Deputy Commissioner of Taxation v Joseph Frangieh

Factual background

1. On 1 October 2012, a notice of amended assessment in respect of the year of income ended 30 June 2007 was served on Mr Frangieh, in accordance with the Income Tax Assessment Act 1936 (Cth) and the Income Tax Regulations 1936 (Cth). The notice specified that the amount of income tax due as at 25 October 2007 was $1,700,017.85. Mr Frangieh has failed to pay the amount set out in the notice of amended assessment.

The relevant pleadings

1. By further amended statement of claim filed 29 July 2013, DCT claims a total of $3,331,770.82 from Mr Frangieh which included liabilities under the amended notice of assessment in relation to the income tax, the notice of assessment and liability to pay penalty and subsequent shortfall and general interest charges, as well as monies arising from Mr Frangieh's failure to pay running balance account deficits. Since that time, that amount has been reduced as a consequence of credits arising from the objection decision and from payments received pursuant to a garnishee notice under s 260-5 of Schedule I of the Taxation Administration Act 1953 (Cth).

The proposed orders

1. At the outset of the hearing, Mr Frangieh handed up proposed orders for the filing of the cross claim. Those orders were that he be granted leave to file the cross claim, DCT make any request for further and better particulars of that cross claim, and that he provide his response to any request for further and better particulars of the cross claim within 14 days.
2. DCT opposed the filing of the cross claim. It's proposed orders were set out at the conclusion of its written submissions. DCT's position was that Mr Frangieh should not be granted leave to file the cross claim but rather the cross claim be redrafted in light of DCT's previous lengthy request for further and better particulars. The cross claim could then be filed when the amendments were made (if any) as a result of answering that request.
3. Hence, the central issue for this Court to determine on this application is whether, having regard to the overriding purpose of the Civil Procedure Act, and the general purposes of pleadings, Mr Frangieh should be permitted to file his proposed cross claim in its current form, with further and better particulars to be requested following its filing; or, whether Mr Frangieh should be required to redraft his cross claim before he is permitted to file it.

The law in relation to cross claims

1. The overriding purpose of the Civil Procedure Act and of the UCPR, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings: s 56(1).
2. In doing so, the Court must have regard to the following objects. Section 57(1) reads: "(a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties."
3. In deciding whether to make an order for amendment of a document, the Court must "seek to act in accordance with the dictates of justice": s 58(1). For the purpose of deciding what the "dictates of justice" are in a particular case, the Court must have regard to ss 56 and 57 of the Civil Procedure Act and may have regard to the matters in s 58(2)(b). It reads: "(i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56 (3), (v) the use that any party had made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case."
4. Section 22 of the Civil Procedure Act reads: "22 Defendant's right to cross-claim (1) Subject to subsection (2), the court may grant to the defendant in any proceedings ('the first proceedings') such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose. (2) Relief may not be granted under this section against a person who is not a plaintiff in the first proceedings unless the relief relates to, or is connected with, the subject of the first proceedings. (3) A person against whom a defendant makes a claim for relief under this section: (a) has the same rights in respect of his or her defence against the claim as he or she would have in separate proceedings commenced against the person by the defendant, and (b) if not already a party to the first proceedings: (i) becomes a party to the first proceedings, and (ii) unless the court otherwise orders, is bound by any judgment (including a judgment by consent or by default) or decision (including a decision by consent) on any claim for relief in the proceedings (including a claim for relief in any cross-claim in the proceedings)."
5. Section 22 is to be read in conjunction with UCPR 9.1(1), which relevantly reads: "9.1 Making of cross-claim (1) A party ('the cross-claimant') may make a cross claim: (a) in proceedings commenced by statement of claim, within the time limited for the party to file a defence, or (b) … or within such further time as the court may allow."
6. The defence should have been filed on 28 August 2013. The cross claim is about 21 months out of time. However, an amended defence was filed on 8 May 2015. It should be noted that DCT does not assert that it suffers any prejudice from the granting of leave.
7. In Comin Enterprises Pty Ltd v Dayroll Pty Ltd [2007] NSWSC 1440, Price J at [14] stated: "When any provision of the Civil Procedure Act or any of the Uniform Civil Procedure Rules are to be interpreted, the court must give effect to the overriding purpose of the Act "to facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56 of the Civil Procedure Act. …"
8. The general purpose of pleadings (and this includes a cross claim) were outlined by the High Court in Dare v Pulham (1982) 148 CLR 658; (1982) 44 ALR 117 at 121 where it stated: "Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it...; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial…; and they give a defendant an understanding of a plaintiff's claim … [T]he relief which may be granted to a party must be founded on the pleadings…"
9. UCPR 14.14 reflects those general principles, and reads: "14.14 General rule as to matters to be pleaded specifically (1) In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise. ...."
10. The overall function of pleadings is to state, with sufficient clarity, the case that has to be met by the defendant. In this way, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA, En Liquidation v Akhill Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286-287 and 302-3.
11. A pleading must contain all of the necessary elements of the causes of action that it alleges. The facts asserted in the body of a pleading must be sufficient, standing alone, to make out a party's case. Gaps in a pleading party's case cannot be filled in by providing further and better particulars: H 1976 Nominees Pty Ltd v Galli (1979) 30 ALR 181; (1979) 40 FLR 242 at [13]-[23]. Particulars give specificity to assertions of a more general kind made in the body of a pleading.

Does the cross claim plead the causes of action?

1. The current proposed cross claim is located in the affidavit Konrad Wojtasik sworn 2 April 2015 marked KW1 (pages not numbered).
2. The cross claim seeks damages against DCT for misfeasance in public office, abuse of process and breach of duty to act in good faith. There are three misfeasance in public office claims, two abuse of process claims and one claim of breach of duty to act in good faith. The causes of action against DCT's employees are in relation to: (a) Their conduct associated with the audit of Mr Frangieh (the audit taken for the 2007 tax year); (b) their involvement in the issuing of the amended notice of assessment; and (c) their involvement in commencing and continuing these Supreme Court debt recovery proceedings in the knowledge of their conduct constituting misfeasance in public office relating to (a) and (b).
3. The cross claim separates the 11 employees of DCT into three litigation groups. The first misfeasance in public office claim involves the actions of Jessie Agbola, Michelle Johnston, Cindy Sandford and Marianne Rogers ("the first litigation group"); the second misfeasance in public office claim and the first abuse of process claim involves the actions of Lauren Benjamin, Venus Shakuntala Lakshman, Desiree Armstrong, Grahame Tanna and DCT himself ("the second litigation group"); and the third misfeasance claim and the second abuse of process claim involves the actions of Trudy Hobart, Grahame Tanna and DCT ("the third litigation group"). The breach of duty to act in good faith claim involves the actions of all of the above named employees as well as DCT and the Commissioner of Taxation.
4. DCT submitted that the cross claim is deficiently drafted and insufficiently particularised and accordingly, does not accord with the general purpose of pleadings. DCT also submitted that within those particulars, evidence rather than material facts has been pleaded: UCPR 14.7.
5. It is necessary to briefly review the elements of the torts of abuse of process and misfeasance in public office and the elements of a breach of duty to act in good faith to determine whether Mr Frangieh has sufficiently pleaded the proposed cross claim. Senior Counsel for DCT foreshadowed a strike out application in the future (at T19-29). However, the merit of the claims is not what is relevant on this application, rather, what is relevant is whether the elements of each cause of action have been adequately set out in the cross claim so DCT knows the case it has to meet.

(a) Misfeasance in public office

1. There are three separate claims for misfeasance in public office: two against the first litigation group and one against the second litigation group.
2. The elements of misfeasance in public office were set out by Deane J in Northern Territory of Australia v Mengel [1995] HCA 65; (1995) 185 CLR 307 at 370 as: "(a) an invalid or unauthorised act; (b) done maliciously; (c) by a public officer; (d) in the purported discharge of his or her public duty; (e) which causes harm to the plaintiff."
3. In Mengel, Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ also clarified that the mental element: "is not confined to actual knowledge but extends to the situation in which a public officer recklessly disregards the means of ascertaining the extent of his or her power" (at [25]).
4. The first claim is against the first litigation group and is pleaded at paragraphs [12] and [13]. Paragraph [12] states that Mr Frangieh was targeted for audit by the officers in the first litigation group and that the audit was undertaken for an improper purpose. A number of particulars are then provided explaining why there was an improper purpose. For example, the paragraphs state that the audit was conducted "on the basis that the cross claimant had assisted another taxpayer with managing debt" and "on the belief that the public and/or an adjudicating body would be unsympathetic towards the cross claimant given negative media attention". Paragraph [13] alleges that the audit undertaken by the first litigation group was undertaken in a way that no reasonable person acting in the capacity of an ATO officer performing that task would have undertaken, was not a bona fide attempt to ascertain the Mr Frangieh's tax position, and was undertaken in bad faith. Particulars are then again provided articulating why the audit wasn't performed properly, for example because the first litigation group "relied on a fraudulent document in calculating an income figure".
5. Counsel for Mr Frangieh submitted that the particulars provide grounds upon which an inference, at the very least, can be drawn that the officers acted with recklessness. It is my view that the particulars provided at [12] and [13] are sufficient for the purposes of this application. Invalid acts, and indicia of actual knowledge or recklessness of those invalid acts, have been pleaded. This claim should be permitted.
6. The second claim for misfeasance in public office is pleaded at paragraph [22] and is against the second litigation group. Paragraph [22] pleads that the second litigation group commenced and maintained the legal proceedings against Mr Frangieh for an improper purpose, and continues in that it was "to facilitate the improper motivations [of the officers], perpetuate the agenda that had been formed, and exacerbate the disruption, burden, loss and damage to the cross claimant". Particulars are then provided that point to various indicia of malicious intent or recklessness by the second litigation group, for example that they "knew the Assessments were incorrect", "knew the Assessments to have been issued outside of the time period prescribed for amending assessments" and that they "knew, or were reckless as to whether, the Assessments were made in bad faith".
7. The third misfeasance claim is pleaded at paragraph [29] and is against the third litigation group. That paragraph pleads that the third litigation group: "maintained the legal proceedings for an improper purpose", specifically, "to continue undermining the review of a tax decision known to be grossly incorrect by causing disruption and forcing the cross claimant to expend further time and money in relation to the legal proceedings" and "to bully and harass the cross claimant". Particulars are again provided to infer intent or recklessness, such as that the third litigation group "knew there was no possibility of collecting the claimed amount", "knew that pursuing legal action could result in the bankruptcy of the cross claimant" and that they "knew that the cross claimant had six dependants and as a bankrupt would struggle or fail to support them". Again, it appears that all of the relevant elements have been pleaded for this claim.
8. For all three misfeasance claims, the damage suffered by Mr Frangieh has been extensively and properly pleaded at paragraph [30]. I am satisfied that so far as these claims are concerned they set out the elements of the tort of misfeasance in public office and that DCT knows the case it will have to meet.

(b) Abuse of process

1. There are two separate claims for abuse of process, one against the second litigation group and the other against the third litigation group.
2. The High Court held in Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 526-527 that proceedings may be stayed as an abuse of process: "…when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers."
3. It is well established that a party alleging that proceedings are an abuse of process bears a heavy onus: Hidden J at [47] in Ballina Shire Council v Ringland [1999] NSWSC 11. In Maxwell-Smith v S & E Hall Pty Ltd (2014) 86 NSWLR 481; [2014] NSWCA 146 the Court of Appeal held that the position in NSW is that a plaintiff must prove that a defendant acted overtly in furtherance of an improper purpose: "a plaintiff in a tort action for collateral abuse of process is required to prove, in addition to improper purpose of the defendant, deployment of the relevant process, in furtherance of that purpose, by way of an overt act or threat distinct from pursuit of the proceeding itself according to its ordinary course".
4. The first abuse of process claim is pleaded at paragraph [22] and is against the second litigation group, for commencing and maintaining proceedings for an improper purpose, that purpose being largely to facilitate improper motivations, perpetuate an agenda and exacerbate disruption, burden, loss and damage to Mr Frangieh. It is concurrent and identical to the second misfeasance in public office claim and the same particulars are provided to show intent. While I accept that abuse of process is a difficult tort to prove, some indicia of overt acts in furtherance of this improper purpose have been provided, which is sufficient for this claim to be permitted to proceed.
5. The second abuse of process claim is at [29]. It is concurrent with the third misfeasance in public office claim. Both are against the third litigation group, for maintaining the legal proceedings against Mr Frangieh for an improper purpose.
6. I am satisfied that the elements of abuse of process are pleaded, albeit in a rather unclear manner.

(c) Breach of duty to act in good faith

1. Paragraphs [36] - [38] plead a breach of duty to act in good faith against all of the ATO officers involved in the proceedings. They read: "36 Jessie Agbola, Michelle Johnston, Cindy Sandford, Marianne Rogers, John Howarth, Lauren Benjamin, Venus Shakuntala Laksham, Desiree Armstrong, Trudy Hobart, Grahame Tanna, the Cross Defendant and the Commissioner of Taxation have at all material times had a duty to act in good faith towards the Cross claimant. 37 By reason of the facts referred to in paragraphs 11 to 29 in this Cross claim, Jessie Agbola, Michelle Johnston, Cindy Sandford, Marianne Rogers, John Howarth, Lauren Benjamin, Venus Shakuntala Laksham, Desiree Armstrong, Trudy Hobart, Grahame Tanna, the Cross defendant and the Commissioner of Taxation have breached their duty to act in good faith towards the Cross claimant. 38 In respect of the breach of the duty to act in good faith, the Cross claimant claims the amount of $3,750,000 from the Cross defendant, the Commissioner of Taxation, Jessie Agbola, Michelle Johnston, Cindy Sandford, Marianne Rogers, John Howarth, Lauren Benjamin, Venus Shakuntala Laksham, Desiree Armstrong, Trudy Hobart and Grahame Tanna, relying on the facts outlined in paragraph 30 of this Cross claim."
2. Section 26 of the Public Governance, Performance and Accountability Act 2013 (Cth) and ss 13(1)-(3) of the Public Service Act 1999 (Cth) place a duty on officials of Commonwealth entities to exercise their powers, perform their functions and discharge their duties in good faith and for a proper purpose.
3. Aickin J in R v Toohey; Ex parte Northern Land Council [1981] HCA 74; (1981) 151 CLR 170 at 232 outlined three bases upon which that duty could be breached: "…first the existence of a corrupt purpose, second the existence of an improper purpose and third ultra vires in the narrow sense of the act being done beyond the power of the body concerned, irrespective of the motive or intention of the person or body exercising the power. … I use the term 'improper purpose' to mean one for which the relevant power or authority was not conferred."
4. Mr Frangieh has pleaded that there was a duty of the ATO officers to act in good faith towards him (paragraph [36]), that duty was breached (paragraph [37]) and that damage resulted from that breach ([38]). In my view, the elements of this claim have been properly pleaded.

The relief sought

1. Mr Frangieh's cross claim seeks damages against 11 individuals (who are currently not parties to proceedings) for their alleged misfeasance in public office. The cross claim also pleads that there has been an abuse of process by those individuals and a breach of the duty to act in good faith.
2. The proposed cross claim seeks orders that in respect of the breach to act in good faith Mr Frangieh claims the amount of $3,750,000 from each of the 11 individuals. If Mr Frangieh was to seek these orders against the cross defendants personally they should have been joined as defendants.
3. However, at the hearing there was a discussion with Mr Frangieh's counsel as to whether he intended to cross claim against the 11 individuals personally, or whether he intended to cross claim against DCT as being vicariously liable for the actions of the 11 individuals. During oral submissions, counsel for Mr Frangieh conceded that Mr Frangieh was seeking damages against DCT and in these circumstances, the individuals would not be joined as defendants (T22.44). That being so, if leave were to be granted to file the cross claim it should be amended to claim to seek orders against DCT only.
4. As I am satisfied that the elements of the three causes of action have been pleaded, I grant leave to Mr Frangieh to file the cross claim.
5. I accept that pleading causes of action of misfeasance in public office and abuse of process is a difficult task. While there could be some improvements made, particularly in relation to the structure of the pleadings in the cross claim; in my opinion, the best way forward is for the parties to cooperate and sort out as many of the pleading issues as they can following the filing of the cross claim without the need to involve this Court. It is only when this process is exhausted should DCT file its foreshadowed strike out application, if it thinks it should do so.
6. Costs are reserved. The Court orders that: (1) The plaintiff is to make any request for further and better particulars of the amended defence by 26 June 2015. (2) Leave is granted to the defendant to file and serve the cross claim that deletes paragraph 1 under the first heading "Relief claimed" and paragraph 38 by removing the relief sought against individual defendants by 19 June 2015. (3) The plaintiff is to make any request for further and better particulars of the cross claim by 3 July 2015. (4) The defendant is to provide his response to any request for further and better particulars of the cross claim by 17 July 2015. (5) This matter is listed for directions at 9.00 am on 31 July 2015 before the Registrar. (6) Costs are reserved.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 June 2015