Donoghue v Commissioner of Taxation

REASONS FOR JUDGMENT 1 The applicant appeals against an amended notice of assessment of income tax for the 2008 tax year. The notice of amended assessment is dated 30 October 2012. I need not go into the nature of the appeal. Of more relevance for present purposes is the procedural history of the matter. On 7 March 2014, Logan J ordered that the applicant file and serve any affidavits, upon which she intended to rely at the hearing of the appeal, by 4 pm on 13 June 2014. On 29 July 2014, the time for filing of the material was extended until 4 pm on 11 September 2014. The material was not filed. The hearing was listed to commence today for three days. 2 At the commencement of the hearing, counsel for the applicant indicated his intention to read and rely upon four affidavits, one by the taxpayer, one by Mr Bowman, one by Mr Henderson and one by Mr Lowther, all said to have been filed on 17 April 2015. In fact, the affidavits of Mr Henderson and Mr Lowther had not been filed. Counsel for the Commissioner submitted that the applicant could not rely on any of those four affidavits unless leave was obtained or, perhaps more correctly, time was extended for the filing of such material. Counsel for the applicant accepted that he should make such an application and did so. In support of that application, he relied upon an affidavit by the applicant filed on 8 April 2015, her affidavit filed on 17 April 2015 and an affidavit by Alexandria Morgan Donoghue, the applicant's daughter, which was sworn today and read by leave. I shall refer to Ms A M Donoghue as "Ms Donoghue" and to the applicant as the "applicant". The applicant's affidavit filed on 18 July 2014 was said to be relevant only insofar as it concerns the property available to the taxpayer. The affidavit filed on 8 April 2015 dealt primarily with the difficulties which the applicant claims to have experienced in preparing for the hearing. In that affidavit, the applicant refers to the fact that a Mr Ashley Tiplady previously acted for her, that she did not have sufficient funds to pay his bill, and that as a result, he ceased to act. The applicant is estranged from her husband but receives maintenance from him, on an apparently irregular basis, pursuant to some sort of an agreement between them. The amended assessment arose out of her receipt of moneys which, she says, were maintenance payments made by him. The Commissioner says that the amounts were derived from family trusts in respect of which the applicant was a discretionary beneficiary. In effect, the applicant asserts that her current financial position is parlous and that, as a result, she had been unable to prepare for the hearing. 3 The Commissioner has lodged a caveat against her residential property. She swears that if the caveat were removed, it might be possible for her to raise moneys for the litigation. However she had not, prior to that affidavit, approached the Commissioner with a view to obtaining his cooperation. These matters were common ground in earlier proceedings before me. The applicant also says that she presently suffers depression and is taking medication for it. No more has been said about that circumstance. 4 The applicant refers to proceedings in which her husband has apparently established that the Commissioner was not entitled to access to certain documents which were subject to legal professional privilege. The Commissioner has been restrained from using those documents for any purpose related to the assessment of tax liability. The applicant wishes to apply for similar relief, however she has not yet done so. In her affidavit of 8 April 2015, she said that she had now retained other solicitors to act, and had obtained a loan from her daughter for the purpose of conducting these proceedings. She also expects shortly to be in a better financial position, in that her husband might be able to assist her. 5 Ms Donoghue gives a rather more detailed account of events which have occurred since about December 2011. However her affidavit is notable for the significant periods of time during which nothing seems to have happened. I should say that Ms Donoghue is a solicitor and has some litigation experience, although perhaps not much. She was previously in a relationship with Mr Tiplady, to whom I have previously referred. He is a solicitor and was working at the firm which previously acted for the applicant. The relationship has since ended. However Ms Donoghue and Mr Tiplady remain on amicable terms. He has, from time to time, offered assistance and advice, notwithstanding the fact that his firm has ceased to act for the applicant. 6 On 5 September 2014, prior to the termination of his retainer, Mr Tiplady told Ms Donoghue that certain affidavits had to be filed in the following week. This appears to have been pursuant to directions made by Logan J. Ms Donoghue says that she and the applicant were previously unaware of this. Mr Tiplady said that he would not be able to prepare the affidavits due to the fact that his firm was owed amounts in relation to Mr Donoghue's legal proceedings. He suggested that "something" should be filed and then supplemented at a later date. I say nothing about the appropriateness of such a course. Ms Donoghue then asked if an affidavit by the applicant would be sufficient. Mr Tiplady said that seven affidavits were needed, but that, "less will be more until I can get my head back into it". 7 Subsequently, a solicitor employed at the firm contacted Ms Donoghue, indicating the need to file affidavits from "other parties", one of whom was Mr Lowther. She was told that if they could get at least one affidavit filed by 11 September 2014, "that should tide us over". Again, I say nothing about this approach to the orders of the Court. On 8 September 2014, Ms Donoghue met with the relevant solicitor, Ms Amanda Skoien, to discuss the content of the applicant's affidavit. On 9 September 2014, she took a draft to the solicitor's office and asked Mr Tiplady whether he required the applicant to file a notice of termination of retainer. He replied that he had been directed by his partners not to perform any further work, and that he had, in fact, been threatened with expulsion from the firm because of the amount owing in connection with Mr Donoghue's proceedings. He said that in the current proceedings, he had wanted to make an application for relief similar to that obtained by Mr Donoghue. 8 On 10 September 2014, Ms Skoien emailed Ms Donoghue, asking for more information, including relevant trust deeds in connection with trusts in Australia and in New Zealand, or for more information concerning the relevant trust deeds. Ms Donoghue asked for a copy of the trust deed for the New Zealand trust. Subsequently, amendments were made to the draft affidavit to reflect the terms of the New Zealand trust deed. Ms Donoghue said that she had not previously seen a copy of that deed. This information was communicated to Mr Tiplady. On 11 September 2014, a further draft affidavit was delivered to the solicitors. On 12 September 2014, the applicant received an email from Ms Skoien, indicating that the firm was no longer acting, and that she would have to prepare her own material for the purposes of the current proceedings. 9 Notwithstanding that communication, on 23 September 2014, Ms Donoghue enquired whether she and the applicant had to do anything in connection with these proceedings. In particular, she enquired as to whether they should have filed an affidavit on that day. There was no response to that enquiry. There was, however, a stream of emails between the applicant and Mr Tiplady. A process server had sought to contact the applicant. She had become very upset. As far as the affidavit goes, it seems that nothing happened thereafter until 17 October 2014, when Ms Donoghue sent a text message to Mr Tiplady saying: I had been led to believe mum's affidavit would tide us over. I tried to confirm that on 23 Sept, and you did nothing to correct it. Could you please let me know what material is to be filed on Thursday, as brought to my attention for the first time today, by your email. 10 There was no response. A further message was sent on 18 October, asking for a response. Mr Tiplady responded, saying: There's a letter to your mum that sets everything out sent a few months back. It will take you a week to do all the affidavits, including two days in Auckland. Affidavits are needed from [Mr Donoghue] (major one that will directly impact on his tax appeal), John Henderson, Lowther, director of plus sms, nz lawyers and possible [sic] accountants. Plan was always to buy time and get me in to do affidavits once $ hit. Trial is April. Affidavits in by January would probably be okay ... 11 Again, I refrain from any comment upon that attitude to the Court's orders. Ms Donoghue says that she had not previously been told that she would need to prepare numerous affidavits. She did not know the persons referred to as "the director of plus sms, nz lawyers and possible [sic] accountants". She was unaware of any correspondence, directed to the applicant, explaining those matters. As far as the material goes, there was no further action taken until 17 December 2014, when Ms Donoghue sent an email to Mr Tiplady in which she said: I told the court mum was hoping to get another affidavit by court closure for Christmas. Dad said he would help me with that but he's now unsure what needs to be in the affidavits from Lowther, Henderson and Cowley. He had sent me the affidavit of Lowther from the other proceedings. Can I use that? … I am happy to do the affidavits. Even if I get the gist of what everyone is going to say done and it's expanded upon with the subsequent affidavits. Or I get an easy one in now and do the others later. … I just need someone to tell me who needs to say what. 12 On 22 December 2014, Mr Tiplady responded. He said that the affidavits were crucial and complex, that it would be best if the trial dates were vacated, that it was necessary that senior and junior counsel settle the affidavits and run the trial and that, "I'd be trying to delay again, in a best case, until Logan hands down decision", apparently a reference to Justice Logan's decision in Mr Donoghue's matter. Mr Tiplady also discussed various arguments which could be run in these proceedings and the evidence to be included in the affidavits. It is said that he did so in a very brief, vague, complex and confusing manner. Mr Tiplady said: I know this isn't what you want to hear but I don't think you should rush in and do the affidavits. There's too much at stake and tactically I would be looking to get the trial dates vacated. I wouldn't be putting in further undone material - that was done the first time. 13 On the basis of this email, Ms Donoghue formed the opinion that she did not know enough about the relevant law, or the factual basis of her parents' tax proceedings to assist the applicant in taking statements and drafting affidavits, nor did she think that the applicant could do it herself. If she (Ms Donoghue) attempted to do so, she would only jeopardise the applicant's chances. She also "trusted" that Mr Tiplady would eventually prepare and file the affidavits, and, "that he had a basis to allow the material to be filed at a later date". She also believed that although there was pressure on Mr Tiplady from his firm not to act for the applicant, he was, in effect, still acting on her behalf. Ms Donoghue claims to have believed, and still considered that he was responsible for these proceedings, that his advice could be trusted and that he would not risk the applicant's position. 14 Ms Donoghue said that she did not engage new lawyers as she believed that Mr Tiplady would bring himself back into the matter at some time in the future. Further, the applicant could not afford to do so. Ms Donoghue asserted that in order to fund the trial, she has now taken out a personal loan which she can barely afford. Due to the way in which the matter had been explained to her, she did not believe that it would be an easy task to brief new lawyers. She intended to do so, although she thought it would be difficult at that time. Again, nothing seems to have happened thereafter until 12 February this year, when Mr Tiplady advised her of a subpoena filed by the Australian Government Solicitor, returnable the following day. Neither she nor the applicant, was aware of its existence until Mr Tiplady noticed it on the Court file and told them. Again, nothing further appears to have happened until 2 March 2015 when Mr Tiplady sent a message, saying, "[W]hat's happening with your mum's tax appeal?". 15 Ms Donoghue replied that she did not know. She asked whether it was possible to adjourn the trial until the decision in Mr Donoghue's matter was handed down. Mr Tiplady replied, "not overtly, but that should be the plan because, I think, if there's a win before Logan, your mum's assessments should be challenged on the same grounds - quashed for conscious maladministration". Since that time Ms Donoghue has had numerous conversations with Mr Tiplady concerning a possible adjournment. He was still of the opinion that an adjournment should be sought so that he could draft the affidavits, once he was placed in funds. At no time did Mr Tiplady convey that there was a real risk in not preparing for the trial, suggest that she find more cost-effective lawyers to prepare the affidavits to ensure that they were filed within an appropriate timeframe, or suggest that she should prepare the affidavits herself. In fact, he had specifically advised her not to take that action, and that they should be prepared by him once the applicant was funded by her husband. 16 Ms Donoghue says that despite numerous requests she has been unable to obtain the relevant file from the previous solicitors. She said that until Saturday, 18 April 2015 she and the applicant did not know that any amounts pertaining to her proceedings were owing. The solicitors had not advised them of any outstanding fees, even in response to requests for the file. On Saturday, 18 April 2015 the solicitors advised that a sum of approximately $6,000 was owing, and that $50,000 would have to be paid in order to release the file. This amount apparently included amounts owing on the file relating to Mr Donoghue's tax proceedings, on which he has spent about $600,000 to date. It was said that due to the amounts spent on those proceedings, and the damage to Mr Donoghue's business affairs caused by his having to stay in Australia for extended periods of time pursuant to a departure prohibition order put in place by the Commissioner, "we" (presumably Mr Donoghue, the applicant and Ms Donoghue) could not afford to pay the amount demanded by the solicitors for the release of the file. 17 Ms Donoghue claims that due to Mr Tiplady's conduct, she believed until last week that it was necessary that he prepare for this trial. She asserts that she relied heavily on his advice and conveyed similar information to the applicant who relied upon it. Ms Donoghue says that the affidavits were not filed before Friday, 17 April 2015 because of Mr Tiplady's advice as to the crucial nature of the affidavits, and that neither Ms Donoghue nor another solicitor could properly prepare them. They did not believe that they had sufficient funds to engage new lawyers, having regard to the advice that senior and junior counsel would be required. They did not know which witnesses to call. Mr Tiplady would not advise her. She said that, regrettably, they had relied on his advice that the best course of action would be to delay until he was in receipt of funds from Mr Donoghue. 18 This explanation for the failure to comply with the Court's order is entirely unsatisfactory. First, there is really no explanation of the failure to make any earlier application to adjourn the trial. Mr Tiplady was advising such a course. He seems to have had two purposes in giving that advice. One was to obtain time to prepare material. The other was to delay the trial, perhaps against the possibility that funds might become available. I draw no inference as to whether or not the delay was purely for tactical purposes. However that is a possibility. That in itself might be seen as disentitling conduct. If, in fact, the position was that in September, or at any time thereafter, the applicant became aware of her likely inability to comply with the orders of the Court, then she should have raised the matter at that time. If it was thought that the task could not be completed before the date set for trial, then that matter ought to have been brought to the attention of the Court. It does not follow that any application for adjournment would have been successful, but an application ought to have been made. 19 Secondly, there is no acceptable explanation for the very substantial gaps which I have identified in Ms Donoghue's account. Such explanation as there is, is entirely self-serving. Mr Tiplady had clearly terminated his retainer. He had said that the firm, his own partners, had effectively condemned him for the amount of time he had spent on the affairs of the Donoghues generally. Ms Donoghue, if not the applicant, ought to have realised the difficult position in which the latter was placed. Nonetheless, they seem to have been willing to continue to exploit Ms Tiplady in a way which suggests an unwillingness to accept the inevitable consequences of such conduct. It may have been reasonable to expect that he might offer some assistance, but to seek to rely upon his failure to give it seems to me to be quite unfair, and to indicate that it would have been better, from his point of view, if he had kept out of the matter entirely. I do not accept the attempt to shift the blame to Mr Tiplady. It may have been better had he not given advice which effectively undermined the orders of the Court. However I do not accept that either the applicant or Ms Donoghue failed to appreciate the need to comply with the Court's orders. I accept, however, that the applicant probably acted on Ms Donoghue's advice. 20 A further unsatisfactory aspect is that, although the applicant was aware, as long ago as September, that there was a shortage of funds, there is no explanation as to why Ms Donoghue did not then offer to provide funds as she has now done. I accept that it is a great sacrifice for Ms Donoghue to bear the financial burden of the proceedings. It is understandable that she should have been reluctant to do so. She can only be admired for having done so. However, given the extent of her involvement in the matter, it seems surprising that she did not offer to do so at some earlier stage. 21 Any prejudice to the Commissioner would arise in dealing with the new affidavit material, or from any adjournment which might be necessary in order that the Commissioner could deal with it. In the end, counsel for the applicant appears primarily to submit that any prejudice to the Commissioner, as compared to that likely to be suffered by the applicant, is so disproportionate that such consideration, alone, ought lead me to grant leave to read the relevant affidavits. It may be accepted that in financial terms the consequences to the applicant of failure in this application are far more serious, from her point of view anyway, than the consequences for the Commissioner. However the applicant's financial position suggests that the Commissioner's prospects of recovering the amount of the assessment are, in any event, doubtful and probably getting worse by the week, if not the day. On the other hand, the Commissioner is protected to some extent by his caveat over the residential property. There is no evidence as to its value. 22 In the affidavits, the applicant seeks to raise issues which have not previously been addressed. If the affidavits are read the Commissioner will have to investigate. It may be that the issues are of substance, although one would have expected that, if so, they would have been raised at an earlier time. An adjournment might well cause considerable prejudice to the Commissioner, both in costs, and as to the prospects of recovering any amount found to be owing by the applicant. I accept that the prejudice to the Commissioner may not be as great as that to the taxpayer, at least from their respective points of view. However the total failure to explain either the delay, other than by reference to financial incapacity, or the failure to obtain finance at an earlier stage, lead me to the conclusion that I should decline the application to read further material at this stage. 23 To do otherwise would, apart from the matters to which I have referred, significantly undermine the case management orders which have been put in place. Before commencing these reasons, I gave some consideration to the question of whether, in light of the wording of Pt IV of the Federal Court Rules 2011 (Cth), it was appropriate to take that matter into account. However such an approach was approved by the Court of Appeal of New South Wales in State Pollution Control Commission v Australian Iron and Steel Pty Ltd (No 2) (1992) 29 NSWLR 487 at 492 to 493 in the judgment of Gleeson CJ with whom the other members of the Court agreed. I note also that a similar approach was taken by Gyles J in Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd [2001] FCA 1144. A similar approach seems to have been at least countenanced in Samsung Electronics Co. Ltd v Apple Inc. [2013] FCAFC 138. In those circumstances, I decline the application. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.