Deputy Commissioner of Taxation v Cheung Kong Infrastructure Holdings Limited

Federal Court of Australia|2013-08-30|Before: Gordon J

INTRODUCTION 1 The background to these proceedings has been described earlier: see Deputy Commissioner of Taxation v Cheung Kong Infrastructure Holdings Limited [2013] FCA 707 (the Reasons). 2 The applicant, the Deputy Commissioner of Taxation (the Commissioner), seeks recovery of debts in respect of income tax and administrative penalties from the respondent, Cheung Kong Infrastructure Holdings Limited (Cheung Kong). The proceedings were filed on 17 June 2013. 3 Pursuant to Orders of the Court made on 19 July 2013 (the Orders), the Commissioner was granted leave to serve the Originating Application and Statement of Claim filed on 17 June 2013, any amended Statement of Claim, the Commissioner's genuine steps statement filed on 17 June 2013, the Commissioner's Interlocutory Application filed on 18 July 2013, the Affidavit of Maria Victoria Llorca sworn on 17 July 2013, the Reasons and a copy of the Orders (collectively, the Service Documents) on Cheung Kong in Hong Kong by international registered post with return receipt to: 1. Tak Chuen Edmond Ip, Authorised Representative of Cheung Kong Infrastructure Holdings Limited, at 7/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong; 2. Hing Lam Kam, Authorised Representative of Cheung Kong Infrastructure Holdings Limited, at 7/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong; and 3. Eirene Yeung, Secretary of Cheung Kong Infrastructure Holdings Limited, at 16C, Block 27 Baguio Villa, Victoria Road, Hong Kong, (collectively, the Named Addressees). 4 Pursuant to the Orders, the Commissioner was also required to forward a copy of the Service Documents to Mr Michael Clough of King & Wood Mallesons, Level 50, Bourke Place, 600 Bourke Street, Melbourne, Victoria, 3000. If service was effected on Cheung Kong in accordance with the Orders, Cheung Kong was required to file a Notice of Address for Service in accordance with r 5.02 of the Federal Court Rules 2011 (Cth) (the Rules) within 28 days after service of the Originating Application upon it. 5 On 29 August 2013, the Commissioner filed an affidavit sworn on 28 August 2013 by Ross Edward McClure, a Senior Executive Lawyer employed by the Australian Government Solicitor, the solicitor for the Commissioner in these proceedings. Mr McClure's evidence establishes that the Service Documents were served on the Named Addressees. In accordance with the Orders, the Service Documents were posted to the Named Addressees on 22 July 2013. The evidence also establishes that the Service Documents were delivered to, and received by, the Named Addressees on 25 July 2013. In fact, three of the four "advice of delivery" receipts bear a stamp which reads Cheung Kong (Holdings) Limited, which the evidence discloses is a related entity of Cheung Kong. In accordance with the Orders, a copy of the Service Documents were also delivered, by hand, to the offices of King & Wood Mallesons, Level 50, Bourke Place, 600 Bourke Street, Melbourne, Victoria, 3000 marked to the attention of Mr Clough. 6 Contrary to the Orders and the Rules, Cheung Kong has not filed a Notice of Address for Service.

APPLICATION FOR JUDGMENT AND APPLICABLE PRINCIPLES 7 The Commissioner now seeks judgment in default against Cheung Kong under r 5.23(2)(b) of the Rules. Rule 5.23(2)(b) provides: If a respondent is in default, an applicant may apply to the Court for: … (b) if the claim against the respondent is for a debt or liquidated damages - an order giving judgment against the respondent for: (i) the debt or liquidated damages; and (ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; … 8 Rule 5.22 relevantly provides: A party is in default if the party fails to: (a) do an act required to be done, or to do an act in the time required, by these Rules; or (b) comply with an order of the Court; or (c) attend a hearing in the proceeding; or (d) prosecute or defend the proceeding with due diligence. 9 Two questions arise. Is Cheung Kong in default, and if so, should the Court exercise its discretion and enter judgment for the Commissioner against Cheung Kong? The answer to both questions is yes. 10 Before turning to address those issues, one matter should be noted. The Reasons stated that Bermuda was not a party to the Hague Convention on the Service Abroad of Judicial Extrajudicial Documents in Civil or Commercial Proceedings (15 November 1965) [2010] ATS 23. That was incorrect. Notwithstanding that error, I am not persuaded that the steps outlined in the Orders concerning service of the Service Documents were inappropriate. The evidence discloses that the Service Documents were served on and received by the Named Addressees referred to in the Orders in Hong Kong on 25 July 2013. I am satisfied that the Service Documents were all effectively served upon Cheung Kong and came to its notice: see [5] above.

DEFAULT 11 Cheung Kong is in default. Contrary to the Orders and the Rules, Cheung Kong has not filed a Notice of Address for Service. In those circumstances, the Court should move to determine whether to exercise its discretion under r 5.23 of the Rules.

COMMISSIONER ENTITLED TO JUDGMENT? 12 The proceeding was commenced by the Commissioner filing the Originating Application and the Statement of Claim. The Originating Application and the Statement of Claim seeks the following relief: 1. Judgment for the [Commissioner] as against [Cheung Kong] in the sum of $372,380,301.27 which is due and unpaid together with: (a) further general interest charge pursuant to section 5-15 of the [Income Tax Assessment Act 1997 (Cth) (the ITAA97)] and Part IIA of the [Taxation Administration Act 1953 (Cth) (the TAA)] calculated upon an amount or amounts and for a period or periods, at the rates prescribed in the TAA to payment or judgment; (b) further general interest charge pursuant to section 298-25 and Part IIA of the TAA … calculated upon an amount or amounts and for a period or periods, and at the rates prescribed in the TAA … to payment or judgment; and 2. That [Cheung Kong] pay the [Commissioner's] costs of and incidental to this application. 13 The nature of the claim pleaded and the jurisdiction of this Court to hear and determine the claim were addressed in the Reasons: see [2]-[4] and [8]-[12] of the Reasons. The Commissioner pleads that: 1. He is entitled to sue to recover debts due to the Commonwealth of Australia and payable to the Commissioner. 2. Cheung Kong was assessed to income tax for the years of income ended 30 June 2000, 30 June 2001, 30 June 2002, 30 June 2003, 30 June 2004, 30 June 2005, 30 June 2006, 30 June 2007, 30 June 2008 and 30 June 2009 (the Relevant Periods) and notices of assessment in respect of these years were served on Cheung Kong in accordance with the Income Tax Assessment Act 1936 (Cth) (the ITAA36) and the Income Tax Regulations 1936 (Cth). 3. The income tax for the Relevant Periods became due and payable pursuant to s 204 of the ITAA36 on the following due dates: Income Tax for the Relevant Period Ended Issue Date of Notice of Assessment Due Date 30 June 2000 14 January 2011 21 February 2011 30 June 2000 22 June 2011 29 July 2011 30 June 2001 14 January 2011 3 December 2001 30 June 2002 14 January 2011 2 December 2002 30 June 2003 14 January 2011 1 December 2003 30 June 2004 14 January 2011 1 December 2004 30 June 2005 14 January 2011 1 December 2005 30 June 2006 14 January 2011 22 December 2006 30 June 2007 14 January 2011 24 December 2007 30 June 2008 14 January 2011 22 December 2008 30 June 2009 14 January 2011 22 December 2009

Cheung Kong failed to pay income tax for the Relevant Periods on or before the due dates. 5. By reason of the failure to pay income tax by the due dates, Cheung Kong became liable to pay the general interest charge pursuant to s 204 of the ITAA36, s 5-15 of the ITAA97 and Pt IIA of the TAA. 6. Effective 1 July 2010, Pt VI of the ITAA36 (which included s 204 of the ITAA36) was repealed by the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth). 7. Pursuant to s 5-10 of the Income Tax (Transitional Provisions) Act 1997 (Cth), from 1 July 2010 Cheung Kong became liable to pay the general interest charge pursuant to s 5-15 of the ITAA97. 8. Cheung Kong is indebted to the Commonwealth of Australia in the sum of $304,607,874.14, in respect of income tax and additional charges for late payment. 9. The Commissioner also made assessments against Cheung Kong pursuant to s 298-30 of Sch 1 to the TAA for administrative penalties incurred by Cheung Kong under s 284-75 of Sch 1 to the TAA for failure to provide documents in relation to Cheung Kong's income tax liabilities for the periods 1 July 2000 to 30 June 2001, 1 July 2001 to 30 June 2002, 1 July 2002 to 30 June 2003, 1 July 2003 to 30 June 2004, 1 July 2004 to 30 June 2005, 1 July 2005 to 30 June 2006, 1 July 2006 to 30 June 2007, 1 July 2007 to 30 June 2008 and 1 July 2008 to 30 June 2009 (the assessments). 10. Notices of the assessments were served on Cheung Kong in accordance with s 298-10 of Sch 1 to the TAA. 11. The administrative penalties for the assessments became due and payable pursuant to s 298-15 of Sch 1 to the TAA on the following due dates: Income Tax for the Relevant Period Ended Issue Date of Notice of Assessment of Penalty for Failing to Provide Document Due Date 30 June 2001 13 January 2011 3 February 2011 30 June 2002 13 January 2011 3 February 2011 30 June 2003 13 January 2011 3 February 2011 30 June 2004 13 January 2011 3 February 2011 30 June 2005 13 January 2011 3 February 2011 30 June 2006 13 January 2011 3 February 2011 30 June 2007 13 January 2011 3 February 2011 30 June 2008 13 January 2011 3 February 2011 30 June 2009 13 January 2011 3 February 2011

Cheung Kong failed to pay the administrative penalties specified in the notices on or before the due dates. 13. By reason of the failure to pay the administrative penalties on or before the due dates, Cheung Kong became liable to pay the general interest charge pursuant to s 298-25 of Sch 1 to the TAA. 14. Cheung Kong is indebted to the Commonwealth of Australia in the sum of $67,772,427.13, in respect of administrative penalties and the general interest charge for late payment of the administrative penalties. 14 Significantly, in relation to each matter referred to in [13] above, the Commissioner pleaded his cause of action and averred and stated each matter pursuant to s 255-50 of Sch 1 to the TAA. That section relevantly provides: (1) In a proceeding to recover an amount of a *tax-related liability, a statement or averment about a matter in the plaintiff's complaint, claim or declaration is prima facie evidence of the matter. (2) This section applies even if the matter is a mixed question of law and fact. However, the statement or averment is prima facie evidence of the fact only. (3) This section applies even if evidence is given in support or rebuttal of the matter or of any other matter. (4) Any evidence given in support or rebuttal of the matter stated or averred must be considered on its merits. This section does not increase or diminish the credibility or probative value of the evidence. (5) This section does not lessen or affect any onus of proof otherwise falling on a defendant. 15 This is a proceeding to recover an amount of a tax-related liability: see [9] of the Reasons. Section 255-5(1) of Sch 1 to the TAA provides that an amount of a "tax-related liability that is due and payable" is (a) "a debt due to the Commonwealth" and (b) "payable to the Commissioner". Accordingly, the Commissioner's claim is for a debt within the meaning of that expression in r 5.23(2)(b) of the Rules. 16 The debt amount is specified: see [13] above. On 29 August 2013, the Commissioner filed a further certificate in writing pursuant to s 255-45 of Sch 1 to the TAA. That certificate specified that the total debt (comprising each of the amounts in [12] and [13] above) as at 29 August 2013, was $380,211,835.40. That certificate is prima facie evidence that the debt is due and payable. 17 The entering of judgment in default against a party for non-compliance with orders is a step of the utmost seriousness. This is particularly so where no claim is made that the defaulting party has a history of non-compliance with previous Court orders: see Tamawood Limited v Habitare Developments Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2011] FCA 1078 at [25]. 18 Here, Cheung Kong has not only failed to comply with an Order of the Court but an Order of the Court that reinforced an important rule - r 5.02. Rule 5.02 provides that "[a] respondent who has been served with an originating application must file a notice of address for service, in accordance with Form 10, before the return date fixed in the originating application". In the present case, the time fixed was 28 days after service of the Originating Application. That was specified in the Orders. 19 Under the former Rules, there were two cases where the exercise of the Court's power upon default (conferred by what was then O 35A r 3) was appropriate. First, in circumstances where, whatever the defaulting party's state of mind or resources, the non-compliance is continuing and occasioning unnecessary delay and/or expense or other prejudice to the other party or parties. Second, where the history of non-compliance is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period: see Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 at 396. Those considerations are equally applicable to r 5.23(2)(b). 20 In the present case, it is appropriate to enter judgment in default against Cheung Kong. Cheung Kong has failed to enter an address for service contrary to the Rules and the Orders. Cheung Kong's failure to take that step is continuing and occasioning unnecessary delay and prejudice to the Commissioner.

RELIEF 21 Orders for the payment of the debt are appropriate to be made: r 5.23(2)(b)(i) of the Rules. Consistent with usual practice, Cheung Kong will be ordered to pay the Commissioner's costs of the proceedings, those costs to be taxed unless agreed. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Tax Assessment Act 1997(Cth)

Administration Act 1953(Cth)

Tax Laws Amendment (Transfer of Provisions) Act 2010(Cth)

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