Groves v Commissioner of Taxation

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 582 of 2010

JUDGE: LOGAN J DATE: 15 MARCH 2012 PLACE: BRISBANE

REASONS FOR JUDGMENT 1 On 15 March 2011, for reasons which I then published, I declined to order, upon the application of Dr Groves, a temporary stay of the taxation appeals, which she had filed in the Court in respect of various adverse objection decisions made by the Commissioner of Taxation: see Groves v Commissioner of Taxation (No 3) [2011] FCA 635. 2 The general nature of the revenue law controversies then raised by those taxation appeals is set out by me in those earlier reasons for judgment. Those earlier reasons for judgment must be read in conjunction with these reasons for judgment. Since then, further developments have occurred in relation to proceedings in the Supreme Court of Queensland to which Dr Groves is a party, namely, Groves v Groves (BS 10662 of 2008) (the Supreme Court proceeding). 3 Further, so far as the taxation appeals are concerned, that aspect of those appeals which concerned a purely income tax controversy, concerning whether or not dividends had been derived by Dr Groves, has been resolved between her and the Commissioner in a consensual way. The taxation appeal proceedings concerned are numbered QUD 583, 584, 585, 586, 587, 588 and 589 of 2010. The consequence of that consensual resolution is that the parties are agreed that those appeals should be dismissed with no order as to costs. 4 There may be a need for ancillary orders in respect of the remaining taxation appeal number QUD 582 of 2010 insofar as the latter concerns an income tax controversy. If so, such orders can be made pursuant to the provision which I propose to make for the parties to bring in short minutes on that subject or, failing agreement in that regard, for the appeal to be further listed for directions. 5 What remains in respect of taxation appeal QUD 582 of 2010, which concerns the 2008 income year is a capital gains tax controversy. The nature of that controversy is revealed by Dr Groves amended appeal statement. Whilst that retains her existing contentions in support of a submission that she ought not to be assessed on capital gains, what it adds materially is a new paragraph, paragraph 29. As particularised, the position revealed is that her case, at least in the alternative, is that there was no disposal by her of the shares concerned and further, or alternatively and having regard to issues which are identical to those now pleaded in the amended statement of claim in the Supreme Court proceeding, that any agreement purporting to permit the sale of her shares by a third party was void ab initio and a nullity. 6 Late last year, Dr Groves' statement of claim in the Supreme Court proceeding was amended by order of that Court to take up such allegations. In so doing, other amendments were permitted by the Supreme Court, the nature of which is revealed in reasons for judgment given by Boddice J on 7 December 2011 in Groves v Groves [2011] QSC 411. His Honour there observed of the proposed amendments as follows: [6] The proposed amendments seek to plead an alternate case, in the event the plaintiff is found to have signed the documents relied upon by the second, third and fourth defendants in effecting the sale of the shares the subject of this proceeding. The plaintiff asserts in that event, that she executed those documents as a consequence of undue influence and/or unconscionable conduct and/or special disadvantage as a result of sustained domestic violence by the first defendant throughout their marriage. The first defendant in those proceedings is Mr Groves. The other defendants are various financiers. 7 The Commissioner has made application for a temporary stay of the taxation appeals. That application is one supported by Dr Groves. It was always contemplated by the orders earlier made by me that such an application might be brought. 8 Consent does not itself provide a foundation for the granting of a stay. An exercise of a judicial discretion is required. It is for the Court to be satisfied that the granting of a stay is both within power and appropriate in the circumstances: see Telstra Corporation Limited v Minister for Broadband Communications and the Digital Economy [2008] FCAFC 7 at [43]. The observations there made by the court may, with respect, not be the last word on that subject: see Citigroup Pty Ltd v Mason (2008) 250 ALR 7 at 12. It is not necessary for the purpose of this proceeding to do other than approach the matter on the basis that an exercise of a judicial discretion is required and that consent is not determinative. 9 A number of factors have been outlined by the parties as persuasive as to why a discretion should be exercised. 10 The Commissioner points to an impracticability having regard to the imminence of a trial on 10 April 2012 in the taxation appeals for him to present a case in response to the position of Dr Groves, as revealed by amendments to the statement of claim and by amendments of the same character to the appeal statement. That, the Commissioner submits, would put him at a significant forensic disadvantage. While that forensic disadvantage might be able to be addressed by a limiting of the basis upon which, as a matter of procedural fairness, Dr Groves is permitted to prosecute her taxation appeals, so to do might in turn be to deny Dr Groves procedural fairness. Furthermore, it would raise the contingency of there being, at least potentially, inconsistent judgments in respect of like issues of fact and law. It is to be remembered that taxation law applies to particular taxable facts, as found, initially, administratively and then necessarily, constitutionally, if the taxpayer concerned so requires, by an exercise of Commonwealth judicial power. One should not lightly contemplate that type of potential inconsistency. 11 There are other factors also which intrude. These include the personal wellbeing of Dr Groves in the sense that, as it presently stands, both in the Supreme Court proceedings and in the taxation appeals, it would be necessary to delve in detail into the history of her relationship with Mr Groves, for that lies at the very foundation of alternative cases which are put forward, both in the taxation appeals and in the Supreme Court proceedings. Further, the financiers who are defendants in the Supreme Court proceedings are not parties to the taxation appeals. 12 A dilemma similar to that which is potentially present here had come to pass in fact in circumstances considered by various judges of the High Court in Executor Trustee and Agency Company of South Australia Limited v Deputy Federal Commission of Taxes South Australia (1939) 62 CLR 545. Of the judges comprising the Full Court in that case Latham CJ and also McTiernan J had occasion to consider a circumstance where a federal revenue law controversy relating to an estate and land tax fell for determination against the background of an estate where the meaning of the will concerned had been the subject some years beforehand of a judgment of the South Australian Supreme Court. That judgment bound the parties to that proceeding to administer the estate in a particular way. The Commissioner was not a party to that proceeding. Latham CJ, in particular, at p 561 to p 563, considered in detail, the situation so far as the Commissioner was concerned in relation to the federal revenue controversy. His Honour noted that the order of the Supreme Court was conclusive in relation to the rights inter se of the parties to that proceeding. The Chief Justice further noted that, so long as that order stood, the rights of materially there the annuants to receive income were as declared by that order; no more and no less. His Honour further noted that there was no basis upon which the Commissioner might seek a setting aside of that order. 13 The question that arose in the taxation proceeding there was one which depended entirely on the rights of the annuants against the trustee under the will. The Chief Justice observed: The commissioner is entitled to take, and must take, interests in land as he finds them - apart from a base of arrangements which are in effect rendered void as against the commissioner. 14 Referring then to the then anti-avoidance provision in the Land Tax Assessment Act 1910 (Cth), his Honour continued: A particular decision of a court as to the interest of a person in land, or as to his right to receive moneys by way of income may be wrong. But the commissioner cannot impose land tax upon interests in land which, if a contrary decision had been given, the taxpayer ought to have, but in fact does not have; nor can he impose income tax upon income which the taxpayer does not derive but which, upon the hypothesis of a contrary decision, he would have derived. In so doing his Honour acknowledged that the case was not one so far as the Commissioner was concerned of res judicata. The case was truly one so far as the Commissioner was concerned of res inter alias acta. Nonetheless those matters acknowledged he made the observations which I have quoted. 15 Similar sentiments are evident as I have observed in the judgment of McTiernan J. 16 Paraphrasing somewhat the observation of the Chief Justice, it is at least arguable that the Commissioner cannot impose capital gains tax in respect of CGT events which a court of competent jurisdiction has found did not occur but which upon the hypothesis of a contrary decision would have occurred. 17 It is sufficient for present purposes that such a position is truly arguable. That, when taken in conjunction with the fact that all parties privy to the imputed or disputed transactions are parties in a Supreme Court proceeding and the resolution of income tax aspects of the remaining taxation appeal, persuades me that the interests of justice are such that there ought not to be a hearing of the remaining taxation appeal, having regard to the issues which are now presented in the Supreme Court proceeding by amendment as well as in this proceeding. 18 For these reasons, I intend to grant orders in the terms proposed. Those orders will not prevent the completion of forensic document examination but will otherwise stay further proceedings in the taxation appeals. It is desirable that the forensic document examination for which earlier orders provide be concluded, if only because it may thereby confer advantage both to Dr Groves and the Commissioner so far as the Commissioner's administration of the taxation laws is concerned. In that regard it is always open for the Commissioner administratively, even if judicial power has been engaged, to form a view that an amendment to an assessment in favour of a taxpayer ought to be made. 19 Finally, it may be, having regard to the circumstances revealed in this case, and notwithstanding that there is some provision in s 170 of the Income Tax Assessment Act 1936 (Cth) for the amendment of taxation assessments in circumstances where a contract becomes void, that there is a need, as a matter of law reform, for further consideration to be given by the Parliament to whether the amendment power ought to be changed so as to make it clear that, where a court of competent jurisdiction has found particular facts, the Commissioner may amend an assessment in accordance with the taxation position as revealed by those facts. 20 For these reasons, the proceedings in this Court commenced by the application number QUD 582 of 2010 are stayed until the resolution of the Supreme Court proceeding or 1 March 2014 or further earlier order. The reference to 1 March 2014 is nothing more than a reference to a date in the estimation of the parties, with which I concur, by which the Supreme Court proceeding (at least the trial phase) ought to be concluded. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.