Commissioner of Taxation v Residence Riverside Proprietary Limited as Trustee for the D&J Discretionary Trust and as Trustee for the D&J Investment Trust

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 46 of 2013

AND: RESIDENCE RIVERSIDE PROPRIETARY LIMITED AS TRUSTEE FOR THE D&J DISCRETIONARY TRUST AND AS TRUSTEE FOR THE D&J INVESTMENT TRUST (ACN 155 903 209)

JUDGE: MCKERRACHER J DATE: 23 JULY 2013 PLACE: PERTH

NATURE OF THE DISPUTE 1 Mr and Mrs Bollands are no longer married and are involved in a substantial property dispute in the Family Court of Western Australia (the State Family Court). Within the Bollands household, there have been relatively sophisticated trust arrangements which have been and remain indirectly controlled by either Mr Bollands or Mrs Bollands through trustee companies. The trustee companies hold the interests in various properties on trust for beneficiaries who include Mr and Mrs Bollands. 2 At the same time that the State Family Court proceedings are ensuing, the Commissioner has brought a proceeding in this Court. His claim is brought against Riverside in its capacity as trustee for two of the trusts, the D&J Discretionary Trust and the D&J Investment Trust. The background to the claim as reflected in the statement of claim is that as at 2 April 2012 a tax related liability was payable by Mr Bollands in the total sum of approximately $11.4 million in respect of income tax, shortfall interest and penalties in accordance with amended assessments and assessments issued on 9 March 2012. Riverside in its capacity as trustee for the two trusts owed money to Mr Bollands as a beneficiary of the trusts. 3 Mrs Bollands comes into the picture as the sole director and sole shareholder of Riverside. The Commissioner has issued a statutory notice to Riverside requiring it in its capacity as trustee to pay to the Commissioner approximately $11.4 million or, if there is a shortfall, all money available in each trust and owed by it to Mr Bollands. 4 Certain amounts have been paid. The outstanding issue in this proceeding now relates to orders the Commissioner seeks that Riverside as trustee for the D&J Investment Trust pay the Commonwealth some $2 million and interest. The Commissioner also seeks a declaration that he be subrogated to Riverside's right of indemnity from the property from the D&J Investment Trust in that sum, a declaration that the Commissioner may (in exercise of Riverside's right of exoneration) realise the property of the D&J Investment Trust to the extent of the debt, alternatively, an order that a receiver be appointed without security and with such powers as the Court shall confer to achieve those ends. 5 In argument before me, counsel for the Commissioner asserted that the relief sought by way of subrogation is presently unprecedented but that argument in relation to that claim will take less than a day. Ms Thompson also made the point that it was accepted that it may be necessary to stay orders of this Court pending resolution of proceedings in the State Family Court. 6 In the proceedings in the State Family Court, the Commissioner (via the Deputy Commissioner) has also intervened to protect the Commonwealth's interest in the tax debt. It is unclear to what extent the Commissioner will continue to participate in those proceedings. Injunctive relief was granted by consent in December 2012 in order to preserve the status quo until rights, liabilities and obligations have been determined. However, it seems unlikely that the Commissioner will have a particular interest in being involved in the family law property disputation as between Mr and Mrs Bollands. 7 Mrs Bollands has been somewhat indirectly drawn into the proceeding in this Court which is directed to recovery of tax liabilities of Mr Bollands. In a sense, however, that is a consequence of the responsibilities she has assumed in her capacity as the sole officer of the corporate trustee, Riverside. 8 Mrs Bollands, speaking for Riverside and herself, would much prefer the whole matter to be dealt with under the rubric of the existing State Family Court proceeding. She seeks an order cost-vesting this proceeding to the State Family Court. Mr Bollands has indicated that he neither consents nor opposes the order. The Commissioner is firmly opposed to the transfer.

THE LEGISLATIVE SCHEME 9 The cross-vesting scheme was recently discussed in Beaman v Bond, in the matter of an authority under section 188 of the Bankruptcy Act 1966 (Cth) signed by Craig David Bond [2013] FCA 534 where I noted the following (at [12] and at [21] - [24]): 12 Section 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (the Cross-vesting Act) and s 3(2) of the Cross-vesting Act respectively provide: 5 Transfer of proceedings … (4) Where: (a) a proceeding (in this subsection referred to as the relevant proceeding) is pending in the Federal Court or the Family Court (in this subsection referred to as the first court); and (b) it appears to the first court that: (i) the relevant proceeding arises out of, or is related to, another proceeding pending in the Supreme Court of a State or Territory and it is more appropriate that the relevant proceeding be determined by that Supreme Court; … (iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of a State or Territory; the first court shall transfer the relevant proceeding to that Supreme Court. … 3 Interpretation and application … (2) A reference in this Act, other than a reference in subsection 4(1), 5(3) or 7(4), to the Supreme Court of a State includes, if there is a State Family Court of that State, a reference to that State Family Court. … (emphasis added to key elements) … 21 The purpose of s 4(3) of the Cross-vesting Act is to recognise that proceedings should be conducted in the most appropriate court and if necessary to clothe that court with sufficient jurisdiction in order to complete those proceedings. Section 4(3) of the Cross-Vesting Act provides as follows: 4 Additional jurisdiction of certain courts … (3) Where a proceeding is transferred to the Federal Court, the Family Court or a State Family Court of a State, that court has, by virtue of this subsection, jurisdiction with respect to so many of the matters for determination in the proceeding as that court would not have apart from this subsection. … (emphasis added) 22 In addition to the specific reference in s 4(3) of the Cross-vesting Act, the fact that s 4(4) expressly excludes the cross-vesting of certain federal matters, namely, Conciliation and Arbitration, Fair Work, Native Title and certain anti-competitive provisions of the Competition and Consumer Act 2010 (Cth), reinforces the conclusion that federal Parliament did not intend to preclude the power to cross-vest cases other than those there specified. Bankruptcy is not in that category. 23 The effect of s 3(2) of the Cross-vesting Act is to treat the Family Court, for the purposes of a transfer application, as the Supreme Court of Western Australia: see Mitchell v McGillivray (2001) 107 FCR 161 and McCormack v Newburg Enterprises Pty Ltd [2002] FCA 457. 24 Upon transfer from this Court pursuant to the Cross-vesting Act, the Family Court obtains jurisdiction to determine the whole of the proceeding that was in this Court: see McCormack (at [11]). It exercises this Court's federal jurisdiction only in the matter transferred.

RELEVANT PRINCIPLES 10 On a transfer application it is necessary to take into account: the importance of making the best use of scarce judicial resources; the specialist nature of one court or another in relation to the subject matter of the litigation to prevent unnecessary costs being incurred by the parties to litigation; and the desirability of avoiding the risk of inconsistent findings. 11 In addition: If it appears to the Court that the legislative criteria are established such that it is in the interest of justice that the proceedings be determined by another court then the first court is required by legislation to exercise the power of transfer. No exercise of discretion arises: BHP Billiton Ltd v Schultz (2004) 221 CLR 400 per Gleeson CJ, McHugh and Heydon JJ (at [14]), per Gummow J (at [62]) and per Callinan J (at [222]). The elements of evaluation or discretion that lead to the conclusion that it is in the interest of justice to transfer (thus making it obligatory to transfer) include the likelihood that there will be more efficient use of judicial resources, the likelihood that contrary findings of fact arise or conflicting orders being made on the same material can be achieved and the likelihood that costs can be minimised: McCormack v Newburg Enterprises Pty Ltd [2002] FCA 457 per Lee J (at [12]). The interests of justice referred to in s 5 of the Cross-vesting Act is not divorced from practical reality BHP Billiton Ltd (at [15]). The decision calls for a 'nuts and bolts' management decision as to which Court is the more appropriate to hear and determine the substantive dispute: BHP Billiton Ltd (at [13]) and Zhu v Tech Universal (HK-Macau) Development Pty Ltd, in the matter of Tech Universal (HK-Macau) Development Pty Ltd (2005) 53 ACSR 704 per Gyles J (at [8]).

CONSIDERATION 12 The Federal Court proceeding does not 'arise out of' the State Family Court proceeding. There is no causal relationship between the two proceedings so that it could be said that 'one results, or proceeds or originates from or out of the other' in the sense discussed in Hoddell v Hoddell Pty Ltd [1999] WASC 156 per Murray J (at [20]). The Federal Court proceeding arises out of the Commissioner's assessment of the liability of Mr Bollands for income tax, the Commissioner's use of his powers under s 260-5 in Sch 1 of the Taxation Administration Act 1953 (Cth) (TAA) to recover that liability from Riverside and the alleged failure of Riverside to comply with a statutory obligation imposed upon it by virtue of that section of the TAA. 13 As noted, the threshold requirement for transfer under the cross-vesting scheme is that a matter 'arise out of or be related' to the proceeding in the other court. Riverside argues that the subject matter of the Federal Court proceeding, in other words, the D&J Discretionary Trust and the D&J Investment Trust and the assets of those trusts, is a subject matter that is directly related to ascertaining the asset pool available for division between the parties in the State Family Court proceeding. The parties to each proceeding are the same or will be and there is a commonality of facts in the respective proceedings through the direct and indirect involvement of Mr and Mrs Bollands through the entities. Those elements, it contends, are sufficient to satisfy the statutory provision. It draws on the observations of Greenwood J in Amalia Investments Ltd v Virgtel Global Networks NV (No 2) (2011) 198 FCR 248 where his Honour said (at [41]): A relevant proceeding arises out of another proceeding if there is some causal element between the two even if the causal element is not "… direct or proximate": Re Hamilton Irvine (1990) 94 ALR 428 at 432. A pending proceeding relates to another proceeding if the two are associated or connected: Re Hamilton Irvine at p 433; Leithead v Leithead (1991) 109 FLR 177; Hoddell v Hoddell Pty Ltd [1999] WASC 156; Armstrong v Armstrong [2004] WASC 121, [49] to [56]; Bell Group Ltd v Westpac Banking Corporation (2000) 173 ALR 427 at [186] to [203]. A proceeding is related to another proceeding where "… a substantial and common question" arises in both proceeding (Mattock v Mattock (1989) 13 Fam LR 288 per McLelland J at 290) or where the "… facts and circumstances in the two proceedings … appear to be intertwined" (Foley v Green [2011] VSC 155 per Almond J at [21]. In Buckley v Gibbett, the two proceedings were found to be related on the footing of the "… essential commonality of facts and of parties" thus satisfying the "… requirements of relationship" per RD Nicholson J at p 560F. 14 The Commissioner submits that the proceedings are unrelated. The Commissioner asserts that the fact that Mr Bollands is involved in proceedings in the State Family Court with his former wife is merely coincidental as the Federal Court proceedings arise out of Mr Bollands' status as an Australian taxpayer and as a creditor of the trusts. These trusts are in no way related to the concept of division of matrimonial property. The matter will be 'related to' another if there is a substantial common question that arises in both: Mattock v Mattock (1989) 97 FLR 112 per McLelland J (at 115). Even commonality of facts would not necessarily mean that proceedings are related: Buckley v Gibbett (1996) 69 FCR 554 per RD Nicholson J (at [559G]). An essential commonality of facts and parties may mean the relationship requirement is satisfied. There are practical indications that the proceedings are not related. From a practical perspective there are different legal representatives in each of the courts and while Riverside may be joined to the State Family Court proceedings, it is not presently a party. 15 But more importantly, at a practical level, the debate in this Court which was initiated by the Commissioner requires resolution of a narrow question of law pertaining to tax. It is wholly unconnected to the matrimonial property division. As is evident from the time estimate of 7 to 10 days for the State Family Court dispute and as would be expected in any event, the range of factual matters to be there explored is considerably broader. It may be expected that there will be a significantly more wide-ranging factual inquiry in order to consider the asset pool available for property settlement between the former matrimonial couple and the basis upon which such settlement should occur. 16 Nevertheless even assuming that the first threshold is established, namely that the Federal Court proceeding is 'related to' the State Family Court proceeding, the same considerations as to what is involved in resolution of each of the proceedings are also relevant to the question of whether it is in the interests of justice for there to be a transfer. This is generally viewed as being a value judgment: Dawson v Baker (1994) 120 ACTR 11 (at 14). 17 In my view, ordinarily where cross-vesting transfer occurs, the factors in support of it would be obvious and a conclusion that the value judgment or decision about whether it is in the interests of justice for the proceeding to be dealt with in another court will be readily instinctive taking into account a variety of matters including: the stage of the proceedings in the respective courts; the commonality or diversity of the parties; the nature of the proceedings; the commonality or diversity of the issues; the risk of conflicting findings of fact or conflicting orders; a cost benefit analysis; the potential unnecessary drain on judicial and other public and private resources; and whether there is any particular judicial expertise residing in one court or the other. 18 Because of the narrow compass of the dispute in this Court, the proceedings are relatively well progressed and, subject to the respondents filing any evidence on which they seek to rely, a short hearing to finally determine the application can be listed with capacity to resolve the matter within a few months. These were matters taken into account by Besanko J in Macks v Edge [2006] FCA 1077 (at [42]). On the other hand, the State Family Court has assigned the property dispute to the complex track for case management by a judge on the basis that it 'involves complicated issues of fact, law or evidentiary material which would benefit from individual case management by a judge'. It seems improbable that resolution of the State Family Court proceeding is capable of being achieved as swiftly. 19 It is not apparent to me that there is a conflict between the orders made in the State Family Court proceedings in December 2012 restraining (by consent) disposition of property and the relief sought in this Court or at least not a conflict that cannot be addressed by appropriate drafting of or staying any relevant orders. 20 Given that there is a discrete but novel question going to the Commissioner's power, on a point previously untested, there may be merit in that issue being first considered in this Court which deals frequently with tax disputes involving the Commissioner rather than in the State Family Court.

CONCLUSION 21 For all those reasons, although I can understand why Riverside (through Mrs Bollands) has pursued this application, I am not satisfied for the purposes of s 5(4)(b)(i) of the Cross-vesting Act that it is more appropriate that the proceeding be determined by the State Family Court or within s 5(4)(b)(iii), that it is in the interests of justice that this proceeding be determined by the State Family Court. 22 It follows that I decline to transfer the relevant proceeding. 23 I propose reserving the costs of the application to the substantive determination of the Commissioner's application and listing the proceeding for further directions. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.