Jamieson v Commissioner for Internal Revenue

CATCHWORDS : TAXES AND DUTIES - Income Tax - Judgment of United States Tax Court against executrix of estate of deceased for deficiencies of Unites States tax - Application for determination of question whether the executrix free to distribute estate without regard to tax debt under Supreme Court Rules 1970, Pt 68 r 2 or for order barring the claim under the Wills Probate and Administration Act 1898, s 93 - No entry of appearance by Commissioner for Internal Revenue of the United States - Whether leave to proceed under the Uniform Civil Procedure Rules 2005, r 11.4 should be granted - Whether proper service under the Foreign States Immunities Act 1985 (Cth) established - Whether deceased had adopted a domicile of choice in the United States or whether he died domiciled in New South Wales for the purpose of the Uniform Civil Procedure Rules 2005, Sch 6, item (o) - Whether a foreign tax claim will be enforced by Australian Courts - Whether the judgment of the United States Tax Court can be enforced in Australia - Whether the claim of the Commissioner should be barred

Domicile Act 1979 Family Law Act 1975 (Cth) Foreign Judgments Act 1991 (Cth) LEGISLATION CITED : Foreign States Immunities Act 1985 (Cth) Supreme Court Rules 1970 Taxation Administration Act 1953 (Cth) Uniform Civil Procedure Rules 2005 Wills Probate and Administration Act 1898

Attorney-General (United Kingdom) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 Castagna v Conceria Pell Mec Spa, NSWCA, 15 March 1996, unreported CASES CITED : Government of India v Taylor [1955] AC 491 Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 The News Corporation Ltd v Lenfest Communications Inc (1996) 21 ACSR 553

PARTIES : Michelle Susan Jamieson - Plaintiff Commissioner for Internal Revenue - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2293/06 MICHELLE SUSAN JAMIESON v COMMISSIONER FOR INTERNAL REVENUE JUDGMENT 1 Michelle Susan Jamieson is the executrix of the estate of her late father, Robert Stephen Hastings. He died in the United States of America on 29 July 2004. All the assets of the estate were situated in New South Wales. Probate of the will was granted to Ms Jamieson by this court on 2 December 2004. The Commissioner of Internal Revenue of the Internal Revenue Service of the United States obtained a judgment from the United States Tax Court against the estate for USD 1,149,104.05 on 2 November 2006. Ms Jamieson seeks a determination that she is not required to admit the Commissioner as a creditor or the estate and is entitled to distribute the estate to the persons entitled. In the alternative, she seeks an order barring the claim of the Commissioner. Leave to proceed 2 The Commissioner has not entered an appearance. 3 Ms Jamieson has filed a notice of motion seeking leave to proceed pursuant to the Uniform Civil Procedure Rules 2005, r 11.4. It provides that if originating process is served on a defendant outside Australia and the defendant does not enter an appearance, the plaintiff may not proceed against the defendant except by leave of the court. There is no need to serve notice of the motion on the defendant. 4 In order to obtain leave, Ms Jamieson must first show proper service on the Commissioner (Castagna v Conceria Pell Mec SpA, NSWCA, 15 March 1996, unreported). Service of initiating process 5 A foreign state is, prima facie, immune from the jurisdiction of the courts of Australia. But the Foreign States Immunities Act 1985 (Cth), s 9 removes the immunity as provided under that Act. Unless the contrary intention appears, a foreign state includes the executive government or part of the executive government of a foreign state including a department or organ of the executive government of the foreign state pursuant to s 3(3)(c). It also encompasses the head of a foreign state in his or her public capacity in s 3(3)(d). In my view, the Commissioner is, for the purposes of the Foreign States Immunities Act 1985 (Cth), a foreign state. 6 The Foreign States Immunities Act 1985 (Cth), s 14(3)(b) provides that a foreign state is not immune in a proceeding in so far as the proceeding concerns the administration of a trust, of the estate of a deceased person, or of the estate of a person of unsound mind. Ms Jamieson's proceedings answer that description. 7 The Foreign States Immunities Act 1985 (Cth), s 24(1) provides that initiating process that is to be served on a foreign state may be delivered to the Attorney-General for transmission by the Department of Foreign Affairs to the department or organ of the foreign state that is equivalent to that department. Where the process is delivered in the foreign state, service is taken to have been effected when so delivered under s 24(3). Section 24(4) provides that where the process is delivered to some other person on behalf of and with the authority of the foreign state, service is taken to have been effected when so delivered. Section 24(6) provides that service of initiating process under the section is taken to have been effected outside the jurisdiction and in the foreign state, wherever the service is actually effected. In this case, the documents were served on the embassy of the United States in Canberra. 8 The Foreign States Immunities Act 1985 (Cth), s 40(1)(d) provides that the Minister for Foreign Affairs may certify in writing, service of a specified document as mentioned in s 24. Under s 40(2) the Minister may delegate his powers and s 40(5) provides that a certificate under the section is admissible as evidence of the facts and matters stated in it and is conclusive as to those facts and matters. A certificate of 28 September 2006 by a legal adviser to whom the Minister for Foreign Affairs had delegated his powers, certified that service of the initiating process and accompanying documents in this matter was effected in accordance with s 24 on 27 September 2006. Ms Jamieson has established proper service upon the Commissioner. 9 The Uniform Civil Procedure Rules 2005, r 11.2 provides that originating process may be served outside Australia in the circumstances referred to in Sch 6. In order to be given leave, Ms Jamieson must also show that the proceedings come within that schedule (The News Corporation Ltd v Lenfest Communications Inc (1996) 21 ACSR 553). Item (o) in Sch 6 is proceedings for the administration of the estate of a person who died domiciled in New South Wales.

Domicile of the deceased 10 The deceased's domicile of origin was New South Wales. The question is whether he adopted a domicile of choice in the United States. 11 Under the Domicile Act 1979, s 9 the intention to establish a domicile of choice is to make one's home indefinitely in that country. 12 The deceased was born at St Leonards, New South Wales, in 1948. He married his third wife, Lesley Eve Hastings, in Sydney in 1991. She was a citizen of the United States. With their two children, they moved from Sydney to the United States in about 1998. Ms Jamieson is the child of an earlier marriage of the deceased. The deceased obtained a green card and established a partnership in the United States. When the deceased and Mrs Hastings separated, she and her children returned to New South Wales where they still live. The deceased obtained employment in the United States. He was a qualified builder. 13 The deceased lived in the United States for approximately six years before his death. On numerous occasions during that period, the deceased told Ms Jamieson that he intended to return to New South Wales to live. He never told Ms Jamieson that he intended to remain in the United States for the rest of his life. Two months before his death, the deceased applied for a job in New South Wales and attended an interview for the job in Melbourne. He was an unsuccessful applicant. Annually, the deceased returned to New South Wales for about four weeks to visit his mother and his children. The deceased held an Australian passport, last renewed in August 2003. His will stated his address to be in New South Wales and expressed the wish that his ashes be scattered in Sydney Harbour. The deceased retained real property and bank accounts in New South Wales. And he maintained in New South Wales Medibank Private health insurance, a New South Wales builder's licence, a New South Wales driver's licence, membership of NRMA and membership of the Terry Hills Golf Club. 14 I am satisfied on this evidence that the deceased did not intend to make his home indefinitely in the United States and that he had not adopted a domicile of choice in the United States. At his death, the deceased maintained his domicile of origin. 15 It follows that Ms Jamieson has established more than prima facie compliance with the qualifying conditions for leave to proceed and there is nothing in the evidence to justify the Court in exercising any discretion against granting leave. 16 For the above reasons, I granted Ms Jamieson leave to proceed on 11 April 2007. Background to substantive proceedings 17 In November 2002, the Inland Revenue Service wrote to the deceased and his former wife in the United States seeking an extension of the Statue of Limitations in which to make an assessment for the year ended 31 December 1999. In October 2003, further correspondence was directed to the deceased at another address in the United States. In December 2004, the IRS addressed correspondence to the deceased and his former wife at Terrigal, New South Wales. It gave notice of deficiencies of tax for the years ended 31 December 1999 to 31 December 2001. Ultimately, Ms Jamieson signed a consent on 26 September 2006 and Judge Thomas B Wells entered the order for the deficiencies. 18 Notice of intended distribution of the estate in accordance with the Wills Probate and Administration Act 1898, s 92 was published in the Sydney Morning Herald on 15 January 2005. 19 On 3 August 2005, Ms Jamison gave notice to the IRS pursuant to the Wills Probate and Administration Act 1898, s 93 disputing the claim for US income tax and called upon the IRS to take proceedings to enforce its claim within three months of the service of the notice. A delivery confirmation was received from Australia Post. 20 Neither the Commissioner nor any other person on behalf of the IRS has lodged a formal claim upon Ms Jamieson, otherwise than in the context of the United States Tax Court proceedings. Nor have any proceedings been commenced to enforce any claim apart from the decision of that court. 21 Assets of the estate were sold to meet expenses before the order of the United States Tax Court was made. There remains a gold Rolex watch, golf photographs, signed flags and a golf bag worth approximately AUD 32,000.00 and an interest in proceedings in the Family Court initiated by the deceased against his former wife for adjustment of property interests. The respondent to those proceedings has disclosed net assets of AUD 1,417,000.00. 22 The Family Law Act 1975 (Cth), s 79(8) provides that a property case can be continued after the death of one party to a marriage by the substitution of the deceased's legal personal representative. On 15 March 2005, the Family Court ordered that Ms Jamieson be substituted as the applicant in those proceedings. Those proceedings have been stayed pending the decision in this matter.

The relief sought 23 Ms Jamieson seeks the determinations pursuant to the Supreme Court Rules 1970, Pt 68 r 2(2)(c)(i). It provides that proceedings may be brought for the determination of any question that could be determined in administration proceedings, including any question as to the rights or interests of a person claiming to be a creditor of an estate. 24 The Wills Probate and Administration Act 1898, s 92(1) provides, amongst other things, that where an executor has published notices to the effect of the form prescribed by the rules of court, requiring claims of creditors to be submitted, the executor may at the expiration of the period for submitting those claims, distribute the assets of the estate among the persons entitled. Section 93(1) provides that when an executor has published the notices referred to in s 92(1), and a claim is submitted, the executor may, if the claim is disputed, serve on the person notice calling on the person to take proceedings to enforce the claim within a period of three months. Section 93(2) provides that if after the expiration of the three month period, the person does not satisfy the court that the claim is being prosecuted, the court may make an order barring the claim, subject to such conditions as it thinks just and equitable. Enforcement of claims for foreign tax 25 In Government of India v Taylor [1955] AC 491, the House of Lords held that claims on behalf of a foreign state to recover taxes due under its laws were unenforceable in English courts. The exclusionary rule applies notwithstanding the form of the proceedings in which it is raised (Attorney-General (United Kingdom) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 at 46, Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at [45], [49]). 26 A new article 27 of the OECD model convention with respect to taxes on income and on capital, seeks to abrogate the exclusionary rule. It provides that when a revenue claim of a contracting state is enforceable under the laws of that state, and is owed by a person who, at that time, cannot under the laws of that state prevent its collection, the revenue claim shall, at the request of the competent authority of that state, be accepted for the purposes of collection by the competent authority of the other contracting state. The revenue claim is to be collected by that other state in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes, as if the revenue claim were a revenue claim of that other state. 27 Australia has included the new article 27 in its treaty with New Zealand and in new tax treaties with France and Norway. The article is not included in the treaty with United States. 28 To give domestic effect to these provisions, Australia has introduced legislation relating to a foreign revenue claim of a foreign country with which there is in force a treaty that contains an article relating to assistance in collection of foreign tax debts in the Taxation Administration Act 1953 (Cth), Sch 1, Div 263. Since the treaty with the US does not contain an article relating to assistance in the collection of foreign tax debts, the provisions of the Taxation Administration Act 1953 (Cth) to not apply to this case. 29 Nor can a judgment of the United States Tax Court be enforced in Australia. The Foreign Judgments Act 1991 (Cth), s 3(1) defines an "enforceable money judgment" to mean one under which an amount of money is payable other than an amount payable in respect of taxes or other charges of a similar nature. It is only an enforceable money judgment that is capable of registration under Pt 2 in terms of s 5(4). Conclusions 30 Since any claim by the Commissioner against Ms Jamieson consequent upon the decision of the United States Tax Court is not enforceable in Australia under the principle in Taylor and the decision of that court cannot be enforced in Australia, Ms Jamieson is, in my view, entitled to the determinations she seeks. 31 If I be incorrect in this view, there remains Ms Jamieson's alternative claim to relief. 32 To deny Ms Jamieson relief under the Wills Probate and Administration Act 1898, s 93(2) on the ground that no formal claim has been made on the estate by the IRS would be an act of pedantry. The evidence reveals continuous correspondence by the IRS with Ms Jamieson, her Australian and her United States lawyers, in the prosecution of the matter before the United States Tax Court seeking an order that deficiencies, penalties and additions to tax exist and are due by Ms Jamieson as executrix of the estate of her late father. 33 In my view, were it necessary to consider the alternative relief sought, it would be appropriate to make an unconditional order under the Wills Probate and Administration Act 1898, s 93 barring the claim of the Commissioner against Ms Jamieson as executrix of the estate of the deceased.

Orders 34 The court orders, pursuant to the Supreme Court Rules 1970, Pt 68 r 2, that it be determined that the plaintiff is entitled to distribute the assets of the estate among the persons entitled to those assets without regard to the deficiencies, penalties and additions to tax determined by order of the United States Tax Court of 2 November 2006.

I certify that this page and the 9 preceding pages are a true copy herein of the reasons for judgment of the Honourable Justice I V Gzell

Ms Amanda Last Date: 18 April 2007 Tipstaff

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