Gumm v Commissioner of Taxation

Applicable principles 18 In making this application, the Commissioner relies upon s 56(1) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and r 19.01 of the Federal Court Rules 2011 (Cth) (the Rules). 19 Section 56(1) of the Federal Court Act provides: The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. 20 Similarly, r 19.01 of the Rules provides: 19.01 Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. (2) An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought. (3) The respondent's affidavit should state the following: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; (e) any other relevant matter. 21 In r 19.01(4), "applicant" is defined to include "a cross-claimant", and "respondent" to include "a cross-respondent". 22 These provisions are wider than some found in State courts, and it is well established that the discretion is broad and unfettered, with the only limitation being that it must be exercised judicially: Commissioner of Taxation v Vasiliades (2016) 344 ALR 558, 578 [71] (Vasiliades); Madgwick v Kelly (2013) 212 FCR 1, 4 [6], 37 [142] (Madgwick v Kelly); Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1, 3 - 4, 8. 23 In the assessment of whether security should be ordered and, if so, in what amount, it is necessary to keep in mind that each case will turn on its own facts and circumstances and the weight to be accorded to any particular matter will depend on its own intrinsic worth as well as its impact in the context of the surrounding circumstances: Vasiliades at 579 [74], citing PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, 323 (PS Chellaram). 24 The essential purpose of making an order for security for costs is to ensure that a successful respondent to proceedings who has been brought to the court will have a fund available within the jurisdiction of the court against which they can enforce an order for costs in their favour. So understood, the factors relevant to the court's discretion are those which bear upon that purpose: Vasiliades at 572 [72]. This was made clear in Madgwick v Kelly, where the Full Court approved (at 4 [6]) of the following passage from the primary judgment: It is established that the discretion conferred by s 56 is broad and unfettered. Many attempts to set limitations upon the discretion have been rejected by the Courts, and the only limitation is that it must be exercised judicially: Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 … at 3 per Sheppard, Morling and Neaves JJ. It is a discretion to be exercised according to the merits of each case and without any particular predisposition: Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 … at 511 per French J. The discretion is to be exercised by reference to the particular circumstances arising in each case: Woodhouse v McPhee (1997) 80 FCR 529 … at 533 per Merkel J. 25 Despite the nature of the discretion referred to above, over time several factors have regularly become significant in the exercise of the court's discretion. Some of those were articulated by Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR ¶40-972 as follows: (a) the chances of success of the applicant; whether the applicant's claim is bona fide or a sham; (b) the quantum of risk that the applicant cannot satisfy an order for costs; (c) whether an order for security would shut out the applicant from proceeding with its claim, or, in other words, whether the power is being used oppressively; (d) if the applicant is impecunious, whether the impecuniosity arises out of the breaches alleged against the respondent; (e) whether there are aspects of the public interest which weigh in the balance against the making of an order; and (f) whether there are any discretionary matters peculiar to the particular case. 26 It is appropriate to consider each of these factors to the extent that they are applicable to the circumstances of this case, as well as some individual matters raised by the parties.

The parties' contentions 27 The principal factor relied upon by the Commissioner as justifying the making of an order for security was that there exists a risk that Mr Gumm will not satisfy any order for costs if he fails in the proceedings. Although each of the Commissioner's contentions will be discussed in depth, in summary, he asserted that this risk exists by reason of the fact that Mr Gumm is a foreign resident and has no significant assets within the jurisdiction, that many of his offshore assets are not held in his own name, and that it can be inferred from the evidence that he will act to thwart recovery by the Commissioner. 28 The Commissioner otherwise asserted that the following factors weigh in favour of making an order for security: (1) there is no evidence which suggests that an order for security would stifle the litigation; (2) Mr Gumm has demonstrated a preparedness to attempt to utilise the laws of offshore jurisdictions to frustrate the Commissioner's exercise of his statutory obligation to assess and collect Australian taxation; and (3) the prospects of Mr Gumm's claims are not strong. 29 Mr Gumm contended that security should not be ordered in circumstances where: (1) he is, in substance, a defendant in the proceedings; (2) the decision being challenged in these proceedings has "highly penal consequences" for him; (3) he is a natural person; (4) the Commissioner delayed in making the application for security; (5) the nature of the Commissioner's case against him has changed significantly over time; and (6) the overwhelming majority of his assets are located in the United Kingdom, such that it is possible for the Commissioner to enforce any costs orders made against him.

The quantum of risk that Mr Gumm will not satisfy an order for costs 30 In the first instance, it is relevant that there exists a risk that Mr Gumm will not satisfy any order for costs if he fails in the proceedings.

Mr Gumm is a foreign resident 31 It was common ground that Mr Gumm is pursuing litigation in Australia but resides in another country and has few assets here against which a costs order could be enforced, but substantial assets in overseas locations. Mr Gumm did not contest that this is a factor that supports the making of an order for security. In PS Chellaram, McHugh J identified the longevity of the recognition of the importance of this factor. His Honour said at 323: … However, for over 200 years the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction. That view has been repeated on many occasions: see, for example, Vasiliades at 579 - 580 [74] - [75]; Derma Pen LLC v Biosoft (Australia) Pty Ltd (Security for Costs) [2022] FCA 885 [9] - [10]; Banki Trading BV v Ausland Export Pty Ltd [2022] FCA 373 [15], [17]. See also Logue v Hansen Technologies Ltd (2003) 125 FCR 590 (Logue v Hansen); Batterham v Makeigh (No 2) [2009] NSWCA 314 [8]; Cheng XI Shipyard v The Ship 'Falcon Trident' [2006] FCA 759 [9]. Although those latter decisions did not concern r 19.01 of the Rules, their observations apply with the same force. 32 As Mr Gumm and his assets are outside of Australia, the making of an order that he provide security for costs would ensure that the Commissioner "does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement": Energy Drilling Inc v Petroz NL (1989) ATPR ¶40-954, 50,422; Logue v Hansen [18]; Gain Capital UK Ltd v Citigroup Inc (2015) 114 IPR 307, 310 [18]; Vasiliades at 579 [72]. 33 In Vasiliades, the majority emphasised the strength of this point, though acknowledging that it is not decisive. At 579 - 580 [75], their Honours observed: The fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction is clearly a significant circumstance militating in favour of an applicant for security for costs. As the above passage highlights, however, there is no rule that security for costs will be awarded as of course where an applicant is resident out of the jurisdiction and has no assets within the jurisdiction. A case may disclose countervailing circumstances that properly justify refusing an application. 34 In Madgwick v Kelly, Allsop CJ and Middleton J identified that, at its heart, the question of whether security will be ordered and, in what amount, is essentially a question of fairness. Here, Mr Gumm, who resides overseas and has most of his assets there, has invoked this Court's jurisdiction seeking to challenge the Commissioner's assessments in relation to several income years. It is likely that he has done so after making an assessment of his chances of success and the cost of bringing the proceedings. There is no doubt that the litigation will be complex, lengthy and expensive. If he is successful, it is likely that he will ask for, and be entitled to, an order that the Commissioner pay his costs and there is no doubt that the amount assessed as payable to him in respect of his costs will be paid. Conversely, the Commissioner is brought into the action against his will and, if the Commissioner is successful, any order for costs against Mr Gumm will have to be enforced in other countries with all the attendant uncertainties. In this way, Mr Gumm's foreign residency and the location of his assets offshore has the consequence that he may litigate his claims with little, or a reduced, risk in respect of costs. 35 Therefore, whilst there is no rule or predisposition that an order for payment of security should be made, Mr Gumm's overseas residency is a factor which carries significant weight as it is especially directed to the purpose for which security is ordered. 36 On the other hand, the taxation assessments mostly relate to the period during which Mr Gumm was an Australian resident or was such for taxation purposes. The taxation liabilities alleged by the Commissioner arose during this time and there is a real and appropriate nexus to Australia, in the sense that this is the only country where the taxation liabilities may be recovered. This is not a case where the forum for the contest of liabilities was capable of being chosen by either party.

Mr Gumm may attempt to thwart recovery by the Commissioner 37 The risk of the Commissioner not being able to recover against an order for costs in this case is heightened by the inference available on the material that Mr Gumm will not voluntarily meet any costs order and will act to thwart recovery by the Commissioner. The Commissioner rightly pointed to the following matters that give rise to this inference. First, Mr Gumm has vigorously resisted the Commissioner's assessment of his liability and has complained that it has been unfair. The Commissioner has a substantial judgment of some $23 million against him in the recovery proceedings brought by the Commissioner in the Supreme Court of New South Wales which he has not paid. On the assumption that he is of the view that the tax levied on him is unjust, there is no solid foundation for believing that he will voluntarily pay any costs order made against him in the present action. 38 The Commissioner also pointed to the fact that Mr Gumm has not paid the costs order made against him in the Supreme Court of Samoa, although he recently paid a small portion of it. That Court ordered that he and the other three plaintiffs pay the Commissioner's costs on an indemnity basis, and the evidence indicates that the amount of those costs was AUD106,310.41. Mr Gumm has paid only one quarter of that amount and only did so on 17 or 18 August 2023, despite the order of the Supreme Court of Samoa having been made on 17 December 2021. It is relevant that this payment was made after the Commissioner's application for security for costs was filed and served on 4 August 2023. It is not likely that Mr Gumm was unaware of the order in the Samoan Supreme Court having been made as his legal representation in that matter overlaps with that which he has in the present matter. In these circumstances, it is an unusual submission that the Court should be comfortable that Mr Gumm will meet a costs order made against him by this Court despite not having paid the costs order which was made against him some time ago by another court. 39 Mr Gumm submitted that he was only responsible for a quarter of the costs payable to the Commissioner and that he has paid his share of that obligation. On this, there is no evidence of the law of Samoa and no attempt was made to adduce any, such that it is to be assumed that it is the same as the lex fori: Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331, 370 [116], 372 [125]; Korea Shipping Corporation v Lord Energy SA (2018) 267 FCR 660, 671 [49]. Where an order is made in this jurisdiction that two or more parties pay the costs of another, each of the parties against whom the order was made is jointly and severally responsible for the payment of all the costs: see Thiess Watkins White Construction Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452, 453; GE Dal Pont, Law of Costs (LexisNexis, 5th ed, 2021) 341 [11.2]. It follows that, for the purposes of this application, it can be assumed that Mr Gumm is liable to pay to the Commissioner the total amount of costs ordered by the Supreme Court of Samoa. He has failed to do so and has not offered any reasonable excuse for that failure. 40 Similarly, he has not paid to the Commissioner the $10,055.90 payable as PAYG instalments, or the $4,500.20 assessed under Div 293 of the ITAA97. 41 Despite the exhortations made by Mr Gumm to the effect that he is a person who is likely to meet his liabilities to the Commissioner when called upon, the evidence indicates the contrary to be true.

The availability of assets 42 It is also relevant that, at least on the basis of his own evidence, the assets to which Mr Gumm might have access for the purposes of meeting any costs order are not held directly by him. Rather, they are held by DSPL UK, which, on his case, holds the assets for the benefit of DSSF. The fact that they are held offshore and by third party entities increases the risk that they will not be used to meet an order for costs. It is not clear who presently controls those other entities that may affect their transfer, and it may well be that, even if Mr Gumm indicates that he will cause them to pay the costs in the future, control of the entities may change, and the new controllers may be less disposed to comply with Mr Gumm's instructions. 43 Despite Mr Gumm's suggestion that all, or the majority of, his assets are located in the United Kingdom, it is far from clear in which country or countries the assets which underpin Mr Gumm's ability to meet an order for costs are located. That gives rise to additional uncertainties in knowing what difficulties the Commissioner may face in recovering against any assets. 44 Even were it known in which country any assets were located, it would be necessary to ascertain the relevant bi-lateral or multi-lateral agreements by which the enforcement of any judgment might take place and, necessarily, delay would occur as a result of attempting to comply with any provisions. That difficulty is exacerbated by reason of the nature of Mr Gumm's assets, being largely in the form of bank deposits or other investment funds, which are capable of being readily transferred from their current jurisdiction or location. That would have the consequence of putting the Commissioner at a significant disadvantage were he required to bring proceedings for recovery as, by the time the proceedings are completed, the money may well have moved. 45 Mr Gumm submitted that where there exist reciprocal arrangements which facilitate the enforcement of costs orders in the jurisdiction where the litigant has assets, the courts will frequently decline to order security, or will order security solely for the amount that would be necessary for the successful litigant to register and enforce a judgment in the foreign country. In support of this proposition, reliance was placed on a line of decisions, including Donoghue v Federal Commissioner of Taxation [2018] FCA 468 (Donoghue). 46 There is no doubt that, if it is appropriate in the circumstances of the case, an order for security may be made in an amount referable to the costs of obtaining recognition of a judgment in a foreign jurisdiction: see, for example, Barton v Minister for Foreign Affairs (1984) 2 FCR 463. However, the existence of reciprocal arrangements for the enforcement of judgments with a jurisdiction in which Mr Gumm's assets are presently located does not, of itself, mean that such an order should be made, or that an order for security will not be made at all: see Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336, 341 - 342; Maxim's Caterers Ltd v Magnona Pty Ltd (No 1) [2010] FCA 450 [5]; Logue v Hansen at 601 [40]. 47 On the assumption that the location of each of Mr Gumm's overseas assets is known, the Commissioner would still be required to go to the added difficulty of obtaining judgment and enforcing it in that foreign jurisdiction. There is no particularly good reason why he should be required to do that. Indeed, such a result should be avoided given that Mr Gumm's assets are not fixed and can readily be moved. 48 Relatedly, the Commissioner submitted that there was evidence from which it may be inferred that Mr Gumm had previously acted to put his assets beyond the reach of his creditors. This was said to have occurred by Mr Gumm having placed his assets in the names of overseas entities for the purposes of protecting them. The evidence shows more than an inference that Mr Gumm is a person who would act in that manner. Indeed, he admitted that, on occasion, he organised his affairs in such a way so as to put the assets which he has accumulated, beyond the reach of his creditors. That acknowledgment was made in respect of conduct relating to litigation in the Supreme Court of New South Wales against his former employer. In particular, he admitted that he started a new business which he put in the name of a company incorporated in the British Virgin Islands so as to ensure that it was beyond the reach of his former employer were he to fail in the litigation. Secondly, he admitted that, on another occasion, he formed a family trust for the purposes of keeping his assets beyond the reach of his creditors, which later included the Australian Tax Office. There is, therefore, no question that Mr Gumm is a person who is prepared to use corporate structures to protect his assets. No greater finding than this needs to be made in relation to this application, but it weighs very heavily in favour of making an order that he provide security. 49 There was also evidence that Mr Gumm is prepared to use the legal process to stifle the resolution of his liability, if any, to the Commissioner. The evidence before the Court included the reasons for judgment of the Supreme Court of Samoa wherein an action brought by Mr Gumm was struck out as being an abuse of process. As the Judge in that case observed, the declarations sought by the plaintiffs, which included Mr Gumm, were only sought for his benefit in relation to his proceedings in Australia against the Commissioner. That is, declarations were sought as to Mr Gumm's status as a beneficiary of DSSF to, purportedly, establish that fact in his existing dispute with the Commissioner. As referenced earlier, his Honour said, "[t]his proceeding is plainly and clearly an attempt to pre-empt and interfere with the result of the on-going tax assessment in Australia. It is an abuse of process". This too, is a significant factor in assessing the nature and extent of the risk that Mr Gumm will not pay an order for costs. A person who is prepared to misuse court processes as a means of defeating the untested claims of another, is not likely to be one who willingly meets an indebtedness which arises if it can be avoided or delayed. 50 Mr Gumm submitted that the Court should act on the premise that "the courts assume, rightly, that those who are subject to its jurisdiction will obey its orders, including, relevantly, a final judgment to pay a tax debt": Deputy Commissioner of Taxation v Huang (2021) 273 CLR 429, 447 - 448 [29]: with the result that it should not assume that any risk exists that he will not meet any order for costs made in the proceedings. With respect, that submission takes the words of their Honours out of context, and especially as the Court was there dealing with the imposition of a worldwide freezing order on the taxpayer on the basis that there was a risk that he would not meet his taxation liabilities. In any event, even if that presumption is adopted, it is soon surpassed by the above findings which strongly support the conclusion that Mr Gumm is averse to paying his taxation liabilities and other amounts which courts have ordered him to pay. Therefore, whatever assumption the Court might commence with, in this case there is sufficient evidence to dislodge it. 51 Mr Gumm indicated that he would find personal bankruptcy to be humiliating and, for that reason, it can be expected that he will pay any order for costs. He also claimed to be offended by the allegations of tax evasion and the manner in which the Commissioner has approached the assessment of his income. These are not unimportant matters, though more weight should be given to Mr Gumm's prior actions in relation to the payment of liabilities to the Commissioner, rather than his current expressions of his claimed altruistic attitude towards the payment of a costs order should he fail in his litigation. Additionally, despite his assertion that there are good reasons for him to meet any adverse cost order, his claims that he has been egregiously wronged by the Commissioner suggest that his attitude may change if he is called upon to meet a costs order which, if made, would be in addition to the confirmation of some taxation liability which he presently denies.

Is Mr Gumm the substantive plaintiff or defendant? 52 In determining whether an order for security should be made, it is important to identify Mr Gumm's actual position vis-à-vis the Commissioner under the TAA53. Following the undertaking of a lengthy audit process, on 26 November 2018, the Commissioner issued notices of amended assessment to Mr Gumm for the income years ending 30 June 2009 to 2015 inclusive, and default notices of assessment for the income years ending 30 June 2016 and 2017. He lodged objections to all those notices on 8 January 2019, and, on 6 October 2022, the Commissioner disallowed them in full. The appeals before the Court are from those objection decisions. 53 It is true that the approach adopted by the Commissioner in his latest appeal statement departs from that adopted in his initial position paper and appeal statement, and he has now made additional and different allegations. In that sense, it will be up to Mr Gumm to respond to the new allegations. Whilst keeping that in mind, the litigation remains in essence one of Mr Gumm objecting to the assessments which were made against him in the ordinary course of the application of taxation legislation. He may well have to deal with an evolving case advanced by the Commissioner, but he could hardly suggest that his taxation affairs are of a common or familiar nature. Whatever may be the tax effect of his complicated trusts and corporate structures, being something to be ascertained in the main hearing, on their face there is some lack of clarity as to their operation, which is likely to lead to some uncertainty for the Commissioner when seeking to identify their nature. 54 Nevertheless, in a sense, the current proceedings do have a defensive element to them in that Mr Gumm seeks to contest, via Part IVC, the Commissioner's determinations that he was indebted to the Commonwealth as had been asserted through the assessment process. Moreover, he seeks to fend off the penalties which the Commissioner has imposed upon him, as well as the shortfall interest charge which follows from the Commissioner's conclusions. In that latter respect, the defensive character of the proceedings is slightly stronger as it resembles the defense of actions by regulators to impose penalties for breaches of statutory provisions. It is a consequence of the operation of the taxation legislation that the administrative penalties are imposed by the Commissioner, and that it is Mr Gumm who must challenge them rather than the Commissioner being obliged to seek a judicial determination that they are payable. 55 On the other hand, whilst there may be some defensive element to Mr Gumm's proceedings, it is not doubted that in the relevant income years he was an Australian resident who was subject to the payment of tax on his income and, subject to certain exceptions, regardless of where it was earned. He was, therefore, always subject to the imposition of income tax at the amount assessed by the Commissioner and, although the obligation to pay a specific amount crystallised on the making of the assessments, it is not entirely accurate to characterise the assessment as being the commencement of the obligations which are challenged. 56 It should be accepted, however, that there are authorities which support a finding that Part IVC proceedings have a defensive character or that the manner in which they are pursued imposes defensive-like obligations on the taxpayer. In Oswal v Federal Commissioner of Taxation (No 2) (2015) 102 ATR 220, 231 [54] (Oswal), taxpayers who resided outside of Australia had brought Part IVC proceedings in respect of assessments which had been made against them. Nicholas J characterised the proceedings as having a "significant defensive element" to them, but nonetheless determined that it was appropriate to make an order for security for costs. His Honour held that, even if the conclusion is not reached that the relevant proceedings are defensive, the nature of the relief sought and the constitutional and statutory context in which the relief is sought nevertheless remain relevant considerations. This approach was also adopted in Hii v Federal Commissioner of Taxation (No 3) (2016) 238 FCR 304 (Hii). 57 In asserting that he is, as a matter of substance, defending himself from attack in the present Part IVC proceedings, Mr Gumm relied upon the High Court's decision in Willey v Synan (1935) 54 CLR 175 (Willey v Synan). There, the Collector of Customs sought security for costs against the plaintiff seaman under a provision of the High Court Rules 1928 (Cth) which provided that a plaintiff ordinarily resident beyond the Commonwealth may be ordered to give security for costs. The plaintiff had found English silver coins on board a ship, which were seized by the Collector of Customs upon his arrival to Australia. He commenced proceedings under the Customs Act 1901 (Cth) (Customs Act) following receipt of a notice from the Customs Department that the coins would be condemned unless he brought an action for their recovery. The High Court considered that because the plaintiff had to commence proceedings to avoid the statutory forfeiture he was, in substance, in the position of the defendant. As Latham CJ observed (at 180), the Collector of Customs effectively forced the plaintiff into legal proceedings by giving the notice under the Customs Act. For that reason, the High Court unanimously held that security should not be ordered against him. Mr Gumm submitted that there is a "ready analogy between a person seeking relief from a mandatory order under the Customs Act, and a taxpayer who has had liability imposed in the form of a tax assessment". The present proceedings, however, are not purely defensive in nature as they were in Willey v Synan. During the relevant period, Mr Gumm was always subject to the imposition of income tax at the amount assessed by the Commissioner. When the Commissioner issued the notices of assessment, he did not initiate a legal process which effectively "required" Mr Gumm to bring the present proceedings. The assessments were made in the ordinary course of the application of taxation legislation. 58 However, Mr Gumm suggested that the "paradigm" case where a plaintiff should be considered to be, in substance, a defendant is where they are subject to unilateral statutory action taken against them, and subsequently initiate proceedings to obtain relief. He sought to rely on a number of decisions, including Olbers v Commonwealth [2002] FCA 1269 [12], [19] and Aurora Networks Pty Ltd v Halbedl [2013] FCA 632. The former case concerned the seizure and purported forfeiture of a vessel caught illegally fishing in Australian territorial waters contrary to the provisions of the Fisheries Management Act 1991 (Cth), and the Russian owner commenced proceedings to recover the vessel. French J refused to make an order for security for costs, partly in reliance on the fact that the plaintiff's action was essentially defensive in nature. However, the defensive nature of the plaintiff's action can be more clearly detected in that case. There was not there, as there is here, any legislative presumption as to the correctness of the Executive's action. The latter case referred to above concerned an action brought to set aside a creditor's statutory demand. The Court refused to order security for costs, adopting the reasoning of an earlier decision which held that a company served with a statutory demand was, in a practical sense, forced to initiate litigation to avoid a ground upon which it could be wound up coming into existence. The defensive nature of an application to set aside a statutory demand is easily detected in circumstances where the issuance of a statutory demand not only creates a presumption that a debt is owed, but can result in the company losing substantial rights if it is subsequently wound up. Such an application is distinct from Part IVC proceedings. It is not useful to draw analogies between the two types of proceedings. 59 Reference was also made to Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132, which concerned a commercial dispute between certain mining companies. Once proceedings were commenced, the defendant, which was registered in the British Virgin Islands, filed a counterclaim which included parties that were not otherwise part of the action. Although detailed reference was made to the decision in Willey v Synan, the Court did not consider that the non-resident company was acting as a defendant in its capacity as counterclaimant, and an order for security was made in the particular circumstances of the case. 60 The attempt to set aside the assessments of taxation liabilities does not sit neatly in that class of case which might be described as defensive. For example, it does not equate to an action by a guarantor to set aside a guarantee which has been called upon, or such similar action. Rather, the accrual of taxation liabilities is an ordinary and everyday part of earning income and it would be incorrect to regard all actions contesting assessments as having some defensive element. They are, in effect, attempts to cavil with the assessments made in the ordinary course of the taxation process in Australia. It is not unimportant that s 350-10 of Sch 1 to the TAA53 provides that a notice of assessment shall be conclusive evidence of the due making of the assessment and, except in Pt IVC proceedings, shall be conclusive evidence that "the amount and all the particulars of the assessment are correct". In this sense, the assessment is in no way preliminary or tentative; it creates a certain and existing obligation to pay an amount to the Commonwealth. Though in Part IVC proceedings the assessment is contestable, the amount of the assessment can be recovered in the interim and this reflects the long-standing legislative policy of this country to protect the revenue. It follows that it is not correct to describe Part IVC appeals as being, in form or in substance, defensive, save to the extent to which one might put to one side the statutory framework of taxation legislation in this country. The legal position is that Mr Gumm's current proceedings involve him seeking to alter the extant legal relationship between himself and the Commissioner and, in addition, involve him carrying the onus of establishing that some other relationship exists. Whilst it is true that Mr Gumm seeks to set aside the penalties which have been imposed upon him, those claims are consequential on or incidental to the non-payment of taxation which is the central element of the proceedings. 61 Nevertheless, it is true also that the assessments which Mr Gumm seeks to challenge involve substantial suggestions of serious evasion of his taxation liabilities over a period of eight years and the imposition of penalties as a result, and these are relevant factors which might well weigh against the making of an order for security for costs: Hood Barrs v Heriot [1896] 2 QB 375, 377. On the other hand, the fact that the case involves the imposition of penalties does not make this case similar to those where the plaintiff has, for example, been struck off the roll of legal practitioners, as was submitted by Mr Gumm. 62 It was further submitted that the taxation liability which the Commissioner asserts is payable is close the entirety of the assets in which Mr Gumm has an interest through DSSF and DSPL UK such that, if he fails in the action, he may become bankrupt. He says that he is strongly averse to becoming a bankrupt and would regard it as diminishing him. Similarly, he is personally affronted by any allegations that he has engaged in any impropriety or tax evasion. In this way, Mr Gumm suggests that the proceedings are, in part, to preserve his reputation and standing which the Commissioner has brought into question. There is some force in these submissions, and they do support a conclusion that Mr Gumm's proceedings have a reactive element to them, in the sense that they respond to the Commissioner's determinations against him. Again, this is a factor which is to be taken into account in determining whether security should be provided and, if so, in what amount. 63 It was also submitted that Mr Gumm's action was to defend a matter which was highly personal to him, being in the nature of the imposition of substantial penalties, which was said to be akin to defamation proceedings or the pursuit of claims for personal injury. However, the proceedings are not of that nature at all. Mr Gumm is attempting to overturn the Commissioner's assessments of the taxation which is payable under Australian taxation legislation. On the Commissioner's case at least, his obligation to pay it arose when the income was earned, and it should have crystallised on Mr Gumm lodging an appropriate return. It was, so the Commissioner says, only his failure to lodge appropriate returns which necessitated the issuing of the amended and default assessments. Whilst Mr Gumm says that his initial returns were accurate, and that may be correct, nevertheless, this case is unlike an action for personal injury: such as Eades v Endeavour Energy [2018] NSWSC 801 at [94]: which is self-evidently one of an alleged wrong having been perpetrated on an otherwise innocent individual.

Relevance of Mr Gumm's claims having some defensive element 64 Mr Gumm submitted that, once it is determined that a plaintiff's claim is essentially defensive in nature, generally, no order for security for costs will be made: Stanley-Hill v Kool [1982] 1 NSWLR 460, 464. Reliance was also placed on the decision in Willey v Synan at [57]. However, there is no support for that proposition in that decision. The several reasons for decision in that case were carefully analysed by Kenny and Edelman JJ in Vasiliades at 558, 582 - 583 [86], who held that Willey v Synan did not provide that the discretion to award security for costs was "cut down or necessarily limited" as a consequence of the fact that the party bringing the action was, as a matter of substance, the real defendant in the dispute. Rather, it merely stood for the proposition that, in the exercise of the discretion, the justice of the case in the relevant circumstances must be kept steadily in mind. Importantly, in the ordinary case, a plaintiff will bring proceedings after considering the advantages and disadvantages of doing so and they run the risk that they will be unable to recover costs against the defendant. Conversely, the party against whom the action is brought is not the defendant as a matter of choice and they make no assessment of whether costs will be recoverable from the plaintiff if the action is successfully defended. It is these circumstances with which an order of security for costs is concerned, in that it is intended to ensure that there will be a fund available to the successful defendant which will mitigate the injustice that would otherwise ensue if they were successful in the proceedings and unable to recover the costs which had been incurred. 65 Kenny and Edelman JJ said that in Willey v Synan, it was not in the interests of justice to make an order for security for costs against the party named as the plaintiff who was compelled by statute to bring an action for recovery to protect his rights such that, in the context of an application for security for costs, they should be treated as being the defendant. They concluded on that issue (at 583 [87]) that Willey v Synan: … is authority for the proposition that the justice of the case controls the exercise of the discretion and that the fact that a party is in substance a defendant is a relevant circumstance in considering an application for security for costs against that party. As McHugh J explained in PS Chellaram (see [74] above) the importance of any one circumstance will depend on all the other relevant circumstances in the case. A factor such as the plaintiff's residence outside the jurisdiction, without assets in the jurisdiction, might often have "great weight" and determinative practical effect. But the exercise remains one of considering all the factors. 66 Their Honours concluded that there was no "absolute rule" that a court will not order security for costs against a person who is in substance a defendant in the action. That is merely one of the circumstances to be taken into account, and the discretion remains unfettered and unconfined by rules or restricted by its exercise in other cases: Vasiliades at 583 [88] - [89], citing Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443, 448 - 449. 67 The current position is, therefore, that there is no rule that a court will not order security for costs against a party bringing a proceeding if that person is in substance a defendant: Vasiliades at 582 [84]. It should be noted that Mr Gumm acknowledged that this Court was bound by the decision in Vasiliades. 68 However, it was submitted on his behalf that the decision in Vasiliades established that, "while a court can ascribe determinative weight to the fact a taxpayer is challenging tax assessments made under a statutory power there is no rule to this effect". Reference was made to [95] of the joint decision of Kenny and Edelman JJ which reads: Accordingly, we are of the view that the primary judge erred in refusing security for costs on the basis that there was a rule, or a very strong predilection, against ordering security for costs against a party bringing a proceeding that was "essentially defensive in nature". … 69 It was submitted that these observations supported the position advanced on behalf of Mr Gumm that, as he was in substance the defendant in the proceedings, the Court may and should give determinative weight to that factor and refuse to make an order for security. With respect, rather than support the submission made, the passages referred to tend to tell against the approach suggested. Their Honours were at pains to point out that the factor that an action was defensive in character or had elements of a defensive nature, was only a factor to be considered in the circumstances of each case. 70 Whilst it can be accepted that Mr Gumm's proceedings have some defensive aspect to them in the sense that he seeks to avoid the imposition of penalties and wishes to preserve his reputation, these must be regarded as factors in the discretional synthesis, even if not insignificant factors. On the other hand, they are not so significant in the present matter that they could be attributed decisive weight in the exercise of the Court's discretion. That is particularly so where, as has been concluded, the proceedings in general cannot be described as being of a defensive nature and Mr Gumm is resident overseas and his assets are also out of the jurisdiction. 71 It was further submitted that as "recently" as 1992 it was still "a step … unprecedented in the conduct of taxation appeals in this country", for such an application to even be brought, with reference being made to the decision of Hill J in Fletcher v Commissioner of Taxation (Cth) (1992) 37 FCR 288, 289. However, what may have been the position some 30 years ago is not the position now. There is no prohibition on the Commissioner utilising those tools which are available to him to recover revenue owing or said to be owing to the Commonwealth merely because they had not been used previously. Moreover, the ease with which money might be transferred internationally in the 21st century and the greater ability of Australians to reside in other countries, might require the Commissioner to adopt hitherto unused mechanisms to recover unpaid tax. Whatever may be the position in relation to taxpayers who are present in Australia, in respect of whom I make no observation, where the taxpayer is resident in a foreign country and all of their substantive assets are also located outside of Australia, there are very strong reasons why the Commissioner should make an application for security for costs in relation to Part IVC proceedings brought by a foreign-based taxpayer.

That Mr Gumm is an individual 72 It can be accepted that the fact that Mr Gumm is a natural person militates against making an order for security for costs. In the usual case, an individual's lack of means is not regarded as a reason to limit their access to the courts for the purposes of vindicating their rights. However, here, it is not Mr Gumm's impecuniosity on which the Commissioner relies for founding the relief which he seeks. Rather, it is the combination of the fact that Mr Gumm resides outside of Australia, most of his assets have been removed from Australia, and that he seeks to utilise the domestic court processes to resolve the dispute between himself and the Commissioner. This is also not a case where the individual in question is ordinarily resident in Australia and their assets, for what they are, are exposed to the risk of litigation. For these reasons, there is nothing in the decision in Harpur v Ariadne (No 2) [1984] 2 Qd R 523, 533 on which Mr Gumm relied, which suggests that the Court was there referring to persons who were outside of the jurisdiction. 73 The making of an order for security for costs against individual taxpayers occurred in Oswal. There, it was common ground that the taxpayers were ordinarily resident outside Australia and that a large portion of their assets had been mortgaged or assigned to a litigation funder. In addition, the taxpayers did not have sufficient assets in Australia to cover the tax debt in respect of which the litigation was being pursued, let alone to meet any adverse costs order. At the time of the making of the application for security, the litigation funder of the taxpayers' actions had spent around $31 million in relation to several legal proceedings, and it was apparent that it had access to substantial funds with which to pay the amount the Commissioner sought as security. 74 Similarly, an order for security for costs was made against an individual taxpayer in Hii in circumstances which included that the tax debt in question was extremely large and the taxpayer was resident outside of Australia. An amount of $400,000 was ordered as security for the Commissioner's costs. 75 Similarly, in Donoghue, Logan J made an order for security for costs against a taxpayer who resided outside of Australia, despite the fact that the application had been made late and the Part IVC proceedings were then ready for trial. 76 As mentioned above, in Vasiliades an order was also made requiring the individual taxpayer to provide security for costs in relation to their Part IVC proceedings. 77 It is apparent that there is now little reluctance in courts to refuse to make orders for security for costs in relation to Part IVC proceedings in which individual taxpayers, who ordinarily reside outside of the country, seek to challenge the Commissioner's assessment of their taxation liability. Therefore, whilst it is relevant that Mr Gumm is an individual, it is not greatly so given that he is not impecunious, resides overseas, and nearly all of his assets are beyond the jurisdiction of the Court.

The provision of security will not stifle the action 78 The risk that an action will be stifled if the plaintiff is required to provide security is a not insignificant factor which might tilt the discretion against making an order for security. It is central to the administration of justice that parties be able to quell their disputes before the courts and, within reasonable bounds, that those disputes be determined on their actual merits. Courts are, of course, loathe to impose barriers on litigants' access to the appropriate forum for the resolution of their disputes. In that light, the fact that the imposition of an obligation to pay security for costs might genuinely stifle the bringing of proceedings weighs heavily against making such an order. However, it does not follow that the fact that a party has funds with which to provide security, of itself, weighs in favour of making an order. All that means is that the court need not be concerned as to whether the making of the order will prevent the matter from being determined in the ordinary way. Of course, where there are other factors favouring the making of the order, the fact that it will not stultify the proceedings renders, as a matter of pragmatics, the making of the order more likely. 79 It was not suggested that the making of an order that Mr Gumm provide security would stifle the proceedings. Mr Gumm acknowledged that he is possessed of sufficient assets to meet his own legal costs, even if he is required to provide security for the Commissioner's costs. The evidence suggests that he has liquid assets in the amount of $2 million in his own name, which is more than sufficient to meet those expenses. It also appears that his legal fees in relation to his dispute with the Commissioner have been, and are continuing to be, paid by DSPL UK and DSSF each of which, on the evidence, has substantial funds and is easily capable of meeting an order in favour of the Commonwealth. 80 In the present circumstances, the fact that an order for the provision of security will not stifle the action removes an inhibition to its making which might have otherwise existed. 81 It seemed to be suggested on behalf of Mr Gumm that the fact that he could meet an order for costs should be a reason for not making an order for security, with reference being made to the decisions in Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46, 53; Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd (2009) FCR 360, 369 [53] - [54]; and Sanirise Pty Ltd v Darling Harbourside (Sydney) Pty Ltd (Federal Court of Australia, Einfeld J, 15 December 1995). However, these authorities were concerned with circumstances where the individual standing behind an insolvent corporate plaintiff was exposed to a cost order in favour of the defendant, such that the company was not being used as a stalking horse for the litigation. In such circumstances, the wealth of the individual plaintiff was "not really relevant" because the purpose of the making of an order for security was met. If the plaintiff failed in the action and an adverse cost order was made against them the result would have been that their assets were available to meet that order. 82 As such, these authorities have little to add to the present circumstances where, even though Mr Gumm could meet an order for costs if required, both he and his assets are out of the jurisdiction which gives rise to the considerations referred to above. 83 Mr Gumm also made reference to the decision of the New South Wales Court of Appeal in Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105, 119 - 120 [46] (Green v CGU), where Hodgson JA observed: In my opinion, it would be an oversimplification to say that underlying these guidelines is a broader principle that defendants should be protected against being unable to collect costs ordered against plaintiffs unless this would stultify the litigation. Certainly, these are relevant considerations; but in my opinion also relevant are the considerations that there should not be undue inhibitions on less wealthy persons from seeking vindication of their rights against more wealthy persons, and that there could be such inhibitions if it was in every case open to defendants to apply for security for costs on the basis of some evidence (or even on the basis of fishing notices to produce) suggesting inability to pay costs, and to claim that security should be given unless the plaintiff can prove it would stultify the litigation. In my opinion these considerations make it desirable that guidelines be adhered to, even though the question is ultimately for the court's discretion. 84 Those observations merely identify that which has been referred to above, namely that the fact that making an order for security for costs will not stultify the action is not something that, of itself, weighs in favour of making the order. In any event, that consideration is not presently relevant where the Commissioner would be required to pursue Mr Gumm and his assets in foreign jurisdictions if he were not prepared to voluntarily pay any order for costs made against him. 85 In this context, an issue arose as to whether it was possible for Mr Gumm to call upon DSPL UK / DSSF to provide funds for him to use to meet any order for security. It did not appear to be denied that he has access to the assets in DSPL UK and DSSF which were, at the end of the 2017 income year, equivalent to AUD16,200,000. Mr Gumm did depose, however, that he did not regard himself as owning those assets at any time from 2007 until the present time. However that may be, as at 1 January 2020, the assets were valued at AUD21,520,636 and as at 4 August 2023 they were AUD21,626,632. The Commissioner submitted that whilst it is in issue in the main action whether Mr Gumm was entitled to those funds during the relevant period, it cannot be doubted that he is presently so entitled. In particular, he relied upon the terms of the DSSF trust deed, which provides in cl 5.2: 5.2 When Benefit Payable A Benefit shall become payable in respect of a Member where the Member: (a) retires from Service with the Employer at or after the Normal Retirement Age other than by reason of the Member's death or Total and Permanent Disablement; or … (d) ceases to be in the Service of the Employer prior to the Normal Retirement Age for any reason other than death or Total and Permanent Disablement; or … The "Employer" named in the deed was Huang Xiao Sheung Limited and, so the Commissioner submitted, Mr Gumm was never employed by that entity such that he has always been entitled to access the funds in DSSF. 86 This, however, is disputed by Mr Gumm. In his affidavit sworn 17 August 2023, at paragraph 98, he asserted that: DSPL UK / DSSF is not willing and able to pay out its money as security for costs in this proceeding. When I became aware of the ATO's request for security for costs in this proceeding I contacted the trustee to ask if money could be made available from the assets of DSPL UK / DSSF to pay security for costs. The response I received is that the DSSF trust deed does not allow the trustee to provide its assets as security. 87 On about 24 August 2023, the Commissioner delivered to Mr Gumm a Notice to Produce in relation to all the correspondence passing between him and the trustee of DSSF "concerning the potential provision of security for costs in this proceeding". The documents produced in response to that notice show that Mr Gumm did not, in fact, ask the trustee of DSSF if he could receive such a benefit from the trust. Rather, it appears that he contacted his solicitors who made inquiries. The documents produced by Mr Gumm show that on 4 August 2023, a Mr Hasmukh Vara, who is a director of Lubbock Fine LLP, being an offshore accounting firm and the service provider which manages DSPL UK, sent an email to Mr Gumm advising him that his lawyers had been in contact with him regarding the withdrawal of funds for the provision of security for costs and that a formal application would have to be made to the trustee of DSSF. On 13 August 2023, Mr Gumm sent an email to Mr Vara making a formal request to the trustee of DSSF to make funds available for the purposes of meeting an order for security for costs. By that email, Mr Gumm asserted that the trustee was able to make provision of the funds pursuant to cll 7.1(v) and (w) of the trust deed that purportedly governs DSSF. Those clauses provide: 7 MANAGEMENT OF FUND 7.1 Trustee's Powers of Management In addition to the power of investment, the Trustee shall have full and absolute powers of: … (v) indemnifying or undertaking to indemnify any person, company, government or institution in respect of any claims, matters or things relating to the Fund or to the rights of Members, former Members or Dependants in respect of the Fund; and (w) doing such other things as may appear to the Trustee to be incidental to any or all of the above powers. … 88 It is noted that Mr Gumm did not request a payment out of the fund despite his retirement and cessation of employment with the nominated employer. In this latter respect, it is relevant that the Commissioner first filed his submissions in relation to the interlocutory application on 25 August 2023, and in them he raised the issue that Mr Gumm was entitled to withdraw money from the fund by reason of the operation of cl 5.2. 89 By an email of 15 August 2023, Mr Vara wrote to Mr Gumm and asserted that the request had been made to the trustee which had indicated that the trust deed did not allow for payment of funds for the purposes of being used as security for costs in an action being undertaken by a member, such that the request was denied. By a response, Mr Gumm sought a formal statement from the trustee, although he was told in an email on 16 August 2023 that the directors of the trustee were away at that time. 90 From the above facts, the Commissioner submitted that Mr Gumm did not seek the payment of funds from DSSF on the basis of cl 5.2 even though he would have been aware on about 25 August 2023 of the Commissioner's contention that recourse to that clause was available. The Notice to Produce was responded to on 4 September 2023, such that there was sufficient time for Mr Gumm to have made a further application to the trustee for payment out of the fund pursuant to cl 5.2, but it appears that no such attempt was made. 91 The Commissioner also relied on the fact that Mr Gumm's submissions did not attempt to counter the contention that all of his funds in DSSF are now available to him under that clause. 92 For the purposes of this application only and on the material available, it can be concluded that there is a reasonable argument to the effect that Mr Gumm is entitled to obtain funds from DSSF for the purpose of using them to meet any order for security for costs. First, one must doubt the sincerity of the suggestion that the trustee is unable to provide funds for security for costs in an action relating to Mr Gumm's liability to taxation in respect of his interest in DSSF. These proceedings fall within the description of a claim, matter or thing relating to the fund within cl 7.1 of the trust deed and there is, with respect, great difficulty in seeing how the trust would not be able to fund all of Mr Gumm's legal costs and expenses of the current action. Secondly, there is, prima facie, an additional claim that, by reason of cl 5.2, the full amount of the benefit of the trust is payable to Mr Gumm as both requirements appear to be met. For these reasons, there is a not insignificant argument to the effect that those funds are available to him for the purpose of funding the litigation and the provision of security. No substantive response was made on Mr Gumm's behalf to the Commissioner's submissions to the above effect and that is telling. In the first instance, this suggests that the contentions are unanswerable. More significantly, it tends to evidence a lack of sincerity by those instructed by Mr Gumm in that they were prepared to advance the proposition that funds were not available from the trust fund despite it being reasonably arguable that they were. It needs to be repeated that this conclusion is based solely on the limited material before the Court on the current application and on the submissions made. 93 In addition, Mr Gumm deposed that DSPL UK / DSSF is, in fact, meeting Mr Gumm's costs of the proceedings, even if it will allegedly not provide funds for the purposes of security for costs. This is significant because it means that Mr Gumm has access to a source of funds to pursue the action, but that same source is not available to the Commissioner for recovery of his costs if the action is not successful. In Frigger, in the matter of Computer Accounting & Tax Pty Ltd (in Liq) (No 2) [2018] FCA 612 (Frigger), Colvin J recognised this as being a factor that strongly favours the making of an order for security. His Honour said (at [8]): An applicant may have access to funds from outside the jurisdiction or from a third party to enable the prosecution of a claim in Court. However, the problems that a successful respondent may face in enforcing a costs order obtained against the applicant due to difficulties or an inability to resort to that same source of funds has long been recognised as a significant factor that supports the making of an order for security for costs. 94 The point made by the Commissioner was that not only are Mr Gumm's assets outside of Australia, but they are also, on his case, held in the name of third party entities such that an additional layer of difficulty would exist if recourse was sought against them. That is significant as it creates circumstances which greatly disadvantage the Commissioner in relation to his costs if he is successful. 95 Further, the funds which are available to Mr Gumm are generally liquid, such that they can be relocated in a relatively short period of time if that were desired. If they were moved, that would render recovery against them even more difficult. 96 Generally, therefore, when the issue of whether the ordering of security would stifle the action is considered, the conclusion is reached that not only would there be no stifling but that the relevant circumstances strongly support the making of an order that security should be provided. Mr Gumm has available to him more than sufficient assets to meet his legal costs and provide security for the Commissioner's. The circumstances show that the only risk in this case is that, if an adverse costs order is made against Mr Gumm, the Commissioner will encounter difficulty in recovering on that order by reason of Mr Gumm's assets being out of the jurisdiction, their possibly being controlled by third parties, and their being liquid such that they may be moved around to avoid attachment by the Commissioner.

Prejudice to Mr Gumm 97 It is not likely that the making of an order for security for costs will occasion Mr Gumm substantial detriment or prejudice. Where the order is that funds be paid into court or into an account controlled by both parties' solicitors, the loss of the use of the funds can be ameliorated by the interest which accrues on the funds. If Mr Gumm succeeds in this action, that interest will accrue to his benefit and, if he does not, it will be used to discharge his liability for costs. Further, as Mr Gumm's assets include substantial personal funds in bank accounts, the making of an order that he provide security will only inconvenience him to the extent of causing funds to be transferred to Australia which, in these modern times, is of little consequence: see the comments of Buchanan J in Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 3) (2009) 181 FCR 152, 177 [105]. This is not a case where the making of an order that Mr Gumm provide security would require him to sell property or investments, or withdraw funding from businesses and the like. 98 Although Mr Gumm claimed to be upset and annoyed at the possibility of being required to provide security, in the circumstances there is little in the way of prejudice to him (as that word is used in cases of this nature) in requiring him to do so.

The merits of the case 99 There may be applications for security for costs in which a court can make a reasonable preliminary assessment of the respective merits of the parties' cases, though they may be relatively few in number. In this case, however, for several reasons it is not possible to make such an assessment and, not least amongst them is that the contested assessments relate to a number of income years. In this respect, accord should be given to the observations of Murphy J in Mercus Pty Ltd v Industrial Energy Pty Ltd (2015) 327 ALR 523, 532 [41] - [43], which were quoted with approval by Colvin J in Frigger at [22], to the effect that where the court, hearing an application for security for costs, recognises that the plaintiff's claim is bona fide, as it is in this case, the court might assume that it has reasonable prospects of success and that, whilst the court is not obliged to make an assessment of the merits of the case, it is common that it does. 100 Although the respective parties submitted that the Court should consider the merits of the case as a consideration in the exercise of discretion, very little was advanced which gave any real indication of how the matter will be resolved. One suspects that the parties had in mind that the Court would, itself, sift through the thousands of pages of evidence adduced and discern the background facts, the nature of the case advanced by each of them, and the nuances of their claims. Whilst that is far from an appropriate approach, some description of the nature of the issues between the parties can be given. 101 The Commissioner's assessment was based on the proposition that, at all material times during the relevant income years (being those ending 30 June 2009 to 30 June 2017), Mr Gumm was the beneficial owner of a business and its income which was operated through several offshore entities. Conversely, Mr Gumm's position was that the business and its income were beneficially owned by those entities, and that his taxation liability should be assessed on that basis. 102 The Commissioner's assertion of facts, taken from his latest appeal statement, is set out in the following paragraphs. 103 From around December 2000, Mr Gumm was engaged in the establishment and then operation of a business which marketed insurance policies in various Asian countries. Until 2013, it was conducted through DSL BVI. Mr Gumm was styled as the Chief Executive Officer of DSL BVI, and he dealt with third parties in that capacity. 104 From about 24 September 2002 to 23 February 2007, the shareholding of DSL BVI consisted of another company incorporated in the British Virgin Islands called Bolink Holdings Ltd (Bolink BVI) that owned 550,000 shares, and a Samoan company called Createx Technology Limited (Createx Samoa) that owned 450,000. Mr Jenkins, who was Mr Gumm's Australian accountant, owned and controlled Bolink BVI. The shareholders of Createx Samoa were Samoan companies owned and controlled by an offshore service provider called Asiaciti Trust Group (Asiaciti) which acted on the instructions of a Mr Rex and a Mr Burton who were clients of Mr Jenkins. 105 Subsequently, Mr Jenkins developed a terminal illness and Mr Gumm took over ownership of Bolink BVI and Createx Samoa though, in relation to the latter, ownership was via Asiaciti as an offshore provider of shareholders who were nominees for Mr Gumm. 106 Later, Mr Gumm engaged a new advisor, a Sydney-based chartered accountant called Mr Vanda Gould, who devised and managed a new structure for DSL BVI. Whilst DSL BVI retained ownership of the insurance marketing business, all its shares were held by a Samoan entity called IRSS Nominees (11) Limited (IRSS Nominees (11)). That entity was owned and controlled by the offshore service provider Asiaciti Trust Samoa Limited, but it held the shares purportedly as trustee for DSSF. DSSF was established under Samoan legislation as an international trust, and it was able to be registered as such by reason of the terms of its operating trust deed. 107 Mr Gould then facilitated another offshore service provider, Lubbock Fine, to establish DSPL UK. The shareholding in DSPL UK was entirely held by Lubbock Fine nominees purportedly for IRSS Nominees (11) as trustee for DSSF. By an agreement dated June 2007, IRSS Nominees (11) appointed DSPL UK as its trustee to hold investments for it pursuant to its instructions. Despite that structure, the Commissioner's position is that IRSS Nominees (11) and DSPL UK held their assets on a bare trust for Mr Gumm. 108 Between April 2013 and June 2016, the insurance marketing business was sold, albeit in stages, and the value received in relation to that sale now vests in, or is held by, DSPL UK. It appears that following that sale, Mr Gumm moved to Thailand and retired. 109 A further change to the company structures asserted by the Commissioner at the hearing was that IRSS Nominees (11) ceased to be the trustee of DSSF and was replaced by another company, Oriental Limited, which is incorporated in the British Virgin Islands. 110 In essence, the Commissioner asserts that, during the relevant income years, Mr Gumm was absolutely entitled to the shares in DSL BVI held by IRSS Nominees (11) and the assets held by it, with the result that he was presently entitled to the income from the assets and, therefore, assessable in respect of it. Further, the Commissioner alleges that when the structure changed, Mr Gumm became beneficially entitled to all the assets held by DSPL UK and, similarly, assessable with any income which it earned. To the extent that any documents evidence the corporate and trust structure alleged by Mr Gumm, the Commissioner asserts that they are unreliable and cannot be given any probative weight, or are a sham. 111 In support of the submission that the Court should consider the merits of the parties' claims, it was said that the Court should have regard to decisions which have some similarity to the present. Reference was first made to the decision of Perram J in Hua Wang Bank Berhad v Federal Commissioner of Taxation (2014) 100 ATR 244, a copy of which was tendered without objection. It concerned a similar arrangement wherein the shareholders of an operational company, Southgate Investment Funds Ltd (Southgate), were companies controlled by the accounting firm, Lubbock Fine, on behalf of their clients. Perram J found that the companies controlled by Lubbock Fine held their shares in Southgate for IRSS Nominees (4) Limited which was a Samoan company which, in turn, held its beneficial interest in the relevant company for an "international trust" registered under the provisions of the International Trusts Act 1987 (Samoa). The members of that fund were a Sydney anaesthetist and investor, Dr Joseph David Ross, and his wife, Lucille June Ross. In that case, the Southgate directors (who were Lubbock Fine entities or personnel) had a written instruction from IRSS Nominees (4) Limited to do as Mr Gould instructed them. There was also evidence that one of the partners of Lubbock Fine regarded Southgate to be a nominee for IRSS Nominees (4) Limited which appeared to ultimately be controlled by Asiaciti Trust Samoa Limited. 112 The point sought to be advanced was that the Court found that Southgate was controlled by Mr Gould on behalf of his clients and that this structure created by Mr Gould was akin to that created for Mr Gumm in the present case. If similar findings were made in the present case, the result would be that Mr Gumm had a full beneficial interest in the assets of DSPL UK and DSSF. 113 The second similar case relied upon by the Commissioner was Re LLUN and Federal Commissioner of Taxation (2017) 107 ATR 211. There, a UK company (referred to as Entity 33), was formally owned by companies owned and controlled by a UK accounting firm, but beneficially owned by a Samoan trust (referred to as Entity 1, a purported Samoan superannuation fund), of which the taxpayers were purportedly members. The Tribunal was concerned with the taxpayers' present entitlement to the income of the UK company, which is similar to one of the main issues in the present case. The Member found that by reason of rule 5.2(d) of the fund, which was in the same terms as cl 5.2 of the trust deed of DSSF, the Samoan trust fund was not a superannuation fund because it did not only provide a benefit on retirement or death. The Member also found that the purported members of the superannuation fund were presently entitled to the income of it and that the purported members were also presently entitled to the income of Entity 33. 114 Whilst there are some differences between the above two cases and the present, the Commissioner submitted that the similar arrangements in those cases were either not what they purported to be or were ineffective to prevent the taxpayers in question from having a present entitlement to the income derived from the operating company. This, so it was submitted, should cause the Court to reduce the weight which it would otherwise give to Mr Gumm's prospects of success in the action. 115 It can be accepted that the cases referred to contextualise, to a degree, the nature of the arrangements which the Court will be required to consider at the hearing of Mr Gumm's claims. It may be that, to a small degree, they also raise some questions about the veracity of the corporate and trust structures which were put in place by Mr Gould around Mr Gumm's business operations. Nevertheless, though they may highlight some issues which may arise on the hearing of this matter, they do not significantly detract from the prima facie veracity of Mr Gumm's claims. 116 It is simply impossible on an application of this nature to reach any conclusion, even to a tentative level, as to the merits of the parties' respective claims. To do so, it would be necessary to assess the veracity of the transactions into which the several entities entered, which requires the examination and evaluation of documents and evidence.

The Commissioner's delay in making the application 117 Mr Gumm submitted that the Commissioner's delay in making the application is a factor which ought to weigh against the making of an order for security. In particular, some eight months passed between the commencement of the proceedings and the Commissioner's first indication of his intention to file an application for security for costs. 118 It is a longstanding principle that applications for security for costs should be made promptly and soon after the proceedings have been commenced. This is sometimes referred to as a rule of practice and other times regarded as a discretionary factor. The relative significance of delay in the making of a security for costs application and as a factor in the exercise of the discretion to order security for costs will inevitably vary with the facts of each case, the nature, extent and cause for any delay and the overall justice of the case. Delay will, generally, be less relevant if it has not generated some prejudice or consequence of significance: see PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 [10] - [11]; United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd [2019] VSCA 192 [37]; Olson v Keefe (No 5) [2023] FCA 127 [29], [32]. 119 It cannot be ignored that Mr Gumm has expended some $800,000 in the defence of the proceedings, whilst unaware that the Commissioner intended to seek the provision of security. This was emphasised in the written submissions filed on behalf of Mr Gumm and it was suggested that the Commissioner's delay in foreshadowing this application had consequences for Mr Gumm; namely, that he did not have the opportunity to consider whether he wished to proceed with this litigation in the event he was required to pay security for the Commissioner's costs, and that he made the decision to pay the costs of meeting the new arguments raised in the Commissioner's amended appeal statements. 120 Although Mr Gumm is not required on an application of the present nature to prove exactly what he would otherwise have done in order to show prejudice from delay: Green v CGU at 122 [57]; Ren v Jiang (No 4) [2014] NSWCA 315 [19]: he did not suggest that there was any alternative course of action which might have been pursued. In this case, it is not certain that he would have been advised, before commencing proceedings, that the Commissioner might make an application for security once the action was begun. Consequently, on the one hand it can be accepted that, in the period since the commencement of the action, he has expended considerable sums in the preparation of his case and, on the other, there is nothing to suggest that his financial circumstances have changed since the beginning of the action such that he is in a different position as regards to his ability to provide security. 121 This is not a case where the hearing of Mr Gumm's action is imminent and, as yet, no orders have been made for the provision of evidence. As counsel for the Commissioner submitted, the proceedings are still in their early stages, and all that has occurred is that the respective appeal statements have been filed. 122 In these circumstances, it is not evident that any delay by the Commissioner in making the application has been productive of any, or any substantial, detriment to Mr Gumm. As such, it is not a factor which weighs heavily in favour of refusing to order security for costs.

The changing nature of the Commissioner's case 123 Mr Gumm submitted that security should not be ordered because the nature of the Commissioner's case had changed over time. In the written submissions filed on Mr Gumm's behalf, the alterations to the Commissioner's position were analysed with some helpful clarity. That analysis identified the Commissioner's altering position as between the original position paper and his objection decision, and as between his original appeal statement and his most recently amended appeal statement. 124 Whilst it is true that the Commissioner did express different views as to the legal effect of the several arrangements which Mr Gumm had put in place and as to the legal characteristics of his several corporate entities, it must be kept in mind that, in dealing with any taxpayer, the Commissioner is at a position of substantial disadvantage in that he is generally reliant on the taxpayer for information as to their affairs. Here, where Mr Gumm has put in place a complex and, perhaps, opaque arrangement of trusts and corporate structures, which include nominee shareholders and directors, it is of little surprise that evidence will emerge from time to time which will necessitate a variation to the views previously held by the Commissioner in relation to particular structures or their legal effect. 125 Further, to the extent that the Commissioner makes amendments to documents filed in the proceedings, he is subject to the rules and discretion of the Court in relation to the costs of making them. Indeed, Mr Gumm made an application for his costs thrown away as a result of the Commissioner's amendments to the appeal statement. The determination of that issue is dealt with in a separate judgment. 126 It can be accepted that, in some circumstances, the fact that a defendant has altered the nature of their defence over time might be relevant to the question of whether an order for security should be made and, indeed, such a factor might carry significant weight. That may apply especially where the parties have relatively equal knowledge of the facts giving rise to a dispute. However, where one party knows all the relevant facts and the other has little firsthand knowledge of them, the position is substantially different. In such circumstances, a defendant is entitled to some leeway in relation to the articulation of their defence, and any detriment sustained by any required amendments can be ameliorated by appropriate costs orders.

Balancing the considerations 127 Mr Gumm should be required to provide security for the costs of these proceedings. Even though there are some defensive elements to his claim, by and large, he is the aggressor in the action. Moreover, he seeks to invoke the jurisdiction of an Australian court in circumstances where he is resident overseas and the overwhelming portion of his assets are beyond the reach of Australian courts. Though he is an individual, that carries little weight in these circumstances. On the material currently before the Court, there is a risk that Mr Gumm will be unwilling to meet any adverse costs order made against him and the Commissioner will be put to great difficulty in seeking to recover on any such order. There is no threat that the requirement that Mr Gumm provide security will stifle the prosecution of his action. Whilst he may voluntarily cease to pursue the action if he feels it not worthwhile, that will not be because he is unable to afford it. The respective merits of the parties' arguments on the issues which will arise in the substantive hearing are of little impact in this case. It suffices to observe that the claims advanced by each are, prima facie, bona fide and, at least, arguable.

Quantum of the security sought 128 As is not unusual in applications of the present nature, the parties adduced evidence from their respective solicitors as to the likely quantum of costs which will be incurred by the Commissioner in the action. Even though the Court was asked by each party not to accept the other's estimation, neither solicitor was cross-examined on their respective assessments. 129 This case is yet another example of the unheralded statistical anomaly that, universally in applications for security for costs, the solicitor for the party seeking an order for security will impartially estimate their client's costs of the action to be substantially higher than those impartially estimated by the solicitor for the party seeking to avoid the order. It is, with respect, somewhat bizarre for courts to continue to participate in the delusion that evidence of that nature has substantial credibility. With great respect, it is beyond credulity for courts to continue to receive and act upon so-called expert evidence which is so lacking in objectivity. Further, in cases such as this, the Court is asked to proceed upon the deponents' opinion evidence which does not comply with the requirements for expert evidence provided for in rr 23.12 - 23.13 of the Rules, and in circumstances where the witness has duties owed to their client which make them particularly inapt as an independent witness. 130 Nevertheless, the parties were content for the Court to proceed based on the evidence as it was given and so it must. 131 The approach to assessing quantum for the purposes of security for costs was identified by Gordon J in Norcast S.ár.L v Bradken Limited [2012] FCA 765 [16] (Norcast) where her Honour referred to three issues which regularly arise for the court's consideration. They were: 1. whether it is appropriate to commence the quantification of costs payable as security with an estimate of actual or indemnity costs, discounted by some factor, or whether a calculation of party-party costs is the appropriate starting point; 2. if actual or indemnity costs are permissible, what is the appropriate discount to be applied, and, as a related issue, what the is the function of the "two-thirds rule"; and 3. what steps in the proceeding are included in the security to be provided. 132 That is an appropriate framework within which to work in the present case. 133 For the Commissioner, the evidence of quantum was found in the affidavit of a Ms Emma Whan. It is undoubted that Ms Whan is a highly experienced solicitor in taxation matters and, in particular, in relation to proceedings under Part IVC of the TAA53 on behalf of the Commissioner. Of particular note is that, since 2011, she has participated in many proceedings relating to Mr Gould, his clients, and companies under his control, a number of which have reached a final hearing. There is little doubt that Ms Whan would be familiar with the interlocutory steps usually required in proceedings of the current type, the steps required to bring such proceedings to a hearing, and the cost of the same. 134 In Ms Whan's affidavit she undertook an estimate of the likely costs which would be incurred by the Commissioner which she identified as being $702,313.24. In relation to that amount, she made deductions to identify what would be the likely costs recovered on a party-party basis, indicating that she believed that the Commissioner would be likely to recover 80−90% of professional fees and 90−100% of disbursements. Applying the lower of those percentages, she calculated the amount which Mr Gumm might be required to pay on a party-party basis if he is not successful as $608,692.52. To give some context to that figure, the Commissioner has already incurred costs of around $260,000 in the action to date. 135 Ms Whan's estimation was based upon the hearing of the matter requiring seven days. Whilst that might usually be sufficient to cater for actions such as the present, it is apparent from what has occurred in the interlocutory stages that the parties' respective approaches will not be likely to confine the issues to those which are truly relevant to the resolution of appeal. Rather, their conduct in the litigation to date suggests the opposite and, on present indications, it is not unreasonable to perceive that the hearing will take some additional time. 136 Mr Benjamin Jones, the principal solicitor of HPJ Lawyers & Tax Specialists, gave evidence for Mr Gumm in relation to the likely amount of the Commissioner's costs of the proceedings including a seven day trial, and he suggested that they would be substantially less than Ms Whan's estimate, although he did not venture a figure. 137 The Commissioner submitted that there was insufficient evidence that Mr Jones was familiar with the issues relating to the costs of proceedings or estimating costs to provide any useful evidence. That submission can be accepted to the extent that it relates to the question of the assessment of costs. His evidence of his relatively short career of practising law does not demonstrate any substantial experience with the assessment of costs. Whilst he referred to his experience in tax litigation generally, he made no mention of any experience in providing costs estimates or being involved in the assessment or taxation of costs. 138 Nevertheless, Mr Jones did not purport to make any assessment of the Commissioner's costs. He did not seek to apply any held expertise to known facts to reach an opinion as to what costs would be incurred by the Commissioner and, consequently, the attack on his lack of experience was, perhaps, misplaced. Rather, he drew attention to several points which, prima facie, might be taken as diminishing the veracity of Ms Whan's estimates. 139 In his affidavit, Mr Jones first directed attention to the fact that he was aware of other proceedings in which Dr Jaques and Ms Ensor, the Commissioner's present counsel, had acted for the Commissioner, and that the estimate of $608,692.52 for the current proceedings was inconsistent with the costs incurred in those actions. He referred to proceedings in which judgment was given, namely, Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971 (Anglo American), which he said went for, in effect, 18 hearing days and in which the Commissioner engaged three counsel, and the Commissioner's costs were $833,218.54. In his opinion, Ms Whan's estimation of the costs for the present matter were inconsistent with those which were incurred in that case. He also referred to the matter of Melbourne Corporation v Commissioner of Taxation [2022] FCA 972 (Melbourne Corporation), which was heard at the same time as another matter referred to as the "Photo Advertising" matter. He said that the Commissioner's costs of these two matters, heard over 10 days, were $503,031, though he claimed that it might be said that there were actually 14 sitting days. Again, he asserted that these costs were inconsistent with Ms Whan's estimate for the present proceeding. 140 This evidence was countered by the affidavit of a Mr Joel Shaw sworn 1 September 2023, which addressed each of the Anglo American, Melbourne Corporation and Photo Advertising matters. Mr Shaw explained that those three matters were tangentially related, and that it was ordered that the evidence in the Anglo American matter was to be evidence in the Melbourne Corporation and Photo Advertising matters as well. He also identified that the Melbourne Corporation and Photo Advertising matters were set down to be heard over 14 days in April 2020, but were then delayed to September and October of that year. It appears that the Anglo American matter took up more time than was expected, and the other matters were therefore adjourned to a later date. 141 By reference to Mr Shaw's evidence, counsel for the Commissioner demonstrated that the costs which were incurred in the Anglo American matter and the combined Melbourne Corporation and Photo Advertising matters are useful comparators for assessing the costs which might be incurred in the present matter. Ms Whan anticipates that the cost of the hearing days for the Commissioner will be approximately one quarter of those incurred in the Anglo American matter and less than half those incurred in the Melbourne Corporation and Photo Advertising matters, though that is optimistic. That said, the anticipated cost of preparation work for hearing as between the Anglo American matter and the current matter are comparable and, in this respect it is relevant that it was anticipated that the hearing of the former matter would be five days despite the subsequent expansion of the length of the trial. It is true that the anticipated cost of pre-trial work for the Melbourne Corporation and Photo Advertising matters was substantially less than the amount anticipated for the present matter, but that was due to the evidence in the Anglo American matter being used in the Melbourne Corporation and Photo Advertising matters. 142 The result of this is that there is nothing in the matters identified by Mr Jones concerning the previous similar matters which undermines Ms Whan's estimate as to the likely costs of the Commissioner defending the proceedings. 143 Mr Jones emphasised that the counsel's fees for the Commissioner were modest (being just over $4,000 per day) and that the combined daily cost for Dr Jaques, Ms Ensor and Ms Whan would be around $7,500. This should be accepted to a degree. It is notorious that the fees payable to counsel by the Commonwealth Government are generally at the low end of the range of potential fees. Indeed, on occasion, it might be said that they are below that. For that reason, it must be accepted that the quantum of costs for which security is to be provided should be reduced to below that which would otherwise be the case if counsel were able to charge commercial, or near commercial, rates for their services. Nevertheless, this has already been brought to account by Ms Whan and so it does not disturb her calculation. 144 Regardless of the low rates for which solicitors and barristers for the Commonwealth are required to work, there can be no doubt that this matter is one of some complexity and will require substantial preparation. Some evidence of this can be found in the affidavit of Mr Jones affirmed 8 September 2023, in which he identified that the amount paid by Mr Gumm and DSPL UK for work done in the period from November 2022 to 31 July 2023 in respect of the current proceedings was $795,179, excluding GST. As was submitted for the Commissioner, this current litigation has not reached the stage where Mr Gumm has filed his evidence, although it can be accepted that the work undertaken by Mr Gumm's legal team will have involved some effort in that regard. On the other hand, the evidence of Mr Jones indicates that Mr Gumm has been spending an average of almost $90,000 per month on this litigation in circumstances where it is only in its embryonic stages. For comparison purposes, that gives some context to the relatively small sum of $608,000 assessed as the Commissioner's costs for the whole matter. 145 It must be acknowledged that Mr Gumm carries the onus in these proceedings, and for that reason, the bulk of the affidavit evidence will be provided by him which will necessarily increase the expense of the action for him. By contrast, the focus of the Commissioner's case will be to attempt to undermine Mr Gumm's evidence. 146 However, the fees already expended by Mr Gumm reveal the matter to be complex and the Commissioner's legal team will be required to consider and analyse a substantial body of material relating to Mr Gumm's complicated tax affairs. In addition, they will be required to do so without instructions from Mr Gumm or those who have advised him over the years. This would be difficult for one income year and, in this case, there are eight to consider. For these reasons, I do not consider that the amount of time and work involved in the action for the Commissioner's lawyers will necessarily be less than Mr Gumm's lawyers. 147 On this point, it should be concluded that, in light of the complexity of the matter and the number of income years involved, Ms Whan's estimate of costs is modest or conservative. 148 As counsel for Mr Gumm pointed out, at the rates charged by counsel for the Commissioner, the amount allocated by Ms Whan would accommodate a substantial period of preparation by them. Nevertheless, the quantum paid to the same counsel in other matters appears to justify Ms Whan's assessment. It is also often the case in Part IVC matters that the bulk of the work on the Commissioner's side leading up to trial will be undertaken by counsel, who are required to prepare what is usually substantial cross-examination and the presentation of the case to the Court. Based upon the small exposure to the facts of the case which occurred on the present application, it should be anticipated that the Commissioner's counsel will be required to undertake substantial work in preparation. 149 Finally, Mr Jones claimed that there were several cases of the present type which settled before trial, and the possibility of that happening in this case should be considered when quantifying the amount of security. Again, that is a valid justification for a reduction in the quantum of security to be ordered, though in this case the current behaviour of the parties provides no real justification for any such reduction. At present, the proceedings are of a kind where each side appears to be determined to take every point against the other regardless of merit, and experience shows that cases with this characteristic are more unlikely to settle than not. Settlement discussions have already occurred between the parties and without prejudice letters have passed between them, albeit to no result. That possibly suggests that, as settlement attempts have failed thus far, settlement in the future may be less likely. 150 If one were to put aside for one moment the instant proceedings and the meagre rates which the Commissioner is prepared to pay to those who act for him, it is worthy of remark that a seven day trial in this Court would cost as little as $600,000. In ordinary commercial litigation the cost could well be double that amount. Whilst this has only tangential relevance to the question before the Court, which is concerned with the actual costs expected to be incurred by the Commissioner, it is not inappropriate to recognise that in the scheme of the costs usually incurred in this Court, $600,000 for a seven day hearing is at the very low end of the range. 151 The second issue recognised in Gordon J's decision in Norcast was that of discounting the actual anticipated costs to reflect party-party costs, so as to reflect the amount which is likely to be awarded if the plaintiff fails. In this case, Ms Whan made downward adjustments to reflect that which the Commissioner might receive on a taxation of his costs on that scale. The percentage reductions are small, but that is far from surprising given the low rates which the Australian Government Solicitor and counsel retained by the Commonwealth are paid. This reflects the observations of Gordon J in Norcast at [23] that, "… the more expensive the lawyers, the larger the discount". In the result, and in the absence of any countervailing evidence, the discounts applied by Ms Whan are appropriate. 152 In Norcast, Gordon J also considered the further potential discounting arising from what is colloquially referred to as the "two thirds rule", being the notion that security for costs is awarded at around two thirds of the identified party-party costs. After reviewing the authorities considering the application of this rule in Australia, including Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187 and Quad Consulting Pty Ltd v David R Bleakley and Associates Pty Ltd (Federal Court of Australia, Burchett J, 28 June 1991), her Honour (at [28]) summarised the position in the following terms which I gratefully adopt: In summary, the "two-thirds rule" may be applied where there are factors present which suggest that the quantum of the security ought to be further discounted. Those factors include the chances of settlement, the merits of the case, whether an order of security would effectively deny the applicant from pursuing the claim, the strength of the evidence regarding the quantification of the security, the possibility that substantial amounts may be taxed off the bill and the prospect or actuality of off-setting costs orders: Quad Consulting at [10]; Farmitalia at 345. Subsequent cases have indicated that the discount to be applied is not fixed at two-thirds, but may vary as circumstances dictate: see, eg, Pathway Investments at [55]. 153 Here, there ought to be some discounting to account for the fact that, in relation to the penalties imposed by the Commissioner and the high interest charged on the Commissioner's assessment, Mr Gumm's action has some defensive elements to it. Further, as this matter is likely to involve not insignificant interlocutory skirmishing, it is possible that Mr Gumm may obtain some off-setting costs orders. Despite what is said above, it is also possible that the matter may settle, though that should only account for a small discount. 154 The third matter referred to by Gordon J in Norcast related to the steps in the proceeding which the order for security should cover. Here, Ms Whan estimated the costs to the end of the trial and no substantive argument was directly advanced to the effect that the security should cover a lesser period. However, it cannot be ignored that the application for security for costs was brought some eight months after the proceedings were commenced, though it was flagged by the Commissioner a little earlier. As stated above, applications for security should be brought at an early stage and a failure to do so is relevant, if it has been decided that security should be ordered, to the steps which it ought to cover. 155 As mentioned above, Ms Whan identified in her affidavit that the Commissioner has already expended some $260,000 in the proceedings to date. By the Commissioner's application, he now seeks to obtain security for those costs as well as those which he will incur in respect of the remainder of the action. Conversely, Mr Gumm has expended some $800,000 in the defence of the proceedings, whilst unsure whether the Commissioner intended to seek the provision of security. Nevertheless, this is not a case where the hearing of Mr Gumm's action is imminent and all that has occurred is that the respective appeal statements have been filed. 156 For the reasons given earlier, any delay by the Commissioner in making the application has not been productive of any, or any substantial, detriment, though it has resulted in the Commissioner now asking for security for costs which he has already incurred. That necessitates a discount to the amount of security which would not have been ordered had the application been brought at an earlier time. 157 Mr Gumm also relied upon the amount of money which he spent on the audit, which he claimed was in the vicinity of $1,000,000, as militating against the making of an order for security, or the quantum to be ordered. However, the time and costs spent conducting the audit are not relevant to whether an order for security should be made in relation to the court process, or on what terms. Those are matters which predate the commencement of the proceedings such that they do not impact those matters between the parties in their capacity as litigants in the action. 158 In Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, 515, French J recognised that if security is to be ordered it must be "sufficient" but beyond that there is no limit to the amount which can be ordered. This was relied upon by the Commissioner in support of the awarding of a substantial sum as security. However, French J was there referring to the word "sufficient" as it was used in s 533(1) of the Companies (Western Australia) Code, which has no correlation to the powers to be exercised by the Court in the current matter. Here, the quantum of the costs is in the Court's discretion which is exercised after a consideration of all relevant matters, including those which might give cause to reduce the amount. 159 That said, the amount of security should provide a measure of protection for the party who will otherwise be hindered in recovering their costs if an order is made in their favour. As indicated by Basten JA in Royal Guardian Management Pty Ltd v Nguyen [2015] NSWCA 148 [25]: An order for security is not intended to be a full indemnity for costs recoverable from the unsuccessful party. Given that the real costs cannot be known in advance, the Court should adopt a realistic but conservative approach to the assessment of the evidence before it. … 160 That view is well entrenched and is a useful guide to the exercise of the discretion. 161 It is also within the scope of the exercise of the discretion to regard those factors which may have weighed against granting security at all, as being matters which reduce the amount of security awarded: see Acohs Pty Ltd v Merck Ltd [1997] FCA 573, citing Deltrend Pty Ltd v AST Australia Pty Ltd (1995) 16 ACSR 762, 764; A1 for Maintenance Pty Ltd v Lehal Pty Ltd [2018] FCA 1476 [50].

Reduction for any costs ordered to be paid by the Commissioner 162 By a separate application, Mr Gumm sought an order that the Commissioner pay him an amount on account of the costs wasted by reason of the amendments made by the Commissioner to his appeal statement. The question of the extent to which the Commissioner should pay an amount in respect of that amendment is dealt with in separate reasons. Although it is concluded in those reasons that the Commissioner is liable to pay an amount for Mr Gumm's costs thrown away, there is no basis for the Court, in the present circumstances, to undertake some form of preliminary assessment of the costs which might be paid, and to reduce that amount from the amount of security ordered. In effect, that would assume an entitlement on Mr Gumm's behalf to have the costs assessed and paid immediately by the Commissioner which was not established. Nor, it should be added, was the quantum of the amount of costs payable proven to any reliable degree. The costs should, however, be taken into account as a general reduction to the quantum of security to be ordered.

Conclusion as to the amount of security for costs 163 The amount of security which Mr Gumm should provide is $450,000. The starting point for this assessment is the evidence of Ms Whan, whose evidence should be largely accepted for the reasons which have been given. The reductions made to the modest amount calculated by her take into account the totality of the costs which the Commissioner is likely to incur in the action but, nevertheless, recognise that some discounting must occur. The discounting factors include the fact that the Commissioner has already spent a not inconsiderable amount in the action and that whilst the security awarded must be "real", the proceedings might terminate prior to the completion of a trial, that there have been and may be further off-setting orders obtained by Mr Gumm, and that the proceedings conceivably involve some defensive element on his behalf. 164 The Commissioner sought an order that the security be in the form of money paid into Court and, prima facie, that should occur. However, it may be that an equivalent form of security may be provided such as an irrevocable bank guarantee for the same amount and that option should be made available. In order to ensure that the Commissioner is not prejudiced if he is subsequently required to call upon the guarantee, however, it must be provided from one of the four major Australian banks. 165 The Commissioner also sought orders that the proceedings be stayed pending the provision of security and that is appropriate. He also sought an order that the proceedings be dismissed if the security is not provided within 14 days. In the present circumstances a self-executing order is neither necessary nor desirable. If the security is not paid as ordered an appropriate application to have the proceedings dismissed for want of prosecution can be brought.

Costs 166 The Commissioner has succeeded in obtaining the order sought. Necessarily, he also sought an order, in the event of such success, that Mr Gumm pay his costs of the application. Although these proceedings are interlocutory they do not turn on any assessment of whether Mr Gumm will succeed in his action. Rather they assume that his claim is bona fide. There is no reason why the question of costs should await or be affected by the outcome of Mr Gumm's claims and, similarly, no reason why the ordinary rule as to costs should not apply. Therefore, the Commissioner is entitled to an order that Mr Gumm pay his costs of this application. I certify that the preceding one hundred and sixty-six (166) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.