly decayed, in the result only the corpses of Cromwell, Bradshaw and Ireton were ceremonially tried, convicted and then subjected to hanging, drawing and beheading. That ceremonial execution, not by coincidence, occurred on 30 January 1661, the anniversary of the execution of King Charles I. Again not by coincidence, the beheading occurred at Westminster Hall, the place of the late King's execution. The regicides' heads were then displayed on pikes outside Westminster Hall, so as to deter those minded to commit high treason. 2 Metaphorically, the Commissioner of Taxation seeks a similar fate for a similar reason in respect of the first respondent, International Indigenous Football Foundation Australia Pty Ltd (In Liquidation), formerly known as Australian R&D Funds and Grants Services Pty Ltd. By that I mean that the Commissioner seeks leave, pursuant to s 471B of the Corporations Act 2001 (Cth) (Corporations Act), to proceed against the company, notwithstanding that it is in liquidation, for the purpose of securing declaratory relief and the imposition of pecuniary penalties in respect of alleged contraventions of the promoter penalty regime found in Ch 4, Pt 4.25, Div 290 of Sch 1 to the Taxation Administration Act 1953 (Cth) (Taxation Administration Act). 3 So far as an application for leave to proceed in respect of a proceeding in respect of the alleged contraventions is concerned, there is a novelty about the Commissioner's application. However, viewed as against the wider context of other applications by public regulators for leave to proceed against companies in liquidation so as to secure declaratory relief and the imposition of civil penalties, the issue raised for consideration is no new subject. In their helpful submissions, Mr Looney QC and Mr Begbie, who appeared for the Commissioner, have drawn attention to a series of authorities in the original jurisdiction wherein judges have been disposed to grant leave to proceed against a company, notwithstanding that it is in liquidation: see as to this by way of example Secretary, Department of Health and Ageing v Prime Nature Prize Pty Ltd (In Liquidation) [2010] FCA 597, Australian Competition and Consumer Commission v Link Solutions Pty Ltd [2008] FCA 1790, and Atlas Copco Australia Pty Ltd v Max Smith Enterprises Pty Ltd [2009] FCA 1054. 4 Leave has also been granted in respect of companies in administration: see, for example, Australian Competition and Consumer Commission v Advanced Medical Institute (Administrator Appointed) (No 3) [2011] FCA 348. 5 It does not axiomatically follow that, even though leave to proceed is granted, that, if a contravention is established, a penalty will be imposed on a company in liquidation. So much is clear from the judgment of the Full Court in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 at [13] to [21] (Dataline). One factor which has been regarded as relevant as to the latter but by no means determinative in relation to whether a penalty should be imposed is whether there is evidence from which the Court might infer that a third party or even a related company might meet the obligation of the company to pay the pecuniary penalty imposed. That consideration has arisen at the stage of considering after proof of contravention whether to impose a civil penalty. It does though seem to me that it is also a relevant, but again by no means determinative, consideration in respect of whether to grant leave to proceed at all. 6 In this instance, there is no evidence from which one might infer that any third party, be it that party, a related entity or otherwise, has any interest at all in paying whatever penalty might come to be imposed in the event that the alleged contraventions, or some of them, were proved. That though, as I have observed, is not determinative of the fate of the application. 7 Section 471B of the Corporations Act confers on the Court a wide discretion as to whether or not to grant leave. The purpose of the statutory restriction has been stated to be so as to ensure that a company in liquidation is not "subjected to a multiplicity of actions which would be both expensive and time-consuming, as well as, in some cases, unnecessary": Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 at 316. 8 In this instance, the liquidators, who have been served with the Commissioner's application raise no such objection. They do not propose that the company take any active contradictor stance at all in respect of the proceeding. They do not otherwise suggest that it would be inappropriate to grant leave. That this is the position of the liquidators is evident from communications with the Commissioner's solicitors. They have not appeared. 9 It is relevant in respect of the exercise of the discretion in the circumstances of the present case that any civil penalty imposed by the Court would not be admissible as a provable debt against the company in liquidation: s 553B, Corporations Act, Mathers v Commonwealth of Australia (2004) 134 FCR 135. Thus, the interests of the creditors would not be adversely affected either by the visiting of costs of the expense of litigation or diminution fractionally by the proof of a civil penalty debt if one were to be imposed. 10 That then leaves for consideration other questions which are ordinarily relevant in respect of this type of application, namely, whether the proceeding at least involves a serious question to be tried, whether there is a public interest in the continuation of a proceeding against the company, and whether the relief sought is otherwise not available than via the present proceeding. As to the latter, the only means by which the Commissioner could secure the imposition of pecuniary penalties, and even declaratory relief as against the company, is by the present proceeding. 11 Division 290, and in particular, Subdiv 290-50 of the Taxation Administration Act, Sch 1, can be seen to serve the singular public purpose of integrity in the collection of public revenue, and in the deterrence of endeavours to subvert the lawful collection of public revenue, in particular by the promotion of schemes which exploit beneficial provision in respect of research and development expenditure. 12 In the context of other civil penalty regimes, deterrence has been regarded as an important consideration in relation to the exercise of a discretion as to whether to impose a penalty on a company in liquidation. The cases concerned are collected in the passage to which I have referred in the Full Court's judgment in Dataline. 13 I can well see that there is a public interest in the continuation of the present proceeding. That in itself is not determinative, for if there were no serious question to be tried, there would be no point in granting leave. 14 A study of the statement of claim in conjunction with the affidavit of Mr Lockwood does, in my view, disclose that there is at least a serious question to be tried. That arises from the evidencing of the following: arrangements between the company and particular taxpayers detailed in the annexure to the statement of claim, whereby the company would provide advice and services in the claiming of tax incentives, particularly research and development tax incentives, for which it would receive 15% of the tax benefits received by the client. Applications and related calculations and information prepared by the company and then relied upon by the client taxpayers as part of their tax returns in seeking research and development based tax incentives or benefits, the subsequent receipt of such benefits and incentives by the taxpayers as a result of the services provided by the company provided a basis for apprehending that at trial the Commissioner will lead evidence that particular components of the research and development expenditure claimed were either not paid or not substantiated. In other words, in respect of the particularised instances of benefits allegedly not lawfully obtained as set out in annexure A to the statement of claim a basis is disclosed for concluding that there is a serious question to be tried. That being so, the case in my view is one for a grant of leave. 15 Leave to proceed can be granted nunc pro tunc. Also relevant to the exercise of the discretion that the Commissioner does not seek that leave be granted unconditionally. It is relevant to note that the Commissioner seeks leave, and I am disposed, for that matter to grant it, on terms that the Commissioner not enforce any judgment against the company without the leave of the Court. That type of condition has been imposed in the past: see Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Company Arrangement) [2016] FCA 1246 at [127]. To impose it will provide an additional measure of protection for the company's creditors. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.