BETWEEN : DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA

Summary judgment - Extension of time - "Legitimate expectation" - Stay of action

Income Tax Assessment Act (1936) (Cth), Pt IVA, s 175, s 177, s 177F, s 201

Taxation Administration Act 1953 (Cth), Pt IVC, s 14ZZM, s 14ZZR, sch 1, s 255-10

Application for an extension of time to bring summary judgment application granted

AGC (Investments) Limited v Federal Commissioner of Taxation (1991) 21 ATR 1379

Attorney-General (NSW) v Quinn (1990) 170 CLR 1

Batagol v Federal Commissioner of Taxation [1963] HCA 51; (1963) 109 CLR 243

Century Metals & Mining NL v Yeomans [1989] FCA 273; (1989) 40 FCR 564

Clyne v Deputy Commissioner of Taxation (NSW) (1982) 43 ALR 342

Cole v Cunningham (1983) 81 FLR 158; 49 ALR 123

Cooke v Commissioner of Taxation [2002] FCA 1315

Cox v O'Donnell [1992] FCA 26; (1992) 34 FCR 42

Daihatsu Australia Pty Ltd v Deputy Commissioner of Taxation (2001) 182 ALR 239; 2000 ATC 4763; (2000) 46 ATR 129

Deputy Commissioner of Taxation v Australian Machinery and Investment Co Pty Ltd (1945) 47 WALR 9

Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Ltd [1995] HCA 23; (1995) 183 CLR 168

Deputy Commissioner of Taxation v Worn (No 2) (1993) 93 ATC 4584

Deputy Commissioner of Taxation v Collie & Ors (1995) 95 ATC 4764

Deputy Commissioner of Taxation v Ewen (1984) 84 ATC 4550

Deputy Commissioner of Taxation v Manners (1985) 85 ATC 4294

Deputy Commissioner of Taxation v Saunders [2001] WASC 48; (2001) 46 ATR 334

Deputy Federal Commissioner of Taxation v Hells Angels Ltd (2) (1984) 84 ATC 4548

Deputy Federal Commissioner of Taxation v Trower (1986) 86 ATC 4157

Elias v Commissioner of Taxation [2002] FCA 1132

Elias v Federal Commissioner of Taxation (2002) ATC 4579

Ellison v Deputy Federal Commissioner of Taxation (1999) 99 ATC 4576

The Commissioner of Taxation of the Commonwealth of Australia v Prestige Motors Pty Ltd [1994] HCA 39; (1994) 181 CLR 1

Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105

FJ Boeman Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27; (1981) 147 CLR 360

George v Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183

Haoucher v (Minister for Immigration and Ethnic Affairs) [1990] HCA 22; (1990) 169 CLR 648

Howland-Rose v Commissioner of Taxation [2002] FCA 246; (2002) 49 ATR 206

McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263

Minister of State for Immigration and Ethnic Affairs v Ah Hin Teoh [1995] HCA 20; (1995) 183 CLR 273

O'Reilly v Commissioners of the State Bank of Victoria [1983] HCA 47; (1983) 153 CLR 1

Puzey v Commissioner of Taxation [2002] FCA 1171

Robbins v Commissioner of Taxation (1974) 129 CLR 332

Sunrise Auto Ltd v Commissioner of Taxation (1995) 61 FCR 446

Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507

Vincent v Commissioner of Taxation [2002] FCA FC 291

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1998) 164 CLR 387

Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598

Whim Creek Consolidated NL v Colgan [1991] FCA 467; (1991) 31 FCR 469

Whitehall Holdings Pty Ltd & Anor v Custom Credit Corporation Ltd, unreported; FCt SCt of WA; Library No 9189B; 13 December 1991

Wilson v Wallani (1880) 5 Ex D 155

1 ACTING MASTER DIXON: By chamber summons dated 15 August 2002 the plaintiff sought leave to bring an application for summary judgment against the defendant and to enter judgment against the defendant in the sum of $26,967,086.90. At the same time, by a chamber summons dated 20 September 2002, the defendant sought an order staying this action pending determination of proceedings in the Administrative Appeals Tribunal ("AAT") and any appeals arising there from or until further order. Both applications came on for hearing on 8 November 2002 at which time the parties also sought to strike out various paragraphs of affidavits filed by the other.

2 Prior to dealing with these various matters, I will set out what is the crux of the dispute between the parties. The following is, I think, common ground:

1. The plaintiff has raised a series of assessments against the defendant in relation to his taxation affairs. There are three dated 23 October 2000 ("the October assessments") and three dated 23 November 2000 ("the November assessments").

2. The October assessments arise in relation to a tax minimisation scheme known as "Infomercials". The November assessments relate to other matters, the details of which are not relevant.

3. These proceedings were commenced on 13 February 2001.

4. Subsequently, in 2001 and 2002 the Federal Commissioner of Taxation made a series of public statements by way of media releases in relation to tax minimisation schemes including but not limited to Infomercials. These various statements are annexed to various affidavits filed by the plaintiff in the proceedings.

5. The defendant has proceedings on foot in the AAT in relation to both the October and November assessments.

3 The issue now is whether, in relation to the October assessments, those statements were such as to give rise to a legitimate expectation on the part of the defendant that the plaintiff would not proceed further with this action until such time as the AAT proceedings regarding the October assessments had been determined, an expectation that the plaintiff may now not resile from. There were other issues raised in the applications however this is the key issue in my view and my decision turns on this.

4 For the reasons that I have set out below, I would allow the plaintiff's application for an extension of time within which to bring the application for summary judgment but would give the defendant leave to defend the action. I would refuse the defendant's application for a stay of the action.

5 As I have said the matter turns on the effect of various statements made by the Commissioner and on his behalf, extracts of which I have set out below. These statements were made against the background that a number of test cases were being run in relation to various tax minimisation schemes which, it was felt, would determine whether or not they were lawful.

6 By way of media release Nat 01/30 dated 26 April 2001, it was said by the ATO in relation to "mass marketed taxation schemes":

"...We will agree not to take legal recovery action on outstanding debts in all mass marketed abusive tax effective scheme cases where an objection has been lodged provided there is no evidence of action such as dissipation of assets to avoid meeting their tax liability. We will review this position based on the decisions handed down. A lack of progress or continuing withdrawal of cases will also cause us to review the position."

7 Subsequently, in a document dated June 2001 titled "Facts on 'Tax Effective' Investments", under the heading "Recovery action on hold", the following appears:

"Where an investor has a current objection or appeal against an amended assessment, we will not take any action to recover outstanding debts which relate to these investment arrangements.

This undertaking applies as long as there is no evidence of action to dispose of assets to avoid paying tax.

If you do not have a current objection or appeal you should contact your debt case manager to discuss your individual circumstances.

We will also hold off determining objections in most cases.

Once court decisions are handed down on the test cases we will review our position on deciding objections and taking action to recover outstanding taxes. We will review our approach if there is lack of progress in getting cases to court.

You may still receive notices updating you on interest accruing on your debt."

8 Subsequently, by way of a media release Nat 02/07, the date of which is unclear, the Commissioner announced a settlement offer for those involved in mass marketed tax schemes including persons involved in Infomercials. The media release quoted the Commissioner as saying that the offer would remain open until two months after the judgment at first instance of the Federal Court in the Budplan scheme case and that

"Investors can of course choose not to settle and await the outcome of further Court decisions or their own individual appeals. However, this is the final general settlement offer to mass marketed scheme investors. Investors not taking up the settlement offer will have their tax liability determined in accordance with the ultimate court decisions."

9 In a document titled "Backgounder for Media Release 2002/07" under the heading "What happens if an investor chooses not to settle?", the following appears:

"If an investor doesn't settle within the two months period after the Budplan decision the Tax Office will commence deciding outstanding objections. Investors will need to decide whether to lodge their own individual appeals.

...

Normal collection arrangements will apply to outstanding debts."

10 The period for acceptance of the offer was extended subsequently to 21 June 2002. It is common ground that the offer was not accepted by the defendant.

11 Finally, by way of an ATO media release dated 4 July 2002, the Tax Commissioner announced the acceptance rate of the settlement proposal. He went on to say:

"We will write to those investors who have not settled to explain what action the Tax Office will now take.

In most case we will be deciding outstanding objections against assessments and this will give investors the opportunity to pursue their individual appeals in the Courts or the Administrative Appeals Tribunal.

These investors will have their tax liability determined in accordance with the outcome of their appeal."

12 I pause at this point to deal with the plaintiff's application for an extension of time within which to bring the application for summary judgment. It is clear that there has been a significant delay in bringing the application for judgment. The writ was issued on 13 February 2001 and an appearance entered on 5 July 2001. A defence and a request for further and better particulars were filed on 13 July 2001. Those particulars were provided on 21 September 2001. At a status conference on 21 September 2001 the case management Registrar was informed that the plaintiff would be bringing an application for summary judgment. Thereafter no action was taken until 21 June 2002 when the parties attended a further status conference and again counsel for the plaintiff indicated that an application for summary judgment would be made. The application was filed on 15 August 2002.

13 Pursuant to O 14 r 1(1), any application for summary judgment was to be brought within 21 days of the entry of the appearance , namely, 26 July 2001, or at any time later with leave of the Court.

14 The plaintiff's position in this respect is that the writ was filed due to concern that the defendant was dissipating his assets. In April 2001, and prior to service of the writ, consideration was given to the seeking of a mareva injunction. The writ was served by way of substituted service on 29 June 2001. In August 2001 the plaintiff was advised that there was insufficient evidence to succeed in an application for a mareva injunction. In light of this advice and the prior publication in April 2001 of media release Nat 01/30, the plaintiff "refrained from taking any further action to prosecute the writ until the Commissioner's position on legal recovery in mass marketed schemes was reviewed after Court decisions had been handed down" - see par 14 of the affidavit of Coates sworn 28 October 2002. According to the plaintiff's written submissions dated 4 November 2002, this occurred in August 2001. I note however that at a status conference on 21 September 2001 the plaintiff's counsel indicated that an application for summary judgment would be made in the following two weeks. Quite how this fits in with the plaintiff's version of event I do not know. I can only assume that the decision of the plaintiff not to proceed with the action was made after 21 September 2001 meaning that there had been a delay of some two months or so by that stage. On 20 June 2002 the defendant advised the plaintiff that the Commissioner's offer would not be accepted and on that date the plaintiff's solicitor was instructed to apply for summary judgment. On 2 August 2002 the plaintiff's solicitor instructed counsel to settle the application for judgment. The application was filed on 15 August 2002.

15 I would give the plaintiff an extension of time within which to bring the application. The delay appears to fall into three parts. The reason for the delay between 26 July 2001, being the last date for the making of the application, and late September or October 2001, when it seems that the decision not to proceed must have been made, is not entirely clear. I accept though that during this period and in light of the Commissioner's statements, whether the action would proceed or would be placed on hold pursuant to those statements was dependant in part upon whether the defendant was dissipating assets. Until this issue was resolved the plaintiff's position was not clear. Advice was received on this issue in August 2001. The plaintiff considered that advice and subsequently took the view that the matter should not proceed further until various decisions had been delivered in accordance with the Commissioner's statements. The delay during this period is of concern but should be looked at in light of these matters and the fact that I do not see that the defendant suffered any real prejudice during this period. In the period from October 2001 to June 2002 when the plaintiff's offer was refused by the plaintiff, the delay was based upon the plaintiff's view of the effect of the Commissioner's statements, a view that the defendant can hardly dispute. Finally, there was a delay between 20 June 2002 and the filing of the application on 15 August 2002 however I do not think that that was excessive in the circumstances and nor do I think that the plaintiff has suffered prejudice as would warrant the refusal of the application.

16 In extending the time for the bringing of the application I am conscious of the special position of the plaintiff as set out by Master Sanderson in Deputy Commissioner of Taxation v Heaton (1997) 35 ATR 450 and the importance of compliance with the rules of court as a consequence of that. I remain of the view that the application should be allowed.

17 Turning now to the application for summary judgment itself, "the power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried" - Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99_._

18 I have set out above at some length the various statements made by or on behalf of the Commissioner. The plaintiff accepts, I think, that in light of the Commissioner's statements and without evidence that the defendant was dissipating his assets, the plaintiff was not entitled to proceed further with the action until such time as the time for acceptance of the Commissioner's settlement offer had expired or the offer had been rejected. As I understand it, it was accepted by counsel for the plaintiff that the various statements of the Commissioner may have given rise to a legitimate expectation that the action would not proceed pending the expiry or rejection of the settlement offer. Such an expectation would cease thereafter. Reliance is placed in this respect on the statement that appears in the document titled "Backgounder for Media Release 2002/07" under the heading "What happens if an investor chooses not to settle?" As set out above, the following appears:

"If an investor doesn't settle within the two months period after the Budplan decision the Tax Office will commence deciding outstanding objections. Investors will need to decide whether to lodge their own individual appeals.

...

Normal collection arrangements will apply to outstanding debts."

19 The plaintiff relies upon the final sentence as making it clear that in the event the offer were not accepted then the plaintiff would be in a position to take legal action to recover monies due or, in the present case, continue with the action already on foot.

20 The defendant, on the other hand, says that the various statements of the Commissioner gave rise to a legitimate and reasonable expectation on the part of the defendant that the plaintiff would not proceed further with the action until such time as the defendant's AAT proceedings in relation to the October assessments had been determined. It is clear in this respect that the creation of a legitimate expectation may give rise to a duty to observe procedural fairness - see Consolidated Press Holding Ltd & Ors v Federal Commissioner of Taxation [1994] FCA 1367; (1995) 129 ALR 443, and that where a public authority has promised to follow a certain procedure, it should act fairly and implement that promise so long as that does not interfere with its statutory duty - see Attorney General of Hong Kong v Ng Yuen Shiu [1983] UKPC 2; [1983] 2 AC 629.

21 The legitimate expectation is said to have arisen in two ways. First, the defendant relies on that part of the document referred to above dated June 2001 titled "Facts on 'Tax Effective' Investments", which under the heading "Recovery action on hold" provides:

"Once court decisions are handed down on the test cases we will review our position on deciding objections and taking action to recover outstanding taxes."

22 The defendant says that his appeal in the AAT is the Infomercial test case and as such, until such time as that matter is determined by the AAT, the plaintiff is not entitled to proceed further with the action. There is disagreement on the issue of whether the plaintiff's AAT appeal is in fact a test case. The plaintiff says that it is not. Certainly there is nothing in the various statements of the Commissioner that suggest that it is a test case. The evidence on behalf of the defendant, both in his affidavit sworn 18 September 2002 and the affidavit of Michael Ian Cooke sworn 5 November 2002, is that it is a test case. It seems from the defendant's affidavit that there have been a number of objections lodged in respect of Infomercial assessments but that only his has been determined. He deposes to having been told by officers representing the plaintiff that only his case was proceeding as it would set a precedent for all other Infomercial assessments. It is also said that the Infomercials scheme was different in certain material respects from other schemes and therefore the results of other test cases would have no bearing on Infomercial assessments.

23 There is some support for this in correspondence from the ATO to the AAT annexed to the defendant's affidavit. There is a letter dated 23 August 2001 in which it is stated:

"The applications for review relate to claims for deductions for purported partnership losses in Infomercials mass marketing tax schemes. This is the first application for review relating to this scheme Australia wide."

24 Similarly, in a letter dated 20 February 2002 from the Australian Government Solicitor to the AAT, it is said that one reason for delay in compliance with certain directions, was "the nature of the tax scheme to which the decisions under review relate (including the fact that the decisions under review in these proceedings are the only decisions made to date in respect of this tax scheme)".

25 As I have said, the defendant seeks to rely in this respect upon matters deposed to in the affidavit of Michael Cooke sworn 7 November 2002. The plaintiff sought to have the contents of that affidavit and other affidavits sworn by Cooke struck out solely on the grounds that the matters deposed to therein are not relevant to the matters in issue, namely, the Commissioner's public statements and whether they raised any legitimate expectations, and, in relation to the stay application, whether the defendant will suffer any hardship. I do not accept this. The issue of whether the defendant's AAT application is a test case is raised in the affidavit of Julie Coates sworn 28 October 2002 and so the matters deposed to by Cooke in relation to that issue are relevant. Cooke says in this respect that at the first AAT directions hearing, he was told by "ATO personnel" that "these were the only infomercial matters in which the objections had been determined and that they expected that this case would be applied to all the Infomercial investors". He confirms that no other Infomercial objections have been determined despite two years having passed. He also sets out why it is that other test cases do not have any application to and cannot determine Infomercial objections.

26 The second way in which this legitimate expectation is said to have arisen is by reason of the statement that appears in the June 2001 publication that:

"Where an investor has a current objection or appeal against an amended assessment, we will not take any action to recover outstanding debts which relate to these investment arrangements."

27 The defendant says that by reason of his appeal in the AAT he is an investor in terms of this statement. I must say that it is not clear to me whether at the date of publication of that statement, namely June 2001, the defendant in fact had an appeal on foot in the AAT.

28 The consequences of the existence of this expectation are two-fold according to the defendant. First, it is said that the plaintiff will be held to the expectation created, namely, that no action would be taken or in this case, proceeded with, until the AAT proceedings had been completed. Second, and as somewhat of a fallback position, it is said that if the Commissioner were to seek to change his position, the defendant would have to be heard on that. Reference was made in this respect to the ATO media release of 4 July 2002 in which the Commissioner is quoted as saying: "We will write to those investors who have not settled to explain what action the Tax Office will now take". The defendant did not receive any correspondence from the ATO setting out the action that it intended taking.

29 In my view there are issues to be tried as to whether the defendant's AAT matter is in fact a test case, as to the meaning and effect of the various statements by the Commissioner, whether they were such as to give rise to a legitimate expectation on the part of the defendant to the effect that the plaintiff would not proceed with the action until such time as the defendant's AAT appeal had been heard, and whether by reason thereof the plaintiff is not entitled to proceed with this action until such time as the appeal has been decided or without first having heard the defendant on the issue. In light of that I would give the defendant leave to defend in respect of the October assessments.

30 I should briefly mention the November assessments. The plaintiff's position, for reasons that I do not understand fully, is that it would not wish to have a judgment entered in its favour in respect of those assessments if leave to defend is given in respect of the October assessments. In light of this and the conclusion that I have reached in respect of the October assessments, I would also grant leave to defend in respect of the November assessments.

31 The final issue to be determined concerns the defendant's application for a stay of the action pending determination of the proceedings in the AAT and any appeals arising therefrom or until further order. I would refuse the application for a stay on the grounds set out below.

32 It is clear on the authorities that a stay of recovery proceedings will only be granted "with great caution and only in special circumstances" -- see Deputy Commissioner of Taxation v Mackey (1982) 13 ATR 547 at 551. It is also clear from that case that a stay will not be granted simply because an appeal is pending against assessments. The policy of the legislation implicit in s 14ZZM of the Taxation Administration Act 1953 is that that once an assessment is made the Deputy Commissioner is entitled to have the tax paid despite an appeal being on foot. A relevant consideration to the granting of a stay is whether the tax assessed arises from a contrived scheme to avoid the payment of income tax. It is said that only in exceptional circumstances should the Court stay proceedings where the taxpayer has been a party to such a scheme. In my view Infomercials is such a scheme.

33 In Snow v Deputy Commissioner of Taxation (WA) 14 FCR 119 at 139 French J conveniently sets out the relevant considerations for such an application which include the following:

1. The policy of the legislation as set out above.

2. By reason of this, the power to grant a stay is to be "exercised sparingly and the onus is on the taxpayer to justify it".

4. Irrespective of the merits of the appeal, where the applicant has been involved in a contrivance designed to avoid a liability to pay tax, a stay will not normally be granted.

5. A stay may be granted where there has been abuse of office by the Commissioner or where there may be extreme personal hardship to the applicant if he is called on to meet the assessment.

6. The imposition of the obligation to pay does not constitute hardship.

34 Dealing with various of these factors, I am unable to comment on the merits of the defendant's appeal in the AAT. As set out above, in my view the defendant was involved in a contrivance designed to avoid a liability pay tax. That is not to say, of course, that those arrangements may not be found in the AAT to have been effective.

35 As regards the question of hardship, it is said by the defendant that he will suffer extreme personal hardship in that he is the founder and Chairman of Cash Converters International Limited. If a judgment were entered against him it would be widely publicised, he would be forced to resign and end his association with the company. He refers to his substantial shareholding in the company and says that if, following entry of a judgment, he were forced to sell those shares, he would not be able to recover them nor his position in the company if his AAT appeal were then successful. I do not know if this is correct. I note however that he refers only to the possibility of selling his shares rather than it being a certainty. The possibility of publicity is of itself of little consequence and I am not persuaded that the fact that he would be obliged to stand down as chairman of the company pending the outcome of his AAT matter is sufficient personal hardship.

36 A further factor that I have taken into account is that, to a large extent, the urgency of the defendant's application has disappeared as I propose giving him leave to defend the action. His AAT appeals are coming on for hearing in April 2003 and so in all likelihood they will have been heard before this matter reaches trial. Whilst the order sought seeks a stay pending any appeals from the AAT decision I see no basis for making such an order even if I were minded to grant a stay pending the hearing of the appeal to the AAT.

37 The parties raised a number of other issues in their submissions and in the course of argument. However, in light of the conclusion that I have reached regarding the plaintiff's summary judgment application I do not propose dealing with those issues. Similarly, I see no need to deal with the defendant's application to strike out various parts of affidavits filed by the plaintiff.