Deputy Commissioner of Taxation v Levick

The Court's power to order costs against a solicitor 9 The fact that the Court has power to order costs against a solicitor not being a party to the proceedings before it was authoritatively determined by a full Court of this Court in the Caboolture Park Shopping Centre Pty Ltd (in liquidation) v White Industries (QLD) Pty Ltd (No 1) (1993) 45 FCR 224. The source of the Court's power to award costs against a third party is s 43 of the Federal Court of Australia Act 1976 (Cth) which section complements the jurisdiction conferred upon the Court as a court of equity. The Court's jurisdiction is not narrowly defined save that the costs order must relate to proceedings before the Court, and the Court may "make such orders for the payment of costs as may be required for the just disposal of all proceedings brought before it": White Industries (No 1) at 229. 10 There is, however, an important difference between the question whether the Court has jurisdiction to order a stranger to the litigation to pay costs and the exercise of that jurisdiction: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 186 per Mason CJ and Deane J. The discretion which the Court has is one to be exercised judicially, it is not an unfettered discretion: Knight at 192. It may be that Courts of equity recognised certain long established categories of case where such a cost order could be made: cf Oasis Hotel Ltd v Zurich Insurance Co [1981] 124 DLR (3d) 455 at 458-9, referred to in Knight at 192. But that is not to say that the categories are therefore closed. 11 The jurisdiction is, I think, one that must be exercised sparingly, having regard to all the circumstances of the particular case. It is clear enough that a litigant is entitled to representation to vindicate a particular legal right, or to maintain a legal defence. Should it turn out that the litigation is decided adversely to the litigant it does not follow that costs should, in consequence, be ordered against the legal adviser, be he or she a solicitor or a barrister. Were that the case those seeking to advance legitimate claims, or to pursue legitimate defences might well be deprived of legal representation and access to justice, in consequence, would be impeded. 12 What is submitted in the present case on behalf of the Commissioner is that a cost order should be made against a solicitor where the case advanced is one which has substantially no chance of success: cf per Goldberg J at first instance in White Industries (QLD) Pty Ltd v Flower & Hart (No 2) (1998) 156 ALR 169 at 236 and per French J in De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544 at 548, where his Honour ordered costs against a solicitor where there was a failure to give reasonable attention to the relevant law and fact, such as to amount to a serious dereliction of duty. 13 In Edwards v Edwards [1958] 2 All ER 179 at 186, Sachs J said: "It is, of course, axiomatic, but none the less something which in the present case should be mentioned, that the mere fact that the litigation fails is no reason for invoking the jurisdiction; nor is an error of judgment; nor is even an error merely because it is of an order which constitutes or is equivalent to negligence. There must be something that amounts, in the words of Lord Maugham … to 'a serious dereliction of duty', something which justifies according to other speeches in that case, the use of the word gross. It is not, however, normally necessary to establish mala fides or other obliquity on the part of the solicitors, though it may be that if mala fides is established that might turn the scale in a particular case." 14 Many of the older English cases, and this includes Edwards, appear to proceed on the basis that the foundation of the jurisdiction is the inherent power which a Court may have over solicitors who are officers of the Court. However, as appears from Knight at 188 it is artificial to attribute the jurisdiction to order costs against solicitors to the exercise of a disciplinary power over officers of the Court. It is, as Mason CJ and Deane J comment, founded on the exercise of a jurisdiction to award costs of the proceedings, and see too White Industries (No 1) at 231-3. Solicitors are not, as such, officers of this Court, although the jurisdiction of the Court to supervise the duty which solicitors owe to it is not doubted. 15 In the past, where orders of costs have been made against solicitors, it has been common for reference to be made that the conduct of the solicitor was such as to constitute an abuse of the Court's process. cf Hutchinson v Greenwood (1854), 4 El & Bl 324 at 326, 119 ER 125 at 126, although, as pointed out in Knight, at 190, the concept of "abuse of process" for this purpose was to be broadly understood. It is interesting to note that the Rules of the Supreme Court of New South Wales now relevantly limit the jurisdiction to make cost orders against strangers to cases of contempt of court or abuse of process (see Part 52A Rules 4(2) and (5)). This is not surprising. Where the foundation for a third party cost order is said to be the case which has been advanced on behalf of the client by the solicitor, it is necessary, as suggested above, to draw the line between an argument which does not succeed and one that justifies a third party cost order. That line can most readily be found in the concept of abuse of the Court's process. A case which is advanced, not to vindicate the legal rights of an applicant, but for an ulterior purpose such as the production of gross delay will clearly enliven the jurisdiction of the Court to make an order against the solicitor: Flower & Hart v White Industries Ltd (1999) (No 2), 163 ALR 744. Likewise the advancing of a defence where none is available, not to contest the claim of the Applicant who brought the proceedings, but to delay the enforcement of a claim which legitimately exists would likewise constitute an abuse of process. And it will be no answer for a solicitor to claim that counsel has been briefed, or that counsel had advised upon the bringing of the claim, or the maintaining of the defence: White Industries (No 2) at 756-7. Indeed I see no reason to doubt that in an appropriate case a cost order could likewise be made against counsel. 16 The White Industries litigation was, perhaps, unusual, in that documentary material became available to White Industries Ltd from the liquidator of Caboolture Park Pty Ltd, which company owed considerable funds to White Industries Ltd. The material indicated quite clearly that the solicitor in that case had commenced proceedings on behalf of Caboolture Park Pty Ltd and claimed fraud in those proceedings to delay the collection of monies by White Industries Ltd. In the normal case all that will be known is that a case has been advanced which has failed. However, where the case advanced is so hopeless that it can have no real chance of success there is, in the broad sense an abuse of process and this will be so because it can then readily be inferred that the case was not put forward for the purposes of vindicating any right or making out any defence, but for some other ulterior purpose, such as, in the case of a person against whom a petition has been filed in bankruptcy, delaying the making of a sequestration order the making of which would, otherwise, be inevitable. 17 The question which arises for my decision in the present case, is, therefore, whether the case advanced on behalf of Mr Quinn was such that it had no chance or perhaps no real chance of success. An alternative way of putting it is whether the case advanced was untenable (cf per Hayne J in Helljay Investments Pty Ltd v Deputy Commissioner of Taxation [1999] HCA 56 at 11, a case where a third party cost order was made, albeit not against a solicitor, in circumstances to which reference will later be made).

A consideration of the arguments advanced 18 As will already have been noted from the material reproduced emanating from Mr Levick many of the arguments which were to be advanced were, to say the least, confusingly expressed. Counsel for Mr Levick ultimately summarised the arguments as involving three propositions, these being: · that demands for the payment of tax were made on the letter head of the Australian Taxation Office, but in fact the name Australian Taxation Office had not been gazetted, and in consequence the Australian Taxation Office did not exist. · That the officer of the Australian Taxation Office person who made the decision to file with the Court the bankruptcy petition did not have authority to do so. · That the Income Tax Assessment Act 1936 was invalid when enacted because the Royal Assent was given by Lord Gowrie who had been appointed as Governor-General by King George V. However, so the submission would have it, King George V died on 20 January 1936 and although as a matter of succession he was replaced by the then Prince of Wales, (Edward VI), the latter although King, was never crowned and at the time Lord Gowrie gave assent to the Income Tax Assessment Act, purporting to do so on behalf of the sovereign, on 2 June 1936 Lord Gowrie had not been reappointed Governor-General by a new King, with the consequence that his Commission had lapsed. 19 It will be observed that the matters dealt with in the Notice under s 78B of the Judiciary Act 1903 and in the correspondence to which I have earlier referred were not all referred to as arguments by counsel for Mr Levick. It can perhaps be assumed that the failure to mention them arose from an acceptance that they were indeed hopeless. To the extent that they are intelligible at all they echo the arguments put by the same counsel, instructed by the same solicitor Mr Levick in Helljay Investments Pty Ltd v Deputy Commissioner of Taxation which Hayne J referred to as being unarguable and "obviously untenable" confusing as they did questions of political sovereignty with "identifying the supreme legislative authority recognised in this legal system and the rules for recognising its valid laws" (per Hayne J at 8). These arguments had previously been rejected by his Honour in Joosse v Australian Securities and Investments Commission. 20 If these additional arguments were different at all, it was because, it was said, Sue v Hill had established that at some point of time, as yet undefined by the majority of the High Court at least, Australia had proceeded to nationhood. However, the situation was said to have been in 1936, at least, that Australia was but a "federation of colonies". Precisely where the submission was supposed to take the Court was never made clear to me. 21 None of the three submissions which were elaborated upon had any greater merit than Hayne J afforded to the submissions which were put to him in Joosse. 22 First, let it be assumed that the Australian Taxation Office does not exist for legal purposes. Certainly, it is common ground that there was no notice of gazettal published which related to any change of name of a department giving rise to the Australian Taxation Office. One may say of this submission, as one may say of all the others, so what? Under the Income Tax Assessment Act 1936 income tax as levied under the relevant rating act is, when assessed and the assessment is notified to a taxpayer, a debt which is due to the Commonwealth, and payable to the Commissioner of Taxation: s 208. It is not payable to the Australian Taxation Office, whatever that may be. It is to be sued for and recovered by either the Commissioner or Deputy Commissioner: s 209. That is what happened here. 23 The Deputy Commissioner commenced proceedings in the District Court for recovery of tax which had presumably been assessed. He obtained judgment. That judgment formed the foundation of the bankruptcy notice and non-compliance with that notice led to the petition. The argument advanced is somewhat like aiming a pistol at right angles to the target. 24 The second submission likewise misses the point. The creditor's petition, in the name of the relevant Deputy Commissioner of Taxation, appears on its face to have been signed on his behalf by a Ms O'Donaghoe, an Administrative Service Officer Class 6, who purported to do so as a "duly authorised officer for the Deputy Commissioner of Taxation". No evidence as to authorisation or lack of it was filed on behalf of Mr Quinn. According to evidence which was filed by the Commissioner (although of course not read because the argument was not required to be met on the petition in the events which happened) showed that the Deputy Commissioner had authorised persons holding the position of Administrative Service Officers Class 3 and above to, among other things, institute proceedings or take action for recovery of tax. The Deputy Commissioner had a direct delegation of function under s 8 of the Taxation Administration Act 1953 from the Commissioner. In so far as the argument was at all intelligible it appears to have been that in some way the authority or delegation contravened what Gibbs CJ had said in O'Reilly v Commissioners of State Bank of Victoria (1983) 153 CLR 1. 25 In O'Reilly a challenge was made to the giving of a notice under s 264 of the Income Tax Assessment Act 1936. The argument was that the notice had to be signed personally by the Commissioner. The argument was rejected. Gibbs J pointed out that practical necessity required that powers conferred upon the Commissioner be exercised by persons authorised, ie a "properly authorised officer". The signature of the Deputy Commissioner in that case was affixed by an officer with the same kind of authority as Ms O'Donaghoe had in the present case. As his Honour pointed out in that case, Carltona Ltd v Commissioner of Works [1943] 2 All ER 560 is authority for the proposition that generally, administrative functions with which a Minister is entrusted may be done by an authorised officer because having regard to the multifarious activities of government no other alternative is practical. Although Ministers of government have a special constitutional position which differs from the Commissioner of Taxation, the principle is similar. There is nothing in O'Reilly which suggests other than that the petition in the present case was brought with the appropriate authority. Indeed O'Reilly's case stands firmly as authority against the submission. 26 The third argument may be thought to be bizarre. Under the Constitution and by force of covering section 2 references to the Queen extend to the heirs and successors in sovereignty of the United Kingdom. Section 3 provides that the Queen may appoint a Governor-General. Under Chapter 1 of the Constitution, section 2 a Governor-General appointed by the Queen is to be Her Majesty's representative to exercise in the Commonwealth during her Majesty's pleasure, but subject to the Constitution such powers and functions of the Queen as Her Majesty may be pleased to assign. The provisions of the Constitution, so far as they relate to the Governor-General apply to the Governor-General for the time being. 27 The office of Governor-General was constituted by Letters Patent of Queen Victoria dated 29 October 1900. They are to be found, as revised in 1904 in Statutory Rules 1901-1927, Vol IV, p 3622. Clause 7 of the Letters Patent was amended in 1911 and again in 1921. The amendment is not of present relevance. Under the Letters Patent which are stated to be intended to be "permanent" and not to be replaced each time a new Governor-General is appointed, Her Majesty declared that there should be a Governor-General to be appointed by Commission. The Letters Patent provided that they could be revoked or amended by a successor to her Majesty, that is to say the office itself survived the death of the sovereign. Individual Governors-General have since the first appointment by her Majesty been appointed from time to time by Commission. Each Governor-General was appointed to the office as constituted by the letters patent by a Commission. Examples are likewise to be found in the Statutory Rules. 28 Under s 58 of the Constitution the Governor-General is to declare, when a Bill is presented to him for consent, that he assents "in the Queen's name", or otherwise withholds assent or reserves the law for the Queen's assent. The executive power of the Commonwealth is exercisable by the Governor-General: s 61. 29 Counsel for Mr Levick in written submissions suggested that Lord Gowrie was appointed in 1934. Counsel for the Commissioner says that he was appointed by Commission on 20 December 1935. The conflict does not matter, although as one might expect, counsel for the Commissioner was correct - see Government Gazette, 21 January 1936 at 105 which contains the notification of the Commission. He assumed office on that day, having taken the required oath. No attempt was made, if any were necessary, to renew Lord Gowrie'scommission on the death of King George V, that is to say, no attempt was made to reappoint him Governor-General when King George V died but a few days after appointing Lord Gowrie on 20 January 1936 and but two days before Lord Gowrie took up his commission. Although the written submissions handed up at the hearing suggested that each Governor-General was appointed by letters patent that does not seem to be the case. Each was appointed by Commission - the letters patent governing the office continue, as I have sought to explain, notwithstanding either the retirement, removal or death of a Governor-General or the death of the sovereign. 30 Although the submissions are far from lucid one reading of them seems to suggest that the Commission of a Governor-General expires on the death of a sovereign. If that is so, it would be the case each time a sovereign died and has nothing to do with the fact that between the death of King George V and the ascension to the throne of King George VI, there was a period where there was a King who was not crowned. An alternative reading of the submission is that it mattered that there was a king who was not crowned in the period which the submissions refer to as the "interregnum", meaning thereby the period between the death of King George V and the accession of King George VI. Indeed at one point the submission asserts that as at 2 June 1936 when Lord Gowrie assented to the Income Tax Assessment Act 1936 he was, in fact, validly appointed, but suggests that as at that date "there was no sovereign vested with the Executive Power under s 61 in whose name he could give Royal Assent to the Bill placed before him". This is suggested to be the case because King Edward VIII, as uncrowned King, had not "fully assumed the office of sovereign". 31 As already noted the office of Governor-General, by the terms of his office as defined by the letters patent, survived the death of a sovereign. That is to say it was unnecessary for there to be a new appointment should the King or Queen making the appointment die. If this were not the case the problem would probably have been cured by the Demise of the Crown Act 1901 (UK) where it was provided in s 1(1) that within the Dominions the holding of any office under the Crown was not affected by the demise of the sovereign and that no fresh appointment was necessary consequent upon the death of the sovereign. It was only on the adoption of the Statute of Westminster in 1942 that the laws of the Parliament of the United Kingdom were expressed not to apply to Australia unless with the advice and consent of Australia (s 4), although whether that was in any event the situation without the adoption of the Statute of Westminster is not a matter upon which it is necessary to express an opinion. 32 Quite why it mattered to the question of the validity of the appointment of Lord Gowrie whether King Edward VIII was crowned or not, is not clear to me. Edward VIII was King. When s 58 of the Constitution requires the Governor-General to assent in the name of the sovereign (ie in the language of the Constitution "the Queen") that would, at the time the Income Tax Assessment Act 1936 was given the Royal assent have been King Edward VIII. The constitutional position in the United Kingdom is that there is no gap in sovereignty. The succession was assured by the Act of Settlement 1700. For Australian constitutional purposes the person who holds the office of King or Queen in the United Kingdom is the person to whom reference is made in the Constitution as "the Queen". For present purposes when s 58 in June 1936 spoke of the Queen, it referred to King Edward VIII, crowned or uncrowned. When one monarch dies the eldest child becomes king, "without any essential ceremony or act to be done ex post facto": Calvin's Case (1608) 7 Co. Rep la at 10b. 33 The argument that the Income Tax Assessment Act 1936 is invalid is quite without merit. It is unnecessary therefore to consider whether the enactment of the laws imposing taxation from time to time, which incorporate by reference the provisions of the Income Tax Assessment Act 1936 in the form that that Act would operate to overcome any problem of invalidity which the 1936 Act had at the time the Royal assent was given to it.

Conclusion 34 The discussion of the arguments put (and the same would be true of the arguments raised before Hayne J in Joosse to the extent they were foreshadowed as intended to be raised in the present proceedings) demonstrates that they are untenable - indeed one might even say of them that they were nonsense. If it matters it can be inferred that both Mr Levick and Mr Fitzgibbon of counsel knew that this was so when the moment that a third party cost order was raised they immediately expressed the desire to withdraw, presumably so as to avoid the third party order. This hardly displayed any confidence in the arguability of the matters which they previously indicated they intended to advance. 35 It is not as if these arguments would have originated from the client. They clearly originated with the lawyers. It is obvious enough that they were intended to delay as long as possible the making of a sequestration order against Mr Quinn. But it is not necessary to go that far to justify the making of an order that the solicitor pay the costs of the Deputy Commissioner on an indemnity basis occasioned by the raising of these matters. There is, as well, an ethical question which arises where solicitor or counsel advise their clients to pursue spurious arguments before the Courts. The problem would be, to say the least, even more serious were a solicitor or barrister to participate in advertising to persons with potential income tax liabilities that advice was available how to escape those liabilities upon payment of a fee which then encouraged the making of arguments before courts which were bound to fail. That such advertising may have been undertaken (I do not suggest that Mr Levick did so, for I do not know whether he did or did not) emerges clearly enough from the judgment of the Court of the Supreme Court of Queensland in Professional Nominees Pty Ltd v Walsh [1998] QSC CA 253 and see Media Release dated 3 May 1999 issued by the Commissioner of Taxation: "You pay for wacky advice". 36 Although I do not think that it is necessary that Mr Levick be joined as a party for the Court to have power to make a costs order against him, I note that the High Court in Knight at 203 suggested that this might be a convenient course. I would accordingly make an order that he be joined as a party. I would order that Mr Levick pay so much of the costs of the Deputy Commissioner of Taxation on the bankruptcy petition as related to the arguments to which I have made reference in these reasons proposed to be raised on behalf of Mr Quinn, such costs to be calculated on a solicitor and client basis. Further, I would order Mr Levick to pay the costs of the Deputy Commissioner of Taxation's motion. In the circumstances, however, the costs of the motion should be calculated on a party and party basis, the course which was adopted in White Industries (No 2). I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Solicitor for the Applicant: Australian Government Solicitor