Derrin Brothers Properties Limited v Deputy Commissioner of Taxation

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 887 of 2010

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 963 of 2013

JUDGE: KATZMANN J DATE OF ORDER: 11 June 2013 WHERE MADE: SYDNEY

REASONS FOR JUDGMENT 1 Derrin Brothers Properties Limited ("Derrin") has been found to have a substantial tax debt. The Deputy Commissioner of Taxation ("Commissioner") has attempted to recover the debt, but Derrin disputes it and refuses to pay. The dispute has a long and tortuous history. 2 The Commissioner moved for summary judgment on the unpaid assessments. Derrin opposed the motion and sought to stay either its determination or the execution of judgment. After it failed, it made a further unsuccessful attempt before another judge for a stay of execution. It managed to persuade a Full Court to set aside the second judgment, but when the matter was remitted to the primary judge to re-determine whether the stay should be granted, it failed to persuade him. It has now applied for leave to appeal and for a stay pending the determination of the application and, if leave is granted, the appeal. For the following reasons I would refuse both applications.

The antecedent proceedings 3 On 12 August 2010 the Commissioner sued Derrin and two other companies to recover unpaid income tax and additional charges. In Derrin's case the subject matter of the proceedings consisted of notices of assessment of income tax for the 2003, 2004 and 2005 financial years together with general interest charges. The Commissioner later applied for summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) ("FCA Act"). The amount claimed from Derrin was $9,624,253.17. In the meantime Jessup J granted freezing orders the effect of which was to prevent Derrin and the other parties from dealing in shares in public companies listed on the Australian Stock Exchange. Those orders remain in force. 4 The companies sought a stay of the Commissioner's motion for summary judgment and, in the alternative, a stay of any judgment given in the proceedings until their tax objections were determined. Objections to the assessments had been lodged but the Commissioner had made no decision on the objections. 5 On 25 November 2010 Kenny J refused the stay applications and ordered that there be judgment for the Commissioner against Derrin in the sum of $9,723,807.23. Her Honour made similar orders in the proceedings involving the other companies: Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297 ("the summary judgment"). 6 After the Commissioner dismissed the companies' objections, on 16 May 2011 Derrin (and the other parties) filed an appeal under Pt IVC of the Taxation Administration Act 1953 ("Administration Act"). 7 No attempt was made to set aside the summary judgment. Instead, some 17 months later, on 17 April 2012 - after the Commissioner had taken steps to enforce the judgment - Derrin and the other companies applied to vary the judgments by removing from them the amount for the general interest charge, to stay the enforcement proceedings and to consolidate the enforcement proceedings with the Pt IVC appeals. 8 The Pt IVC appeal was pending when the applications came on for hearing before Perram J in May last year. His Honour accepted that each of the judgments should be varied to remove the general interest charge but refused the applications to stay the enforcement proceedings. Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594. 9 Some six months after the delivery of judgment (on 18 December 2012), his Honour made a number of orders. Amongst them were orders that certain security interests be charged in favour of the Commissioner to the extent necessary to satisfy the judgment debt (then $3,056,174.21), and that the chargees be restrained from dealing with the security interests otherwise than in accordance with the directions of the Commissioner until further order of the Court or until the judgment against Derrin is satisfied in full. His Honour also appointed a receiver to take the security interests, receive all dividends or share issues and then sell the security interests and forward the net proceeds of sale to the Commissioner to apply against the judgment debt. 10 On the applications for the stay his Honour declined to consider the merits of the Pt IVC appeals, considering himself bound by the terms of s 14ZZR of the Administration Act (which provides that "[t]he fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending") and the High Court's decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 ("Broadbeach"). 11 The companies appealed to the Full Court but only Derrin pursued the appeal. As I mentioned at the outset of these reasons, Derrin prevailed. The Full Court held that the primary judge had overstated the effect of Broadbeach, which caused his discretion to miscarry, and remitted the proceeding for reconsideration: Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10 ("Southgate").

The taxpayer's arguments below 12 Derrin's case in the Pt IVC appeal is that it is not liable to pay the tax because at all material times it was not an Australian, but a Swiss, tax resident. It will contend that the profits it earned on the sales of shares were on capital account and that, as a non-resident, it was entitled to the exemption from capital gains tax provided for by Div 855 of the Income Tax Assessment Act 1997 (Cth). On the fresh hearing of its stay application, Derrin submitted that its appeal had "very good prospects" of success. It had already filed what his Honour described as a "considerable amount" of evidence to make good the proposition that it was not an Australian tax resident. 13 Derrin also contended that it would suffer "extreme prejudice" if the Commissioner now proceeded to sell a particular parcel of shares under the charging orders his Honour made on 18 December 2012. Further, it pointed to the benefit the Commissioner has of the freezing orders over Derrin's assets and the fact that the judgment sought to be stayed is a summary judgment, and submitted that execution is being sought contrary to the Commissioner of Taxation's own written policy regarding debt collection.

The primary judgment 14 After summarising Derrin's argument in the Pt IVC appeal his Honour referred at some length to the evidence it intends to adduce. He then referred to the material put before the Court by the Commissioner. 15 It is unnecessary for me to repeat his Honour's summary of the evidence. It is sufficient to note the following matters. 16 The thrust of Derrin's evidence is that it is incorporated in the United Kingdom and administered from Neuchatel in Switzerland where its sole directors (Peter and Winny Borgas) reside. His Honour noted that Mr Borgas will apparently say that he makes all decisions on the Australian shares Derrin will buy and about the merits of the particular stocks on the basis of discussions with Australian advisors. Those advisors include Vanda Gould and John Leaver, Australian residents who were involved in the incorporation of CVC Limited ("CVC"), which was floated on the Australian Stock Exchange in the 1980s. Despite the filing of affidavits from the various witnesses, it is proposed that all the lay evidence be given orally. 17 It was common ground that if Derrin's evidence is ultimately accepted by the Court, it will win its appeal. 18 His Honour noted, based on expert evidence filed by both parties, that if, as Derrin contended, it was a Swiss resident for tax purposes, the question was whether it had its place of effective management in Switzerland. He pointed out that for the purposes of income tax under Australian law, a company is resident "where its real business is carried on, and its real business is carried on where central management and control actually abides" (Esquire Nominees Limited as Trustee of Manolas Trust v Federal Commissioner of Taxation (Cth) (1973) 129 CLR 177 ("Esquire Nominees") at 189 and the question is one of "fact and degree" (Esquire Nominees at 190). 19 The Commissioner relied on the evidence in Ms Whan's affidavit. Ms Whan said that the Commissioner would be contending that Mr Borgas only ever acted in a nominee capacity on the instructions of Messrs Gould and Leaver who, through "a complex web of structures" deliberately concealed their control of Derrin. Ms Whan explained that this contention is based on a detailed analysis of the corporate structures, directorships and arrangements between Derrin and companies associated with Messrs Gould and Leaver and a detailed analysis of the flow of funds in a report by an expert, John Temple-Cole. She said that there were 11 folders of documents obtained by the Commissioner relevant to the question of the control of Derrin. Ms Whan also said that the credibility of each of Derrin's lay witnesses would be directly challenged but that it was not possible for the Commissioner to foreshadow how that would be done until the oral evidence was itself completed. 20 None of the primary material upon which this evidence was based was put before the Court, although I was told that the 11 folders of documents and Mr Temple-Cole's report had been served. 21 At [48] of his reasons his Honour extracted the general principles the Full Court said in Southgate (at [77]) should guide the exercise of the Court's discretion on a stay application. It is useful to repeat them at this point: (a) the power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances; (b) great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a Pt IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of Pt IVC proceedings; (c) the merits of pending Pt IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation; (d) in cases where a judge is unable to form even a tentative view of the strength of Pt IVC proceedings, it is unlikely that the judge's discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer's prospects of success in having the assessment overturned; (e) it is too narrow a view of the discretion to grant a stay of proceedings or execution merely because Pt IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the Court; (f) that is not to say, however, that the outcome of Pt IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high; (g) in cases where the Court considers that it is in a position to assess the merits of pending Pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case; (h) similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point; (i) due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that: (i) the mere obligation to pay income tax of itself does not impose extreme hardship; and (ii) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant Pt IVC proceedings; (j) irrespective of the merits of pending Pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and (k) other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of Pt IVC proceedings. 22 The primary judge concluded that he was unable to make any meaningful assessment of the merits. He said that he did not think the nominated prejudice was great, but even so, he said there was no evidence that Derrin could not pay the amount demanded by the Commissioner. He considered the existence of the freezing orders, but said the fact that the Commissioner's position was secured was not the same as being paid and the value of Derrin's securities was a fluctuating one, given the movements of the stock market. He said he could not see the relevance of the Commissioner's written policy which was, in any event, not put before him. His Honour did not regard the fact that the judgment in question was a summary judgment as having "any great relevance", particularly since there was no application on foot to set the judgment aside. Paragraph 91 provides a neat summary of his Honour's conclusions: Should then a stay be granted? I think not. The power to grant the stay is to be exercised sparingly giving great weight to the legislative policy embodied in ss 92, 14ZZM and 14ZZR of the TAA 1953 and recognising, at the same time, the asperity with which those provisions can operate. I do not think there is a substantive prejudice to Derrin if judgment is now enforced and I am unable to do anymore than speculate about the merits of the Pt IVC appeal. Despite closely considering the material upon which Derrin proposes to rely, I have no present inkling in either direction as to how this litigation is eventually likely to unfold. Although accepting the fact that the Deputy Commissioner is secured by the existence of the freezing orders I do not think that that leads, given the statutory policy inherent in the provisions, to a different outcome. In all of those circumstances, the stay will be refused with costs.

The applications 23 On the day the stay was due to expire, Derrin filed both an application for leave to appeal and an interlocutory application seeking a further stay until the determination of the application for leave to appeal and, if leave be granted, pending the determination of the appeal. Derrin also sought interim orders to have the leave application referred to a Full Court but ultimately did not press that application. 24 The leave application is supported by an affidavit of Eric Clayton Herman, a solicitor employed by Derrin's solicitors, Henry Davis York, sworn on 31 May 2013. That affidavit annexes an affidavit of Emma Whan, a solicitor with the Australian Government Solicitor, which acts for the Commissioner, sworn on 2 April 2013. Ms Whan's affidavit constituted the evidence upon which the Commissioner relied in the proceeding before the primary judge. 25 The stay application is supported by two affidavits of Mr Herman sworn on 30 May 2013 and 31 May 2013, an affidavit of Jonathan James Tooth and an affidavit of Alexander Beard, both sworn on 30 May 2013. 26 Mr Tooth is a non-executive director of Vita Life Sciences Ltd ("Vita Life") and Mr Beard is the Chief Executive Officer of CVC. According to information disclosed in Mr Herman's first affidavit, Derrin had substantial shareholdings in both Vita Life and CVC. The evidence of Mr Tooth and Mr Beard concerned the likely impact of a forced sale on the value of the shares. 27 In his second affidavit Mr Herman stated that the appeal raises an important matter left open by the Full Court in Southgate, namely, what is the test for determining a taxpayer's prospects in its Pt IVC proceedings and, further, what is the threshold of evidence required for the Commissioner to rebut an otherwise good case for the taxpayer. Mr Herman also stated that the Pt IVC proceedings have started and will be heard in the week commencing 16 September 2013. He asserts, without elaboration, that there is a real possibility that Derrin will succeed. The affidavit annexes the application for leave to appeal, the draft notice of appeal and the affidavit in support of the application for leave to appeal.

Some general propositions 28 The power to grant a stay pending an appeal or an application for leave to appeal is conferred by s 23 of the Federal Court of Australia Act 1976 (Cth) ("FCA Act") and r 36.08 of the Federal Court Rules 2011 ("the Rules"). Section 23 gives the Court power in relation to matters in which it has jurisdiction to make orders of such kinds as it thinks appropriate. Rule 41.03 entitles a party bound by a judgment or order to apply for an order that the judgment be stayed. Rule 41.11 entitles a party to apply to the Court for a stay of execution of a judgment or order. 29 It is common ground that the question of whether a stay should be granted depends on whether Derrin has an arguable case on appeal and, if so, whether the balance of convenience favours the grant of a stay. In this instance, as Derrin has no right of appeal, the logical place to start is with the leave application. Derrin conceded that if the leave application was unmeritorious, the stay application should be refused. 30 In general, leave to appeal will only be granted if the judgment being challenged is attended by sufficient doubt to warrant it being reconsidered and if substantial injustice would result were leave to be refused, assuming the decision was wrong: Décor Corp Pty Limited v Dart Industries Inc (1991) 33 FCR 397. This is not, of course a rigid or inflexible rule: Décor at 399. The Court's discretion is apparently unfettered. But unless there is doubt about the correctness of the decision, there is no useful purpose to be served in granting leave. It would put the parties to unnecessary expense and defeat the overarching purpose of the Rules, which is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: FCA Act, s 37M. 31 The first question, then, is whether the judgment is attended by sufficient doubt to warrant it being reconsidered by a Full Court. Derrin accepts that the proposed appeal is against the exercise of a discretion and that it must therefore show error of the kind described in House v The King (1936) 55 CLR 499 ("House v The King").

Is the judgment attended by sufficient doubt to warrant it being reconsidered by a Full Court? 32 There are nominally six draft grounds of appeal. Nevertheless, there is a good deal of overlap between them which Derrin clearly recognised in submissions. 33 The draft grounds of appeal are as follows: 1. His Honour Justice Perram erroneously accepted, over the objection of the taxpayer, paragraphs 8 and 9 of the affidavit Ms Whan filed 3 April 2013 which expressed inadmissible opinion or unfounded conclusions that the evidence adverted to in subparagraphs 8.1 to 8.3 and paragraph 9 supported the Commissioner's contentions set out in paragraph 8 of that affidavit ("the Commissioner's Contentions"). 2. His Honour erred in holding that there was substance to the Commissioner's Contentions ([85] and [86]) in circumstances where no particulars of the evidence to be relied upon was given and no logical connection between the evidence and the Contentions was articulated such that there was no evidence or no basis for the conclusion. 3. His Honour erred by making a material finding in the absence of evidence to support that finding. The court held there will be a real question in the Pt IVC appeal about whether the directors of the Applicant act in the best interests of the company or would follow directions, even if unlawful (at [83]). The Commissioner's Contention did not indicate that this was an aspect of the Respondent's case in the Pt IVC appeal, only that the director of the Appellant was "acting in a purely nominee capacity". Accordingly, the Appellant's contention (outlined at [82]) ought to have been accepted. 4. His Honour erred in approaching the task of determining the merits of the taxpayer's Pt IVC proceedings by: a. erroneously seeking to determine "how the trial will play out" (at [87]) when his Honour's task was to determine prospects and not outcomes; b. setting the bar too high (Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10 at [77(f)]); c. failing to determine and then to take into account whether the Commissioner's Contentions had any prospects, or any reasonable prospects; d. taking the Commissioner's Contentions into account (being irrelevant considerations) when the evidence relied upon did not go far enough to establish that the Commissioner had reasonable prospects for succeeding in making out his contentions; e. failing to take into account the strength of the taxpayer's case in the absence of probative evidence for the Commissioner's Contention, or a reasonable basis the Contentions could be made out; f. taking into account that there was a basis for the Commissioner's "suspicions" (at [85]) and taking into account the mere existence of the expert report of Temple-Cole "to indicate that the Deputy Commissioner's position is not frivolous" (at [85]) when any conclusions in the report were not in evidence; g. taking into account that it was not necessary for the Commissioner to "run the details of his credit attack on these witnesses in advance of trial" when some of the material adverted to in the affidavit of Ms Whan was already filed in the Pt IVC proceedings and ought to have been tendered on the stay application, in order to provide some basis for the Commissioner's Contentions, without giving up a forensic advantage. 5. His Honour erred in holding that he was not in a position to assess the merits of the Part IV proceedings [87]. In light of the taxpayer's evidence and the paucity of evidence filed by the Commissioner, his Honour was in a position to and should have assessed the merits of the taxpayer's Part IV proceedings. His Honour should have held that the merits of the taxpayer's Part IV proceedings reached the threshold articulated by the Full Federal court in Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10. 6. His Honour erred in not holding that merits and imminence of the Pt IVC proceedings together with the freezing orders over the assets of the taxpayer, justified a stay. 34 In support of the leave application Derrin submitted that the judgment was attended with doubt because his Honour: (a) admitted the Commissioner's evidence which was, in Derrin's submission, merely inadmissible opinion or unfounded conclusions that there was a basis in fact for the Commissioner's Contentions; (b) erroneously ascribed merits to the Commissioner's Contentions when the evidence did not disclose any particulars and disclosed no logical connection to the Commissioner's Contentions: Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 [("Fortron")] at [22] per French J and Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd and Ors (2008) 167 FCR 372 [("Jefferson Ford")] at [20]-[23] per Finkelstein J and at [127] per Gordon J; (c) made material findings unsupported by evidence (at [86] and [87]); (d) failed to take into account relevant considerations such as the strength of Derrin's case borne out by the evidence on the application; (e) failed to assess the merits of the Pt IVC proceedings in the circumstances where such a task could have been conducted without descending into mere speculation because there was substantive evidence supporting Derrin's arguments [87]. 35 These broad submissions were elaborated upon in oral argument. 36 I find Derrin's submissions unpersuasive. For the most part, the draft notice of appeal dresses up in House v The King language what in truth is an attack on the primary judge's finding that on the material before him he was unable to determine the merits of the Pt IVC appeal. 37 Beginning with the first ground, I fail to see how his Honour's decision to admit (over Derrin's objection) paragraphs 8 and 9 of Ms Whan's affidavit was erroneous. It is convenient to set out those paragraphs in full: 8. The Commissioner contends that at all relevant times Mr Borgas was acting in a purely nominee capacity and that at all times he acted, or was accustomed to acting, in accordance with the instructions and directions of an Australian resident, or residents, in particular Mr Vanda Gould and Mr John Leaver. The Commissioner contends that Mr Gould and Mr Leaver were in a position to and did at all times control the Second Respondent through a complex web of structures and arrangements, including arrangements with Mr Borgas, designed (scil.) to conceal that control. The Commissioner's contentions in this regard are based on, amongst other things: 8.1 a detailed analysis of corporate structures, shareholdings. directorships and arrangements between the Second Respondent and companies associated with or related in some way to the Second Respondent, Mr Gould and Mr Leaver; 8.2 a detailed analysis of flows of funds between the Second Respondent and companies associated with or related in some way to the Second Respondent, Mr Gould and Mr Leaver; 8.3 documentation obtained by the Commissioner, some of which is exhibited to the affidavits of Malcolm McKay sworn 19 June 2012, 21 June 2012 and 5 September 2012 which is relevant to the management and control of the Second Respondent - the exhibits to Mr McKay's affidavits comprise 11 lever-arch folders of documentation, although this includes documents relevant to taxpayers in other Pt IVC proceedings that are to be heard at the same time as these Pt IVC proceedings. 9. The matters referred to in paragraphs 8.1 and 8.2 are the subject of a detailed expert report from John Temple-Cole which has been filed by the Commissioner in the Pt IVC proceedings. 38 The transcript records that the objection was taken on the basis of form. 39 It is true that the evidence consisted of statements of opinion and conclusion. The difficulty with Derrin's position, however, is that his Honour did not admit the evidence to prove the truth of any opinion or conclusion. The evidence was unarguably relevant, as Derrin conceded. It was therefore prima facie admissible. Evidence of an opinion is only inadmissible to prove the existence of a fact about the existence of which the opinion is expressed (Evidence Act 1995 (Cth), s 76). His Honour did not receive this evidence for that purpose, that is to say, to prove that at all relevant times Mr Borgas was acting in a purely nominee capacity or that he acted, or was accustomed to acting, in accordance with the instructions and directions of Mr Gould and Mr Leaver. Nor did he admit it to prove that Mr Gould and Mr Leaver controlled Derrin, the means by which they did so, or their object in so doing. He received this evidence for a different purpose - to show the nature of the Commissioner's case in the Part IVC proceedings. This is evident from the following exchange recorded in the transcript: HIS HONOUR: Isn't another way of reading it is paragraph 8 just sets out what the Commissioner is contending in the litigation--- MS SEIDEN: If that's-if--- HIS HONOUR: ---and then all this sentence does is to say, "Well, that's how we're going to be making this contention," but no more than that. MS SEIDEN: Well, to the extent that it's limited to that, your Honour, there's no qualitative assessment of the--- HIS HONOUR: No, I don't take it as being such--- MS SEIDEN: ---soundness of the contention, your Honour. 40 I find myself in complete agreement with his Honour. The evidence was plainly admissible. 41 Ground 2 of the draft grounds of appeal pleads that there was no evidence to support his Honour's conclusion that that there was substance to the Commissioner's contentions. As explained in Derrin's submissions, its point was that his Honour ascribed "merits" to the Commissioner's contentions. 42 This ground of appeal is also bound to fail. 43 In the first place, his Honour did not find that there was merit - or substance - in, the Commissioner's contentions. What he found was that the Commissioner's position is "substantive". "Substantive" can mean a number of different things depending on the context. In context, his Honour used the adjective to contrast the Commissioner's position with "a bald assertion". It is clear, as the Commissioner submitted, that his Honour was not saying that there was merit in the Commissioner's contentions, merely that there was evidence to support them. This is what his Honour said at [85]-[87]: [85] Derrin submitted that the Deputy Commissioner had not indicated on what basis the attack on the credit of its various witnesses was going to be launched and that should I proceed on the basis that nothing has been put before me to suggest that Derrin would lose the appeal. Whilst I accept that it is not enough for the Deputy Commissioner in a case such as the present merely to say that it is going to traduce the credit of a taxpayer's witnesses in a Pt IVC appeal, I do not consider that that is what has occurred in this case. The Deputy Commissioner has explained, through Ms Whan, the basis of his suspicions and has obtained the report of Mr Temple-Cole. Although that report was not before me, its existence is sufficient to indicate that the Deputy Commissioner's position is not frivolous. It is true that I was not taken to the eleven folders of material upon which the Deputy Commissioner proposes to launch his attack, but I do not think that a stay application would provide a convenient forum for that kind of submission. This is particularly so where that would be tantamount to making the Deputy Commissioner run the details of his credit attack on these witnesses in advance of the trial. [86] I conclude therefore that the Deputy Commissioner's position is substantive and that this is not a case of bald assertion on his part. [87] Once that position is reached, I do not see that I can access the merits of the case in any meaningful way. I simply do not know how this trial will play out. I accept, as the Deputy Commissioner quite properly accepted, that if I were ultimately to accept the credit of all of Derrin's witnesses, then it would succeed. Any attempt by me, however, at this stage to work out whether that will be so would be purely speculative. 44 Derrin did not suggest that Ms Whan's sworn account of the Commissioner's case was not given in good faith. Ms Whan's affidavit supplied some evidence to support what his Honour said at [85] and [86]. 45 Derrin was also critical of his Honour's statements in [87] that he did not know how the trial would "play out" and at [91] where he said that he had "no present inkling" how the litigation was "eventually likely to unfold". Derrin submitted that this was tantamount to finding that it had to prove that it would win. Presumably this was the basis for grounds 4(a) and (b). I reject the submission. Read fairly, all his Honour was saying was that he was unable to assess the merits. He was not demanding proof to a level of certainty before he could find that the merits favoured the taxpayer. The use of the adverb "likely" in [91] makes this clear. His Honour's statements were no different in substance from those of the primary judge (Fullagar J) which were unsuccessfully challenged in Cywinski v Deputy Commissioner of Taxation [1990] VR 193 ("Cywinski"), a decision which the Full Court followed in Southgate and which Derrin had urged it to follow (see Southgate at [17]). Fullagar J said that "each side seems to have substantial arguments to put, and I have no idea what the final facts will turn out to be upon a full scale investigation into them" (Deputy Commissioner of Taxation (Vic) v Cywinski (1988) 19 ATR 1510 at 1512). For this reason, the appellate court considered that to have assessed the taxpayer's prospects of success "would have necessitated his Honour resorting to speculation", a course Kaye J described at 201 as "entirely unacceptable". 46 Contrary to the proposition advanced in grounds 4(e), 5 and 6, the primary judge's conclusion that he was unable on the material before him to do more than speculate about the merits of the Pt IVC appeal is unassailable. In the particular circumstances of this case, he was certainly not obliged to determine the taxpayer's prospects of success. Indeed, it is impossible to see how he could sensibly do so without hearing the entire Pt IVC appeal. Derrin, which had been served with the 11 volumes of documents and the expert report, did not dispute that the appeal would involve complex questions of fact. Derrin suggested, however, that his Honour could have been taken to some of the documents or that the expert's report could and should have been tendered. But where, as here, there is apparently no "smoking gun", the evidence is complex, and questions of credit are involved, such a course would have been entirely impractical. His Honour was quite right to observe that a stay application was not a convenient forum to receive the Commissioner's evidence. Moreover, the credit of the taxpayer's witnesses was to be the subject of a serious challenge. The Commissioner was not required to surrender its forensic advantage in order to defeat a stay application. And what if all the material had been tendered? In the absence of cross-examination, his Honour would have been in no better position to assess the merits. 47 This was not a simple case in which the merits could sensibly be assessed. It did not turn, for example, on a question of law. The taxpayer's objections were not frivolous or hopeless. It is worth recalling what Kaye J said in Cywinski (at 198): In some cases a conclusion that the taxpayer's objection or appeal is frivolous and hopeless, and therefore totally without merit could be reached on relevant material after some evaluation of the chance of success. No doubt in such cases where the objection or appeal is totally without merit, the decision that it is so is capable of being reached by the court without a formal hearing and the degree of consideration which would be necessary for a final determination of the matter. On the other hand, where the assessment complained of was made by the commissioner contrary to a decision of the High Court or a unanimous decision of a board of review on facts indistinguishable from the taxpayer's case, the assessment would be manifestly wrong: Mackey's Case, at 551, per Hutley JA. In that event the taxpayer's objection or appeal would be bound to succeed: cf Re Norper Investments Pty Ltd (1977) 33 FLR 87, at 92, per Needham J. In either of those circumstances the merits of the taxpayer's objection or appeal would be established. In the event of an assessment having been made manifestly contrary to law, the condition of a special circumstance required in the exercise of the discretion would be present in the proceedings for a stay before the court. 48 The present case does not meet any of these descriptions. 49 In Cywinski his Honour proceeded (at 198-9) to contrast these kinds of cases with what he called "the intermediate situation" where an objection or appeal was "neither totally without merit nor incontestable" and where a judge might be unable to form even a tentative view of the chances of success of the appeal or review. That is the position in which the primary judge found himself. In such a case, the courts in Cywinski and Southgate accepted that a judge's discretion to refuse a stay will not likely miscarry by reason only of the judge being unable to reach even a tentative view of the taxpayer's chance of success in an appeal against the assessment. 50 Nevertheless, in the present case Derrin submitted that the primary judge fell into error by failing to determine, and then take into account, whether the Commissioner's contentions had any prospects or any reasonable prospects of success, so that the absence of primary evidence (or even particulars of it) to support the Commissioner's contentions was fatal. Derrin relied on the authorities mentioned in the above extract of its submissions (Fortron and Jefferson Ford) and Vans Inc v Offprice.Com.Au Pty Ltd [2006] FCA 137. My attention was drawn in particular to the following remarks of Gordon J in Jefferson Ford at [127] in which her Honour was discussing the principles that apply to an application for summary judgment under s 31A of the FCA Act: Thirdly, each case must be considered separately. No particular hard and fast rules can be set down, only general principles. One principle is that the moving party bears the onus of persuading the court that the opponent has no reasonable prospect of success … As noted earlier, however, s 31A has lessened the standard that must be met. In that regard, it must be emphasised that once a moving party has established a prima facie case that the opponent has no reasonable prospect of success, the opposing party must respond by pointing to specific factual or evidentiary disputes that make a trial necessary; general or non-particularized denials will be insufficient to defeat the motion: see Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 at [22]. In other words, it is inappropriate in defence of a claim for judgment under s 31A of the Federal Court Act to seek to defend by merely putting a claimant to formal proof: Vans, Inc v Offprice.Com.Au Pty Ltd [2006] FCA 137 at [12]... 51 Derrin submitted that the High Court in Broadbeach at 484 [13] makes the test for determining a strike out application (an application for summary judgment) "a relevant test". But Broadbeach does nothing of the kind. In the first place, the reference at [13] was not to a decision of the Court but to a concession made by the Commissioner. Second, the context in which the concession was made was quite different. Third, neither the Commissioner nor the Court itself said anything about the proper approach to the treatment of the merits of a Pt IVC appeal (or review) on an application by the taxpayer for a stay of a judgment debt. It simply was not an issue. 52 In Broadbeach the Commissioner of Taxation had issued statutory demands under s 459E of the Corporations Act 2001 (Cth). The companies to which these demands were directed applied to the Supreme Court of Queensland to set aside the statutory demands and also brought review proceedings in the Administrative Appeals Tribunal under Pt IVC. The appeals in the High Court were from the judgment of the Court of Appeal which affirmed the decision of the Supreme Court to set aside the statutory demands. The High Court allowed the appeals, noting (at [12]) that if the companies still failed to comply with the then outstanding statutory demands, on timely applications by the Commissioner to wind up the companies in insolvency, the court hearing those applications is required to presume that the companies are insolvent (Corporations Act, s 459C(2)(a)). It was at this point in the reasons, under the heading "the position of the Commissioner", that the Court observed at [13]: Notwithstanding the presumption of insolvency that would apply under s 459C(2)(a), in written and oral submissions to this Court the Commissioner made an important concession. This was that upon the hearing of such winding up applications the court might properly have regard to whether the taxpayer had a "reasonably arguable" case in proceedings under Pt IVC of the [TAA], if those proceedings then still be on foot; questions of the kind canvassed in General Steel Industries Inc v Commissioner for Railways (NSW) might arise. (Emphasis added.) 53 The primary judge was not hearing a winding up application. As Nettle JA observed in Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation (2006) 64 ATR 316; [2006] VSCA 191 ("Trade World") at [23] - [24], different considerations may apply in such a case: In Trade World, after referring to what Kaye J said in Cywinski, Nettle JA (with whom Redlich JA agreed) remarked: Different considerations may apply once judgment is obtained and the dispute comes before the court by way of an application to adjourn proceedings for the winding up of the taxpayer. It has been held that, in general, [provided the appeal is based on genuine and arguable grounds] a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of the debtor where an appeal is pending against the judgment which is the foundation of the bankruptcy proceedings. Similar considerations operate in applications to wind up companies on the grounds of insolvency. But that is not this case. (Footnote omitted.) 54 Nor is it this one. 55 There is no reason to suppose that the question of merits should be approached in the same way on an application for summary judgment as on an application for a stay. After all, the starting point for each inquiry is quite different, particularly in a case such as this where "great weight" is to be given to the legislative policy to give priority to the recovery of taxation revenue (Southgate at [77]). In an application for summary judgment, the applicant is attempting to prevent his or her opponent from bringing a case or mounting a defence. In a stay application, the respondent already has a judgment and is prima facie entitled to its fruits. The power to dismiss an action summarily is not to be exercised lightly (Spencer v The Commonwealth (2010) 241 CLR 118 at [60]). Yet, as the Full Court said in Southgate at [77], the power to grant a stay of a judgment in a tax matter is a power to be exercised sparingly. 56 In any event, here the Commissioner responded to Derrin's prima facie case by pointing to "specific factual or evidentiary disputes" that make a trial necessary (Jefferson Ford at [127]). 57 Derrin also drew my attention to some remarks of Kaye J in CSR Limited v Rabenalt (unreported, Supreme Court of Victoria, 18 December 1987) in which Kaye J was critical of the quality of the material upon which the primary judge was satisfied that there was evidence to establish the cause of action for the purpose of an application for an extension of time in which to bring proceedings for damages. The analogy is unhelpful. 58 In the present case, I see nothing in the primary judge's reasons to indicate that he did not adhere to the principles listed in Southgate. He was not bound to consider the merits in the particular circumstances of this case. He plainly did not have sufficient material to enable him to do so. Derrin submitted that if leave to appeal is not granted, the Commissioner will always be able to avoid a stay merely by asserting that at the hearing of the Pt IVC proceedings "it will lead undisclosed evidence which will cast doubt on the taxpayer's case". Derrin contended that this cannot be what the Full Court in Southgate had in mind. I reject the submission. His Honour pointed out that "a bald assertion" was not enough and the Commissioner did not merely make such an assertion. Although the evidence he intended to call to prove his contentions was not disclosed, the nature of the evidence certainly was. On the basis of that evidence his Honour was entitled to conclude that this was an inappropriate case in which to attempt to determine the merits. In any case it is highly unlikely that Derrin's dire prediction will be realised. In the first place, such behaviour would be inconsistent with the spirit, if not the letter, of the Commonwealth's model litigant policy (Legal Services Directions 1995 (Cth), Appendix B). In the second, each case turns on its own facts. In this case, the combination of the complex factual dispute and the credibility attacks justified his Honour's conclusion. 59 For all these reasons I do not consider that there is sufficient merit in the proposed appeal to justify a grant of leave. I do not think that Derrin has any realistic prospect of demonstrating that his Honour's discretion miscarried. Nor do I think that there is any relevant point of principle left open by the Full Court in Southgate. Indeed, the last sentence of ground 5 of the proposed grounds of appeal suggests that neither does Derrin. If I am wrong in this regard, I do not consider that this case presents a suitable vehicle for resolving it.

Would the taxpayer suffer substantial prejudice if leave were refused? 60 In any event, I am not satisfied that Derrin would suffer substantial prejudice if leave were refused. 61 The gist of Derrin's case, supported by the evidence of Mr Tooth and Mr Beard, was that a forced sale of its shares would not generate proceeds commensurate with their true value and that it would be impossible to reconstitute the share parcels in the future. A similar argument was put to Perram J in support of the stay application. His Honour said that he did not think that the nominated prejudice was great. Neither do I. As the Commissioner submitted, the evidence in support of the prejudice argument was based on the unstated and unsubstantiated premise that the receiver charged with selling the shares would act in a way that would not maximise the returns from the sale. Moreover, there is no evidence to suggest that the execution of the judgment would deprive Derrin of the financial resources necessary to prosecute the Pt IVC appeal. And, as his Honour observed (at [88]), Derrin could avoid any prejudice by simply paying the judgment debt. If it wins the appeal, the Commissioner will have to reimburse the money.

Conclusion 62 It follows that both the application for leave to appeal and the interlocutory application for a stay of the primary judge's orders should be dismissed with costs. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.