Deputy Commissioner of Taxation v McManus

REASONS FOR JUDGMENT 1 The Deputy Commissioner of Taxation ("Commissioner") has commenced proceedings against Mr McManus for recovery of $1,018,467.50 together with further general interest charges and costs. The Commissioner's proceeding was commenced by originating application filed on 9 July 2015 and was accompanied by a statement of claim filed on the same date. On 6 August 2015 the originating application and statement of claim were amended to correct errors in the calculation of the amounts which the Commissioner seeks to recover. The Commissioner, however, has not been able to serve the documents and seeks by interlocutory application leave to serve them on Mr McManus in the Republic of Indonesia pursuant to r 10.43(2) of the Federal Court Rules 2011 (Cth) and relies, in part, upon the Convention between the United Kingdom and the Netherlands regarding Legal Proceedings in Civil and Commercial Matters, signed 31 May 1932, [1935] ATS 4 (entered into force on 29 July 1933) (the "UK/Dutch Convention"). The Commissioner seeks leave also to serve the documents on Mr McManus pursuant to r 10.49 of the Federal Court Rules 2011 (Cth) both by post to his last known residential address and by email to his last known email address. 2 The Commissioner's interlocutory application is supported by an affidavit by Ms Man Chuen Law dated 6 August 2015. The affidavit states that the originating application in the proceeding has not yet been served on Mr McManus as he is believed to be currently residing in Indonesia. The last contact between the Commissioner and Mr McManus appears to have been by email on 6 November 2012 when Mr McManus indicated that he resided in Indonesia. That email also expressed a willingness by Mr McManus to correspond by traditional mail for formal matters rather than by email and stated that, at that stage, he no longer retained counsel to act for him. The email from Mr McManus on that day was in response to an email sent by an officer of the Commissioner in the objections section of the Australian Taxation Office ("the ATO") informing Mr McManus that letters had been sent to his postal address. The email from the ATO asked Mr McManus for certain information to be sent by letter and asked also whether Mr McManus preferred communicating by email. 3 The Federal Court Rules 2011 (Cth) includes rules dealing with service outside of Australia of an originating application. Rule 10.42 provides that an originating application may be served on a person in a foreign country in a proceeding that consists of, or includes, a proceeding based on a cause of action arising in Australia or seeking any relief or remedy under an Act including the Judiciary Act 1903 (Cth). Rule 10.42 is subject to r 10.43 which provides that service of an originating application on a person in a foreign country is effective for the purpose of a proceeding "only if", among other things, the Court has granted leave under sub-rule (2) before the application is served. Rule 10.43(2) provides: A party may apply to the Court for leave to serve an originating application on a person in a foreign country in accordance with a convention, the Hague Convention or the law of the foreign country. Rule 10.43(3) sets out the requirements of an affidavit which must accompany an application under sub-rule (2), and r 10.43(4) provides that an applicant seeking leave under sub-rule (2) must satisfy the Court that it has jurisdiction in the proceeding, that it is a proceeding of a kind mentioned in r 10.42, and that the party has a prima facie case for all or any of the relief claimed in the proceeding. 4 The affidavit of Ms Law establishes most of the matters about which the Court is to be satisfied as set out in r 10.43(4). The Court has jurisdiction under s 39B(1A)(c) of the Judiciary Act 1903 (Cth) in respect of the recovery of tax related liabilities arising under s 255-50 of Schedule 1 to the Taxation Administration Act 1953 (Cth). The proceeding against Mr McManus is based on a cause of action arising in Australia in which the Commissioner seeks relief under an Act of the kind referred to in r 10.42. The Commissioner's claim in the proceeding is to recover tax related liabilities based on notices of assessment for income tax issued by him in accordance with the Income Tax Assessment Act 1936 (Cth), notices of shortfall penalties assessed in accordance with the Taxation Administration Act 1953 (Cth) and liabilities of Mr McManus to pay the general interest charge under s 204 of the Income Tax Assessment Act 1936 (Cth), s 5-15 of the Income Tax Assessment Act 1997 (Cth), and Part IIA of the Taxation Administration Act 1953 (Cth). The affidavit of Ms Law also makes out a prima facie case for all or any of the relief claimed in the proceeding as required by r 10.43(4)(c). Her affidavit exhibits a certificate dated 6 August 2015 by a Deputy Commissioner of Taxation as a delegate of the Commissioner of Taxation made pursuant to s 255-45 of Schedule 1 of the Taxation Administration Act 1953 (Cth). That certificate provides prima facie evidence of the tax related liability of Mr McManus as set out in the originating application, of the fact that notices of assessment were served upon him, and of the fact that the full amount of the tax related liability remains unpaid as a debt due and payable by Mr McManus to the Commonwealth. 5 An application under r 10.43(2) may be made for service of an originating application on a person in a foreign country "in accordance with a convention, the Hague Convention or the law of the foreign country". Indonesia is not a party to the Hague Convention but the Commissioner contends that the proposed method of service is either permitted by an applicable convention between Australia and Indonesia, or permitted by the laws of Indonesia. The convention relied upon by the Commissioner is the UK/Dutch Convention which the Commissioner contends applies by extension to Australia and Indonesia. That convention, if it applies, contemplates the service of process in Indonesia by formal letter of request through diplomatic channels seeking the assistance of the competent authorities in Indonesia to serve the documents. The affidavit of Ms Law indicates that the Commissioner has previously received "advice" from the Attorney-General's Department to the effect that Australia's service arrangements with Indonesia "are based on" the UK/Dutch Convention under which the Commissioner can deploy diplomatic channels for service of process in Indonesia. It seems, however, that that position may no longer be available and that the Commissioner is not able to have process served upon Mr McManus in Indonesia through the competent authority in that country. 6 The Attorney-General's Department publishes a list of bilateral treaties between Australia and other countries. A copy of that list was annexed to the affidavit of Ms Law. That list identifies Indonesia as a country to which the UK/Dutch Convention applies between Australia and Indonesia by succession from the Netherlands. The Attorney-General publication explains that Australia is a party to bilateral service conventions as a result of the United Kingdom extending conventions to external territories including Australia. On 31 May 1932 the UK/Dutch Convention was entered into between the governments of the United Kingdom and the Netherlands regarding legal procedure in civil and commercial matters. It entered into force on 29 July 1933 in the United Kingdom and the Netherlands, and entered into force for Australia on 8 April 1935. The treaty was extended to the then Dutch East Indies, now Indonesia, with effect from 21 March 1935 pursuant to an exchange of notes between the relevant contracting countries between 21 December 1934 and 8 January 1935. Indonesia is no longer a Dutch territory but an independent country. It is not itself a party to the UK/Dutch Convention but the Commissioner submits that it still applies between Australia and Indonesia. 7 The Commissioner relies primarily upon information received from the Attorney-General's Department which the Commissioner contends shows that the UK/Dutch Convention applies by extension to Australia and Indonesia. The importance for the Commissioner to establish that fact lies in the need for the Court to be confident both that the means of service to be ordered is available and also, importantly, that it is permitted under the law of the country in which service of process of the court of this country is to be effected. The Court should not sanction a step in a foreign country in the furtherance of its process which is not lawful in the foreign country. An effect of the requirements in r 10.43(3)(c) is to require an applicant to satisfy the Court that what it is asked to sanction is permitted in the foreign country. The publication by the Attorney-General's Department relied upon by the Commissioner, however, does not say that the UK/Dutch Convention continues to be in force in Indonesia but only that "in many instances" conventions continue in force by succession from former colonial powers in territories which have since become independent states, including Indonesia. 8 The Commissioner also relies upon an email dated 16 September 2013 from Ms Rashid, an officer of the Private International Law Section of the Attorney-General's Department, to Mr Vorreiter, on behalf of the ATO. Ms Rashid considered whether the UK/Dutch Convention applied and, with the caveat that legal "advice" was not being provided, said about the UK/Dutch Convention: This Convention was later extended by the Netherlands to the Dutch East Indies (now the Republic of Indonesia). Under this Convention, a party in Australia who wishes to serve documents issued by an Australian Court in civil proceedings on a party in Indonesia may send a formal request through the diplomatic channels seeking the assistance of the competent authorities in Indonesia to serve the documents. The material exhibited in support of the Commissioner's application also included a letter from the Department of Foreign Affairs and Trade addressed to the Foreign Service Desk of the Supreme Court of Victoria, dated 6 February 2015, which informed the Supreme Court that there "is no agreement between Australia and Indonesia regarding the service of documents in civil and commercial matters". The letter also said that it had become the practice of the Indonesian Ministry of Foreign Affairs to accept responsibility for service of judicial documents only (a) from foreign courts to Indonesian citizens and Indonesian entities in Indonesia or (b) from courts in Indonesia to foreign citizens abroad. That letter went on to say that the Indonesian Ministry's responsibility did not extend to documents from foreign courts to foreign nationals in Indonesia and in such a case it was unable to assist any further with the request which appears to have been made. 9 On 6 August 2015 Ms Rashid (who had written the email on 16 September 2013 previously referred to) wrote to Ms Law in response to a request concerning service of process in Indonesia. In that email Ms Law was informed that diplomatic practice in Indonesia had changed and service under the UK/Dutch Convention was no longer assured. The relevant email provided: Thank you for your email. Please note that the Private International Law Section does not provide legal advice, therefore the following information should be treated as information only. In June 2015, we received information from the Department of Foreign Affairs and Trade that Indonesia permits the service of documents via the diplomatic channels. The Indonesian Ministry of Foreign Affairs and Trade has advised that it is the Ministry's responsibility for the service of documents only if service is to be effected on Indonesian citizens and/or Indonesian entities in Indonesia. Alternatively, Indonesia permits the use of a private process server or private agent in the service of documents in Indonesia. Information on our file seems to suggest that translations in Bahasa Indonesia of the request and documents to be served would be required by the Indonesian authorities. As for the Convention between the United Kingdom and the Netherlands regarding Legal Proceedings in Civil and Commercial Matters 1932 referred to in my email to Mr Vorreiter, diplomatic practice in this area has shifted and the status of this avenue of service is no longer assured. For this reason we do not recommend attempting service in this way. I hope the above information is of assistance. The Commissioner relies upon this email in support of the proposition that the UK/Dutch Convention is still applicable between Australia and Indonesia. However, I am not satisfied that the email establishes that the diplomatic channels available in Indonesia will permit service upon Mr McManus. The first sentence in the second paragraph appears to be general but the two succeeding sentences are directed to the same matter as the first sentence and appear to be a rather substantial restriction on the extent to which Indonesia permits the service of documents via diplomatic channels. The June 2015 information referred to in the email is not specified but the email taken as a whole is consistent with the view that the UK/Dutch Convention is no longer available for service of Australian process upon persons such as Mr McManus. That is the burden of the last paragraph in the email which states that diplomatic practice has shifted and that reliance upon the UK/Dutch Convention for service is no longer assured. 10 On 6 August 2015 Ms Law also received legal advice from Professor Frans Winarta, an Indonesian lawyer, in respect of the availability of the UK/Dutch Convention as a means of effecting service of process in civil proceedings in Indonesia. Ms Law's affidavit deposes to the fact that the email from Professor Winarta was in response to a request for confirmation that personal service of documents in civil proceedings by a local agent or process server was an accepted method of service under Indonesian law. The advice, however, began by informing Ms Law that the UK/Dutch Convention could no longer be used for service of documents in Indonesia. The email from Professor Winarta is not without ambiguity but it seems clear enough that his opinion was that the UK/Dutch Convention was no longer a means available for service of process in Indonesia. Counsel for the Commissioner informed the Court that the Attorney-General's Department was approached after receiving Professor Winarta's advice for confirmation that the position regarding service in Indonesia in reliance upon the UK/Dutch Convention remained as it had been expressed by Ms Rashid in the 16 September 2013 email but the Commissioner had not received a response as at the date of the hearing of the present application. It is not possible in these circumstances to be sufficiently confident that service may be effected in Indonesia by a method permitted by a convention. 11 The Commissioner relied upon a number of previous decisions which were said to be consistent with the Commissioner's reliance upon the UK/Dutch Convention. In none of the cases, however, was the evidence as it is before me. In Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd [2009] FCA 735 Bennett J gave leave for service in Indonesia where her Honour had evidence adduced by the Australian Competition and Consumer Commission that the proposed method of service in Indonesia was permitted by "the relevant convention between Australia and Indonesia". A comparable order was made by Katzmann J in Commissioner of Taxation v Zeitouni (2013) 306 ALR 603 where, however, the evidence before her Honour was that the UK/Dutch Convention was available as a means of service upon a non-Indonesian national in Indonesia. At [35]-[38] her Honour said in relation to an affidavit filed in support of an application for service under r 10.43: [35] First, it discloses that the brothers are most likely in Indonesia. Mr Vorreiter said that on 2 September 2013 Mr Davis telephoned him and informed him that "he had emailed his clients in Indonesia and advised them to cooperate with the ATO". [36] Second, it discloses that Indonesia is not a party to the Hague convention. The evidence given by Mr Vorreiter shows that Australia's service arrangements with Indonesia pre-date Indonesian independence and are based on the bilateral convention. [37] At first, Mr O'Brien challenged the evidence upon which Mr Vorreiter relied, but ultimately withdrew his challenge and accepted that the bilateral convention applies to service in Indonesia. [38] Articles 2 and 3 of the bilateral convention provide for service through diplomatic channels. Mr Vorreiter obtained advice from the Commonwealth Attorney-General's department that this method of service "can result in some delay". But service through diplomatic channels is not the only method of service permitted by the convention. Article 4 relevantly provides: (a) The provisions of Articles 2 and 3 in no way prejudice the liberty to use in the territory of either High Contracting Party, without any request to or intervention of the authorities of the country, where service is effected, any of the following methods of service in connexion with judicial or extra-judicial documents: (1) Service by a Consular Officer of the High Contracting Party on whose territory the documents emanate; (2) Service by an agent appointed for the purpose either by the judicial authority by whom service of the document is required or by the party on whose initiative service of the documents is required; (3) Service by the competent officials or officers of the country where the documents are to be served, acting directly at the request of the party on whose initiative service of the documents is required; (4) Service through the post; (5) Any other mode of service recognised by the law existing at the time of service in the country from which the documents emanate. [Emphasis in the judgment of Katzmann J.] The evidence before her Honour did not include the contrary evidence which is before me to the effect that the UK/Dutch Convention is no longer available for service of court proceedings upon non-Indonesian nationals in Indonesia. The same is also true of the decisions in Sumampow v Mercator Property Consultants Pty Ltd [2005] WASCA 64 and Mercator Property Consultants Pty Ltd v Christmas Island Resorts Pty Ltd (unreported, Federal Court of Australia, Nicholson J, 14 July 1998). In the latter Nicholson J at p 5 said: There is evidence in the form of advice from the Commonwealth Attorney General's Department that there is no convention or other treaty in force between Australia and Singapore. There is further evidence that Australia and Indonesia are parties by succession to the Convention between the United Kingdom and the Netherlands regarding legal proceedings in civil and commercial matters made on 31 May 1932. The effect of that convention is that it permits service through the diplomatic channels, service by mail or service by private agent. In Sumampow the Full Court of the Supreme Court of Western Australia similarly acted upon uncontradicted evidence that the UK/Dutch Convention "continued to apply between Australia and Indonesia". It may be that further inquiry will produce evidence that removes doubt about whether the UK/Dutch Convention continues to apply but at present the evidence before me is not sufficient to establish that the proposed method of service in Indonesia is permitted under that Convention. 12 Leave may be granted under r 10.43(2) even if the convention does not apply provided that service on a person be permitted by the laws of Indonesia: r 10.43(3)(c)(iii). Ms Law's affidavit states that Indonesia permits the use of a private process server or private agent for the service of documents in Indonesia. An email to her from Ms Rashid dated 6 August 2015 stated that "Indonesia permits the use of a private process server or private agent in the service of documents in Indonesia". The advice Ms Law received from Professor Winarta is ambiguous about this but is not inconsistent with what Ms Rashid had said when the Professor informed Ms Law that "personal service of civil proceedings by a local agent or process server is not an accepted method of service under Indonesian law". The reason that there may be no inconsistency between what Ms Rashid said and what Professor Winarta advised is that the latter advice related to what was permitted under a Memorandum of Understanding ("MOU") and was not, in terms, additional to the same question addressed by Ms Rashid. The Professor's advice to Ms Law in this regard was: For your information personal service of civil proceedings by a local agent or process server is not an accepted method of service under Indonesian Law. Referring to the Memorandum of Understanding No. 162/PAN/KH.00/II/2013, No. NK/HI/01/022013/58, dated 19 February 2013 between the Supreme Court and the Ministry of Foreign Affairs of the Republic of Indonesia on the Handling of Rogatory Letter and Request for Service of Process in Civil Case from a Foreign Court to an Indonesian Court and from an Indonesian Court to a Foreign Court ("MOU"), any service of documents from a foreign court (including service of civil proceedings) on individuals residing in Indonesia shall be conducted through diplomatic channels. The MOU attached to Professor Winarta's email of advice appears not to apply to the circumstances of Mr McManus for a number of reasons including that he is not an Indonesian citizen. The observation preceding the reference in Professor Winarta's advice to the MOU that personal service "by a local agent or process server is not an accepted method of service under Indonesian law" appears to be based upon his analysis of the MOU and does not appear to be a general statement about whether personal service by a local agent or process server was permitted by Indonesian law. The advice by Professor Winarta in this respect is, in any event, ambiguous and not sufficient to cast doubt upon the clear and direct statement from Ms Rashid to the contrary. Personal service of originating process is generally required by r 8.06 of the Federal Court Rules 2011 (Cth) and there is no prohibition under Australian law on service being carried out by a process server or other agent. The evidence that service may be effected by a process server or agent is also consistent with the email of 16 September 2013 from the Attorney-General's Department previously referred to. Accordingly leave will be granted to effect service upon Mr McManus by a process server or other agent in Indonesia. 13 The Commissioner also seeks leave to serve the amended originating application and statement of claim on Mr McManus pursuant to r 10.49 by posting the documents to his last known residential address and by emailing a copy of them to his last known email address. The Commissioner's application is that leave should be granted for this alternative form of service simultaneously with leave to serve upon him by a process server or other agent. Rule 10.49 provides: If service was not successful on a person in a foreign country, in accordance with a convention, the Hague Convention or the law of a foreign country, a party may apply to the Court without notice for an order: (a) substituting another method of service; or (b) specifying that, instead of being served, certain steps be taken to bring the document to the attention of the person; or (c) specifying that the document is taken to have been served: (i) on the happening of a specified event; or (ii) at the end of a specified time. An order for substituted service under this rule is generally conditioned upon service by another means not having been successful. There is at this stage no basis to conclude that service which has not yet been effected will not be successful. There may be circumstances where the interests of efficient case management may justify an otherwise anticipatory order for substituted service where personal service has not yet been attempted but I am not satisfied that this case is one of them. In Deputy Commissioner of Taxation v Seabrooke [2012] FCA 1158 Siopis J made orders for substituted service as well as personal service outside of Australia (but not by email) in circumstances where it was desirable to have the documents brought to the respondent's attention promptly. Cases where prompt service may be necessary to prevent the dissipation of assets may warrant orders for substituted service in addition to personal service (see Commissioner of Taxation v Zeitouni (2013) 306 ALR 603, [80]-[84]) but there is no urgency of that kind in this case that would warrant disregarding the usual precondition contemplated in r 10.49, namely, that service not had been successful on a person in a foreign country. 14 Accordingly there will be orders for service in Indonesia by an agent or process server. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.