//
[2017] WASC 257
General information, not legal advice.
Supreme Court of WA
2017-08-30
Tottle J
Original judgment source is linked above.
1 The plaintiff, the Deputy Commissioner of Taxation, has brought an application for summary judgment.[1] The Deputy Commissioner requires leave to proceed as the application was brought outside of the stipulated time period.
2 The Deputy Commissioner's claim concerns a tax debt owed by the defendant, Mr Lafferty. That tax debt is alleged to have arisen because:
(i) deductions claimed by Mr Lafferty for 'prepayment arrangements' made for the purposes of his legal practice in the years ending 30 June 1998, 1999 and 2000 (1998 2000) were disallowed by the Australian Taxation Office (ATO);
(ii) Mr Lafferty failed to pay income tax for the years ending 30 June 2011 and 2012; and
(iii) Mr Lafferty failed to lodge an income tax return for the year ending 30 June 2012.
3 The Deputy Commissioner claims for associated general interest charges and penalties.
4 For the reasons that follow, leave will be given and summary judgment granted.
The pleaded claim and defence The Deputy Commissioner's claim
5 The Deputy Commissioner commenced this action by writ filed on 1 September 2014. The Deputy Commissioner sought an order that Mr Lafferty pay outstanding tax, penalties and general interest charges (Tax Debt) in the amount of $10,630,063.90.[2]
6 Almost all of the Tax Debt is alleged to be due because Mr Lafferty has not paid either the income tax specified in notices and amended notices of assessment issued for the years ending 30 June 1998, 1999, 2000, 2011 and 2012 (Years), or the general interest charges which have accrued.[3]
8 Mr Lafferty's solicitors entered an appearance on 25 September 2014, and filed his defence on 24 October 2014.
9 Mr Lafferty denies that he received amended notices of assessment, but admits receiving the notices of assessment for each of the Years.[6] Mr Lafferty denies that he failed to pay income tax for 1998 2000,[7] and does not admit that he became liable to pay associated general interest charges.[8] Mr Lafferty does not admit that he is liable to pay the RBA deficit debt together with general interest charges.[9] Mr Lafferty does admit, however, that he failed to lodge an income tax return for the year ending 30 June 2012, and that he is liable to pay the associated penalty and general interest charges.[10]
10 Mr Lafferty further pleads that in 2003 he lodged objections to the assessments for 1998 2000, and those objections were not determined until 26 November 2013.[11] It was only at that stage, Mr Lafferty says, that the ATO gave its reasons why the deductions claimed by Mr Lafferty for the prepayment of services provided to his legal practice were disallowed (Decision).[12]
11 Mr Lafferty pleads that the ATO gave assurances to him (through his accountant) that the deductions Mr Lafferty claimed were valid, and relying on these assurances he entered into the pre-payment arrangements.[13] Mr Lafferty says that the ATO has caused detriment to him - in the sense that he is liable to pay tax, general interest charges, and penalties - by acting contrary to those assurances in making the Decision.[14] Accordingly, Mr Lafferty says, the Deputy Commissioner is estopped from claiming payment of the Tax Debt.[15]
12 Further and alternatively, Mr Lafferty pleads that the Deputy Commissioner is estopped or prevented by reason of unconscionability from claiming general interest charges and penalties because of the time taken for the ATO to issue the Decision.[16]
The Deputy Commissioner's application for summary judgment
13 On 23 March 2016, the Deputy Commissioner filed an application for summary judgment. The Deputy Commissioner sought $12,564,043.42 for the Tax Debt.
14 In essence, the Deputy Commissioner's position is that Mr Lafferty is liable to pay the amounts stated in the assessments and amended assessments issued to him, and that by reason of the operation of the relevant statutory provisions, there is no defence to the claim.
15 I summarise the relevant statutory provisions as follows.
Liability to pay assessed income tax and general interest charges
16 The Commissioner of Taxation (Commissioner) must make an assessment of the amount of a person's taxable income, and the amount of tax payable by them.[17] The Commissioner may amend an assessment,[18] which is then considered an assessment for the purposes of the Income Tax Assessment Act 1936 (Cth).[19] The Commissioner must serve an assessment as soon as convenient after the assessment is made,[20] and may for that purpose serve it by posting a copy to the preferred address for service given by a taxpayer.[21]
17 Income tax becomes due and payable 21 days after the day the Commissioner issues an assessment (or amended assessment).[22] If income tax is not paid by the time it is due to be paid, a taxpayer becomes liable to pay a general interest charge on the unpaid amount for each day it remains unpaid.[23]
18 The Commissioner may establish a system of accounts for primary tax debts, known as an RBA.[24] The Commissioner may then allocate a primary tax debt (including tax debts due under BAS provisions or as administrative penalties,[25] but not RBA deficit debts or general interest charges[26]) to the RBA.[27]
19 An RBA deficit debt will exist if there is a balance on an RBA account in favour of the Commissioner - that is, when a taxpayer has not paid the full amount of the primary tax debts allocated to an RBA.[28] If there is an outstanding balance, the taxpayer is liable to pay general interest charges on that RBA deficit debt.[29]
Administrative penalties for failing to lodge an income tax return
20 A taxpayer liable to pay income tax must give to the Commissioner a return for each income year.[30] A taxpayer who fails to give a return to the Commissioner is liable to pay an administrative penalty, as calculated under the Taxation Administration Act 1953 (Cth) (TAA).[31] The Commissioner must give notice of a taxpayer's liability to pay the penalty, and the reasons why they are liable.[32] The penalty becomes due at least 14 days after a taxpayer is given that notice.[33] If a taxpayer does not pay the penalty by the day it becomes due, they are liable to pay general interest charges each day the penalty remains unpaid.[34]
Statements and evidence provided by the Deputy Commissioner are conclusive
22 A notice of assessment, including a notice of assessment of penalty, is conclusive evidence that the assessment was properly made, and that the amounts and particulars in the assessment are correct (except in proceedings under pt IVC of the TAA).[38] In effect, a challenge by a person to the amount or particulars of an assessment is confined to one brought under pt IVC of the TAA.[39] And, even if a person brings a review (in the Administrative Appeals Tribunal) or an appeal (in the Federal Court of Australia) under pt IVC, the amounts of tax-related liabilities specified in an assessment remain payable.[40]
23 The production of an RBA statement is prima facie evidence that the RBA was duly kept, and that the amounts and particulars in the statement are correct.[41] In proceedings for the recovery of an RBA deficit debt, a certificate signed by the Commissioner or Deputy Commissioner is prima facie evidence of the general interest charges payable on the RBA deficit debt, and the payments and credits allocated to the RBA (if stated in the certificate).[42]
24 Additionally, the production of a certificate signed by the Commissioner or a Deputy Commissioner, which states that - from the time specified in the certificate - an amount was payable under a taxation law, is prima facie evidence that the amount is payable from that time, and that the particulars stated in the certificate are correct.[43]
The evidence Affidavits sworn by officers of the ATO
25 In her affidavit sworn on 17 March 2016, Ms Theresa Mary Crea deposes that Mr Lafferty was assessed to pay income tax for the Years.[44] Ms Crea states that the following notices and amended notices of assessment were issued to Mr Lafferty:
26 Ms Crea deposes that each assessment and amended assessment was sent to Mr Lafferty's preferred address for service.[53] Ms Crea further says that Mr Lafferty has not paid the tax liabilities,[54] with the result that Mr Lafferty became and remains liable to pay general interest charges on unpaid tax and penalties.[55]
28 Finally, Ms Crea deposes that Mr Lafferty failed to lodge an income tax return for the year ending 30 June 2012, and became liable to pay a penalty.[59] Ms Crea deposes that on 25 September 2013, the Commissioner served a notice of administrative penalty on Mr Lafferty for $670, due for payment on 16 October 2013.[60] Ms Crea deposes that Mr Lafferty did not pay that amount, and became liable to pay general interest charges.[61]
29 Ms Crea annexes an evidentiary certificate in which the Deputy Commissioner certifies that, as at 15 March 2016, the Tax Debt amounted to $12,564,043.42.[62]
30 In his affidavit sworn on 23 March 2016, Mr Gianni Wei T'Sung Bei deposes that, since the filing of the defence on 24 October 2014, he had been in negotiations with Mr Lafferty's solicitor in efforts to resolve the matter.[63] Mr Bei states that he believes 'some of the delay in applying for summary judgment has been caused by the [Deputy Commissioner]'s attempt to resolve the matter out of court'.[64] Mr Bei also states that he 'believes that [Mr Lafferty] has no defence to [the Deputy Commissioner]'s claim or any part thereof'.[65]
32 In her affidavit sworn on 10 April 2017, Ms Andrea Joan Jennings states that the Deputy Commissioner and Mr Lafferty had engaged in negotiations from 23 March 2016 to 6 April 2017, which had caused the Deputy Commissioner's application to be deferred.[68] Ms Jennings further says that she believed 'some of the delay in applying for summary judgment has been caused by the [Deputy Commissioner]'s attempts to afford [Mr Lafferty] the opportunity to resolve the matter out of court'.[69] Ms Jennings states that she did not believe 'that any prejudice had been caused to [Mr Lafferty] by the delay in filing for summary judgment',[70] and did believe that Mr Lafferty 'has no defence to the [Deputy Commissioner]'s claim or any part thereof'.[71]
33 In her affidavit sworn on 21 August 2017, Ms Cecilia Raj states that Mr Lafferty had left Australia on 16 June 2003, and not returned before 11 January 2010.[72] Ms Raj also annexes an updated evidentiary certificate, which recorded that the Tax Debt as at 20 August 2017 totalled $13,975,365.42, made up of:[73]
(a) $13,940,441.72 of unpaid income tax including general interest charges;
(b) $33,966.93 of RBA deficit debt including general interest charges; and
(c) $956.77 of unpaid penalties including general interest charges.
34 By orders made by consent on 11 April 2017, Mr Lafferty was required to file and serve any affidavits in opposition to the application by 28 April 2017. No affidavit was filed in accordance with the consent order, but, on 17 August 2017, Mr Lafferty's solicitors filed an affidavit sworn by Mr Lafferty on 16 August 2017. In that affidavit, Mr Lafferty - an officer of the court - did not provide an explanation for his failure to comply with the court's orders. At the hearing, counsel for Mr Lafferty explained that, because of a lack of instructions, he was not able to file Mr Lafferty's affidavit before 17 August 2017. A failure to comply with the court's directions is unsatisfactory especially where the litigant who fails to comply is an officer of this court. In the absence of an objection by counsel for the Deputy Commissioner, and given the consequences for Mr Lafferty of granting the summary judgment, I allowed Mr Lafferty to rely upon his affidavit.[74]
35 Relevantly in his affidavit, Mr Lafferty deposes that - while his solicitor did engage in negotiations with an officer of the ATO - those negotiations did not preclude the Deputy Commissioner from applying for summary judgment at any time.[75] Mr Lafferty states that he does not consider that the Deputy Commissioner delayed bringing the application to be 'fair to [him] in circumstances where the [Deputy Commissioner]'s statutory imposts far eclipsed the primary debt'.[76]
36 Mr Lafferty states that, in his filed defence, he believes that he raised a 'good defence to the assessments' for 1998 2000.[77] In support of his belief, Mr Lafferty contends that those assessments (or amended assessments) were invalid because the deductions he claimed were valid, which issue is a complex matter of mixed fact and law that should be argued at trial.[78]
37 Finally, Mr Lafferty repeats his asserted estoppel and unconscionability defences.[79]
Whether leave should be granted to bring the application for summary judgment Discretion to grant leave
38 Order 14 r 1(1) of the RSC requires a plaintiff to bring an application for summary judgment within 21 days after a defendant enters an appearance, or at a later time by leave of the court.
39 Mr Lafferty's solicitors entered an appearance on his behalf on 25 September 2014. The Deputy Commissioner filed the present application on 23 March 2016, almost 18 months later.
40 In Deputy Commissioner of Taxation v Heaton, Master Sanderson referred with approval to the statement in Civil Procedure Western Australia [14.1.5] that '[t]he time limit of 21 days reflects the policy of the rules requiring summary judgment applications to be brought at an early stage of the proceedings before too much expense has been incurred'.[80] Any delay must be explained,[81] and it is for the applicant for summary judgment to show that the delay in bringing the application was justifiable in all the circumstances.[82]
42 I agree with the views expressed by Master Sanderson in Heaton,[85] that a failure by the Deputy Commissioner to follow the rules of the court should be given greater weight than a similar omission by an ordinary party. The advantageous position of the Deputy Commissioner in an application for summary judgment (by reason of the conclusive evidence provisions outlined above) means that careful consideration should be given to whether allowing the Deputy Commissioner to proceed out of time would prejudice the defendant.
43 The Deputy Commissioner submits that the delay in applying for summary judgment was the result of giving Mr Lafferty an opportunity to resolve the matter out of court.[86] The Deputy Commissioner contends that, where the delay is explained and is due to the Deputy Commissioner attempting to be fair to a taxpayer, and where no significant costs have been incurred and summary judgment would otherwise be granted, leave should be given.[87]
44 The Deputy Commissioner says there is no evidence that the delay in bringing the application has caused particular prejudice to Mr Lafferty.[88] With respect to the accruing general interest charges, counsel for the Deputy Commissioner submitted that that increase was not caused by the Deputy Commissioner's delay, but instead by Mr Lafferty's ongoing failure to pay the Tax Debt or challenge his liability to do so under pt IVC of the TAA.[89]
45 Mr Lafferty submits that it was open to the Deputy Commissioner to bring the application at any time from October 2014, and that conferral 'on the basis that the [Deputy Commissioner] was being fair to [Mr Lafferty] and was affording [him] the opportunity to resolve the matter out of Court' did not prevent the Deputy Commissioner from doing so.[90] Mr Lafferty submits that, as a result of the delay, he has suffered prejudice in the sense that between October 2014 and March 2016 the general interest charges continued to accrue.[91]
46 Counsel for Mr Lafferty initially submitted that the accrual of the general interest charges constituted particular prejudice to Mr Lafferty,[92] and made the point that - on the evidence provided by the Deputy Commissioner - only 'some of the delay' was said to be attributable to the negotiations.[93] However, counsel for Mr Lafferty later agreed that the accrual of the general interest charges could only be prejudicial if the claim was made out, and Mr Lafferty had been in a position to pay the Tax Debt had the matter been resolved at an earlier time.[94]
47 In my view, the Deputy Commissioner has explained the delay in bringing the application. I accept the evidence provided by Mr Bei and Ms Jennings that, to give Mr Lafferty the opportunity to achieve a more favourable result than if the matter proceeded to judgment (summary or otherwise), officers of the ATO engaged in negotiations with Mr Lafferty over substantially all of the period from October 2014 to April 2017. I also accept that the determination of the application was deferred until now because of a courtordered mediation over two days in September and November 2016, and the time taken to file and serve affidavits and submissions in anticipation of the hearing of the application.
48 I also accept the Deputy Commissioner's submission that no significant expense has been incurred in this matter. Apart from the filing of the statement of claim and the defence, and costs associated with negotiations and a mediation, no significant procedural steps have been taken by either party.
49 I do not accept that Mr Lafferty has suffered any particular prejudice because of the Deputy Commissioner's delay. In coming to that conclusion I acknowledge the special position of power of the Deputy Commissioner, in that I must take the statements and certificates provided by the Deputy Commissioner to be prima facie or conclusive evidence of the liability of Mr Lafferty to pay the Tax Debt. However, the accrual of general interest charges - the only potential prejudice pointed to by Mr Lafferty - is not particular prejudice. Even if I considered that the Deputy Commissioner's delay was not explained, Mr Lafferty provided no evidence that he could or would have paid the Tax Debt at an earlier time. It is clear that Mr Lafferty has not paid the Tax Debt. In those circumstances, the accrual of general interest charges cannot be attributed to the Deputy Commissioner's delay.
50 Finally, for the reasons which follow, I consider that the Deputy Commissioner's application has merit and should be granted. Accordingly, I consider that the Deputy Commissioner should have leave to proceed with the application for summary judgment.
Whether summary judgment ought be granted Power to order summary judgment
51 The principles with respect to the court's power to order summary judgment are wellestablished, and may be summarised as follows.
52 An application for summary judgment pursuant to O 14 r 1 of the RSC must be supported by an affidavit verifying the facts on which the claim is based and stating that there is no defence to the claim.[95] A defendant may show cause against an application for summary judgment by affidavit or otherwise to the satisfaction of the court.[96]
53 Ordinarily, a party is not to be denied the opportunity to place their case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes.[97] Accordingly, summary judgment must be granted only in the clearest of cases, where there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial.[98] Put another way, the power to order summary judgment will not be exercised unless it is clear that there is no real question to be tried.[99]
54 The plaintiff bringing the summary judgment application bears the legal onus of establishing that there is no real question to be tried. But, once the plaintiff has satisfied the requirements of O 14, it has a prima facie right to an order for summary judgment, and an evidentiary burden is cast on the defendant to satisfy the court that there is a triable issue or an arguable defence.[100] To do so, it is necessary for the defendant - whether in an affidavit or otherwise - to 'condescend upon particulars' and provide sufficient details of their defence.[101]
55 The Deputy Commissioner submits that it is clear that there is no real question to be tried in this case.[102] The Deputy Commissioner says that Mr Lafferty's taxrelated liabilities were due and payable from the dates stated in the assessments and amended assessments, there is no outstanding challenge to those assessments, and - in any event - the Deputy Commissioner is entitled to recover the tax-related liabilities from Mr Lafferty whether or not there is such a challenge.[103] Accordingly, the Deputy Commissioner submits that Mr Lafferty's filed Defence discloses no arguable defence.[104] Counsel for the Deputy Commissioner relied upon the evidentiary certificate annexed to Ms Raj's affidavit as proof of the Tax Debt,[105] and submitted that the Deputy Commissioner could not be estopped from pursuing the claim.[106]
56 In his submissions, Mr Lafferty submits that by the time the ATO replied to his objections, his tax debt had risen from $1,536,055 to more than $10 million.[107] Mr Lafferty further disputes the amount of tax payable by him in 1998 2000.[108] As to the issues of estoppel and unconscionability, Mr Lafferty essentially repeated as submissions the matters pleaded in his filed Defence and deposed to in his affidavit. At the hearing, counsel for Mr Lafferty made clear that Mr Lafferty's position, at its highest, was that the estoppel issue was factually and legally complex and should be resolved at trial.[109] Mr Lafferty makes no submissions as to his tax-related liability for the years ending 30 June 2011 and 2012.[110]
57 Ms Crea's affidavit clearly sets out the basis for the Deputy Commissioner's claim, and the liability of Mr Lafferty to pay the Tax Debt. The Commissioner assessed Mr Lafferty's income in each of the Years, and sent an assessment (or amended assessment for 1998 2000) to his preferred address for service. Twenty one days later, in each case, the amounts specified in those assessments became due. Mr Lafferty did not pay those amounts, and general interest charges began to accrue. Separately, the Commissioner established an RBA, which RBA fell into deficit. That deficit was not paid by Mr Lafferty, and general interest charges began to accrue upon it. Mr Lafferty did not lodge a tax return for the year ending 30 June 2012, and accordingly became liable to pay a penalty, which he did not pay, and on which general interest charges began to accrue. Ms Crea's evidence, and the evidentiary and RBA certificates establish the existence of the Tax Debt, and Mr Lafferty's liability to pay it.
58 In their affidavits, Mr Bei and Ms Jennings depose to their belief that Mr Lafferty has no defence to the Deputy Commissioner's claim.
59 In summary, the facts alleged in the statement of claim are verified by the affidavits relied upon by the Deputy Commissioner.
60 In his affidavit, Mr Lafferty does not condescend to particulars of his defence. Instead, he simply repeats his pleaded defences.
61 I accept that the effect of the relevant statutory provisions is that Mr Lafferty is liable to pay the Tax Debt, and that Mr Lafferty has no defence to the Deputy Commissioner's claim. Further, in my view, the effect of those provisions is that the only avenue open to Mr Lafferty to challenge the assessments is under pt IVC of the TAA. It is not now open to Mr Lafferty to bring a challenge to the validity of the assessments in this court, including by way of estoppel or allegation of unconscionability. In any event, there are serious difficulties in relying on estoppel defences in claims of this kind.[111]
62 As was said by a majority of the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd, 'harsh though the operation of these provisions may be, they implement a long-standing legislative policy to protect the interests of the revenue'.[112] The effect of those provisions in this case is that, once the assessments, amended assessments, and notices of administrative penalty were issued, Mr Lafferty was liable to pay the amounts specified. Because he did not do so, he became liable to pay general interest charges, which continue to accrue. Similarly, an RBA established by the Commissioner fell into deficit, which became a debt due from Mr Lafferty. Because he did not pay that debt either, Mr Lafferty became liable to further general interest charges which continue to accrue.
63 There being no defence to the Deputy Commissioner's claim, and clearly no triable issue deposed to by Mr Lafferty, there is no reason why I should not grant summary judgment in favour of the Deputy Commissioner.
64 For the above reasons, I grant leave to the Deputy Commissioner to proceed with the application, and give judgment in favour of the Deputy Commissioner.
65 I will hear the parties as to the form of the appropriate orders and costs.
[1] Rules of the Supreme Court 1971 (WA) O 14 (RSC).
[17] Income Tax Assessment Act 1936 (Cth) s 166(a) (b).
[21] Taxation Administration Regulations 1976 (Cth) r 12A, r 12F.
[25] Taxation Administration Act 1953 (Cth) s 8AAZA, sch 1 pt 425; Income Tax Assessment Act 1997 (Cth) s 9951(1).
[27] Taxation Administration Act 1953 (Cth) s 8AAZD; pt IIB div 3.
[31] Taxation Administration Act 1953 (Cth) sch 1 s 286-75(1), sch 1 s 286-80.
[32] Taxation Administration Act 1953 (Cth) sch 1 s 298-10.
[33] Taxation Administration Act 1953 (Cth) sch 1 s 298-15.
[34] Taxation Administration Act 1953 (Cth) sch 1 s 298-25; pt IIA.
[35] Taxation Administration Act 1953 (Cth) sch 1 s 255-5(2).
[36] Taxation Administration Act 1953 (Cth) sch 1 s 255-1(1).
[37] Taxation Administration Act 1953 (Cth) sch 1 s 255-50(1).
[38] Taxation Administration Act 1953 (Cth) sch 1 s 350-10(1) item 2; Income Tax Assessment Act 1997 (Cth) s 995-1(1).
[39] Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 [40] - [45], [57] [58] (Gummow ACJ, Heydon, Crennan & Kiefel JJ); Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146 [64] [67] (Gummow, Hayne, Heydon & Crennan JJ).
[40] Taxation Administration Act 1953 (Cth) s 14ZZM, s 14ZZR; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [44] (Gummow ACJ, Heydon, Crennan & Kiefel JJ).
[43] Taxation Administration Act 1953 (Cth) sch 1 s 25545, sch 1 s 35010(3).
[44] Affidavit of Theresa Mary Crea sworn 17 March 2016 [6] (Crea Affidavit).
(2008) 237 CLR 473
(2008) 237 CLR 146