Deputy Commissioner of Taxation v McManus

1 The Commissioner seeks judgment against Mr James McManus pursuant to r 5.23 of the Federal Court Rules 2011 (Cth) for failure to file a defence. 2 Rule 5.23(2)(b) entitles a party to apply to the Court for judgment against a respondent who is in default where the claim against the respondent is for a debt or liquidated damages. Rule 5.22 of the rules identifies when a party is in default for the purposes of r 5.23 and includes a failure by a party to do an act required to be done by the rules (see r 5.22(a)) and a failure to attend a hearing in a proceeding (see r 5.22(c)). 3 Mr McManus was required by the rules to file a defence and also to attend a hearing in December 2016. He was served with a copy of the Commissioner's originating application and statement of claim on 7 November 2015 together with a copy of the orders made by the Court on 28 August 2015 which granted leave to the Commissioner to serve the amended originating application and statement of claim on the respondent in Indonesia. An affidavit of service was filed by Mr Saeed Mamari deposing to his service upon Mr McManus of a letter from the Australian Tax Office dated 7 September 2015, the amended originating application filed 24 August 2015, the statement of claim filed 6 August 2015 and a copy of orders made by this Court on 28 August 2015 granting the Commissioner leave to serve the originating application and statement of claim in Indonesia by an agent or process server. Rule 16.32 required Mr McManus to file a defence within 28 days after service of the statement of claim. The time by which Mr McManus was required to comply with that rule expired on Monday, 7 December 2015 (5 December 2015 being a Saturday: see r 1.61(4)). Mr McManus was, therefore, in default within the meaning of r 5.22(a) for the purposes of r 5.23(2)(b). He was also required, but failed, to attend a hearing which was held on 8 December 2016 and was similarly in default within the meaning of s 5.22(c) for the purposes of r 5.23(2)(b). 4 The Commissioner is entitled to an order under r 5.23(2)(b) if the claim by the Commissioner is for a debt. Special provisions have been enacted to facilitate the Commissioner's ability to recover tax related liabilities without the Commissioner having to prove the liabilities by the usual means. The Commissioner is not obliged to rely upon those provisions but must satisfy the requirements of those provisions if the Commissioner seeks to rely upon them. The Court needs to be satisfied that the provisions apply and are properly engaged for the orders sought to be made. The Commissioner needs, therefore, to show that, and how, each of the elements for the application of the provisions have been satisfied. 5 Default judgment under r 5.23(2)(b) depends upon a claim being for a debt or liquidation damages. Section 255-1(1) of the Taxation Administration Act 1953 (Cth) provides that a "tax-related liability" that is due and payable is "a debt due to the Commonwealth". Section 255-1(1) provides that a tax-related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law: see also Kalis Nominees Pty Ltd v Deputy Federal Commissioner of Taxation (1995) 31 ATR 188, 192. Ms Kerry Madden, an officer in the Significant Debt Management section of the Australian Taxation Office, has filed an affidavit sworn 25 October 2016 summarising the outstanding taxation liabilities of Mr McManus at $1,142,061.39. Ms Madden swore another affidavit on 20 June 2017 to update the quantum of the claim to 20 June 2017 at $1,190,558.45. 6 Ms Madden's affidavits annexed evidentiary certificates issued pursuant to s 255-45 of the 1953 Act certifying the amount of the debt as at 25 October 2016 and 20 June 2017. It is not immediately apparent from the affidavits, however, that the Commissioner was entitled to summary judgment for "tax related liabilities" as debts in reliance upon s 255-45 of schedule 1 of the 1953 Act. Section 255-45 provides that the certificate is prima facie evidence of the matter stated in it for the purposes of this proceeding. 255-45 Evidentiary certificate (1) A certificate: (a) stating one or more of the matters covered by subsection (2) or (3); and (b) signed by the Commissioner, a *Second Commissioner or a *Deputy Commissioner; is prima facie evidence of the matter or matters in a proceeding to recover an amount of a *tax-related liability. (2) A certificate may state: (a) that a person named in the certificate has a *tax-related liability; or (b) that an *assessment relating to a tax-related liability has been made, or is taken to have been made, under a *taxation law; or (c) that notice of an assessment, or any other notice required to be served on a person in respect of an amount of a tax-related liability, was, or is taken to have been, served on the person under a *taxation law; or (d) that the particulars of a notice covered by paragraph (c) are as stated in the certificate; or (e) that a sum specified in the certificate is, as at the date specified in the certificate, a debt due and payable by a person to the Commonwealth. (3) A certificate may state: (a) that a *foreign revenue claim for an amount specified in the certificate has been made by the competent authority under the relevant international agreement; or (b) that the relevant requirements of the relevant international agreement have been complied with in relation to the foreign revenue claim; or (c) that the claim was registered under Division 263 on the date specified in the certificate; or (d) that, as at the date of the certificate, the Commissioner has or has not received advice from the competent authority under the relevant international agreement about the reduction or discharge of an amount to be recovered under the claim; or (e) that the particulars of any reduction or discharge of an amount to be recovered under the claim are as specified in the certificate. The certificates should clearly have identified each of the amounts claimed as amounts falling within the definition of "tax related liabilities". The Commissioner should present material from which the application of the relevant provisions is clear without the need for the Court to construe meanings that might be ambiguous. The affidavits filed in support of default judgment should also enable the Court to see clearly, and without the need for construction of meaning, that the elements of the provisions relied upon have been established. The need for clarity is greater in uncontested proceedings. However, it can be determined from the affidavits of Ms Madden that the amount of $1,190,558.45 in the certificate is made up of claims in the statement of claim which fall within the meaning of tax related liabilities in s 255-1(1) and, therefore, that those liabilities are debts for the purpose of r 5.23(2)(b). 7 The power to order judgment in default under r 5.23(2) is discretionary. In Deputy Commissioner of Taxation v Sibai [2015] FCA 1465 Gleeson J said at [7]-[8]: 7 In Speedo Holdings BV v Evans (No 2) [2011] FCA 1227, the Court outlined a number of principles relevant to the discretion to enter default judgment, including the following (at [20]-[25]): First, the power … remains discretionary. … Just as the discretion must be exercised [cautiously] where it is the applicant that is in default … the same caution must be exercised where it is the applicant who is seeking orders as against a defaulting respondent. Second, the discretionary power to enter a default judgment is enlivened when (as in the present case) an applicant applies to the Court for an order. Rule 5.23(2) provides that where a respondent is in default "an applicant may apply to the Court". … Third, there is a difference in the terms in which the ambit of the power conferred by the former r 3(2)(c) ("the relief… that the applicant appears entitled to on the statement of claim") and the wording of the current r 5.23(2)(c) ("the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled"). Notwithstanding that difference in language, the requirement imposed is not that an applicant prove by way of evidence the claim sought to be advanced; the requirement is that the Court needs to be "satisfied" on the face of the statement of claim that the applicant is entitled to the "relief" claimed…. The facts as alleged in the statement of claim are deemed to have been admitted by a respondent: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2007] FCAFC 146 at [42], 161 FCR 513 at 523 per Moore, Dowsett and Greenwood JJ. … Fourth, to be satisfied that an applicant "is entitled" to the relief claimed in the statement of claim, the Court needs to be satisfied that "each element of the relevant civil wrong involved is properly and discretely pleaded in the statement of claim": Macquarie Bank Ltd v Seagle [2005] FCA 1239 at [24], 146 FCR 400 at 406 to 407 per Conti J …. Fifth, in addition to the facts alleged in a statement of claim, the Court may permit recourse to limited further evidence. But it may not admit evidence which would alter the case as pleaded. 8 The above approach was followed in Placitum Pty Ltd v Andreotta [2014] FCA 726 at [12] and Electrolux Home Products Pty Ltd v Delap Impex KFT [2015] FCA 62; (2015) 110 IPR 164 at [24]. It is appropriate in this case for the discretion to be exercised in favour of granting default judgment for the Commissioner. Mr McManus has been made aware of, and has been served with, the proceedings. He is in default within the meaning of r 5.22(a) because he failed to file a defence by 7 December 2015 and failed to appear on 8 December 2017. He is also deemed to have admitted the debt alleged in the statement of claim by his failure to file a defence: see Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2007) 161 FCR 513 at 523; Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 at [27]; Deputy Commissioner of Taxation v Sibai [2015] FCA 1465 at [7]; Deputy Commissioner of Taxation v Bramwell [2016] FCA 276 at [8]. 8 Accordingly, there will be judgment for the Commissioner in the amount of $1,190,558.45 together with interest and costs. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.