Kocic v Deputy Commissioner of Taxation

1. The time for filing the application for leave to appeal be extended to 16 September 2024.
2. The application for leave to appeal dated 13 September 2024 and accepted for filing on 16 September 2024 be dismissed.
3. The applicants for leave to appeal pay the respondent's costs of that application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKMAN J: 1 This is an application for an extension of time and leave to appeal from the judgment of the primary judge in Deputy Commissioner of Taxation v Kocic (No 3) [2024] FCA 972. I will refer to the applicants for leave to appeal as the Kocic parties, and to the respondent to that application as the Commissioner. In the interest of efficiency, I will not set out the salient background, pleadings in issue, the arguments of the parties before the primary judge or the reasoning of the primary judge. Rather, I will assume that the reader has read the reasons of the primary judge and I will proceed directly to a consideration of the proposed grounds of appeal for the purposes of assessing whether there is sufficient merit in those grounds to justify the grant of leave to appeal. 2 It is well-established that generally an applicant for leave to appeal must show that the decision to be appealed is attended with sufficient doubt to warrant its reconsideration on appeal, and if that decision is wrong, substantial injustice would result if leave were refused: Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCAFC 844; (1991) 33 FCR 397 at 398-9 (Sheppard, Burchett and Heerey JJ). There is a general reluctance to grant leave on matters of practice and procedure: see Nationwide News Pty Ltd v Rush [2018] FCAFC 70 at [4] (Lee J, with whom Allsop CJ and Rares J agreed). 3 As to the application for an extension of time to file the present application, the evidence shows that the application was sought to be filed one day late on 13 September 2024 by reason of an error on the part of the Kocic parties in calculating the final day for lodgement. There is no prejudice to the Commissioner by reason of the delay. In my view, the time for filing the present application should be extended to 16 September 2024, being the day when it was ultimately accepted for filing. 4 Ground 1 in the draft notice of appeal is that the primary judge erred by misapplying the proper approach to contemporary pleadings in circumstances alleging fraud or allegations analogous to fraud by failing to recognise that a rigorous approach to such pleadings was required. The Kocic parties criticised the primary judge for saying, at [6] and [25], that in contemporary times courts do not take an unduly technical or restrictive approach to pleadings provided they fulfil their function. The Kocic parties emphasised that the statement of claim seeks to allege a case of intent to defraud within the meaning of s 37A of the Conveyancing Act 1919 (NSW). The Kocic parties submit that the true principle is that allegations of fraud must be pleaded distinctly and with particularity, relying on Krakowski v Eurolynx Properties Limited (1995) 183 CLR 563 at 573 (Brennan, Dean, Gaudron and McHugh JJ). 5 It should be observed that the primary judge at [6] and [25] relied on the Full Court's decision in Thompson v STX Pan Ocean Co Pty Ltd [2012] FCAFC 15 at [13] (Greenwood, McKerracher and Reeves JJ), which in turn relied on the High Court's decision in Banque Commerciale SA v Akhil Holdings Limited (1990) 169 CLR 279. The latter case involved an unpleaded allegation of fraud designed to defeat a six-year limitation defence. Mason CJ and Gaudron J held that fraud must be pleaded specifically and with particularity (at 285) while also reiterating that the function of pleadings is to state with sufficient clarity the case that must be met and thus to ensure procedural fairness (at 286). There is no inconsistency between the two principles. A similar insistence on the function of pleadings as ensuring procedural fairness was expressed by Brennan J (at 287-8), Dawson J (at 293 and 296) and Toohey J (at 302-3). 6 The primary judge's approach at [6] and [25] was thus entirely consistent with the High Court's reasoning as to the function of pleadings generally, in relation to which the principle of fraud allegations be pleaded distinctly and with specificity is a particular application. Both the general principle and the particular application raise questions of degree to be resolved in a sensible and practical way. I do not see any merit in ground 1. 7 Ground 2 of the draft notice of appeal is that the primary judge erred in finding that the statement of claim did not deploy conclusory propositions without identifying the primary facts required to enable the appellants to understand the case that they are to meet in respect of the expressions: (a) "beneficial ownership", where it is referred to at paragraphs 60, 135 and 136 of the statement of claim; (b) "caused", where it is referred to at paragraphs 84 and 96, 102, 108, 114, and 120 of the statement of claim; (c) "controlled", where it is referred to at paragraphs 19 and 31 of the statement of claim; and (d) "funded" or "partly funded", where they are referred to at paragraphs 84, 90, 96, 102, 108, 114, 120 and 123 in the statement of claim. 8 The primary judge observed at [14] that many of these terms appeared in the original statement of claim without the current criticism. However, the primary judge also held by reference to the example of "controlled" that the pleading identifies the Commissioner's case and a sufficient basis to infer the relevant control. 9 In my view, no shortcoming has been demonstrated in respect of the use of these terms in the paragraphs specified. They are ordinary English words and the material facts are identified by way of cross-references to other paragraphs and particulars. 10 Ground 3 of the draft notice of appeal is that the primary judge erred in: (a) not finding that the statement of claim pleaded impermissible conclusions without identifying material facts of the first appellant's beneficial ownership necessary to establish the causes of action pursuant to prayers for relief 7, 8 and 8A; (b) finding that the statement of claim contains sufficient material facts of the first appellant's beneficial ownership capable of supporting the causes of action pursuant to prayers for relief 7, 8 and 8A; (c) not finding that the statement of claim pleaded impermissible conclusions without identifying material facts of the first appellant's intention to defraud creditors or prospective creditors necessary to establish the causes of action pursuant to s 37A of the Conveyancing Act 1919 (NSW); and (d) finding that the statement of claim contained sufficient material facts of the first appellant's intention to defraud creditors or prospective creditors capable of supporting the causes of action pursuant to s 37A of the Conveyancing Act 1919 (NSW). 11 The Kocic parties take issue with [15]-[21] of the primary judge's reasoning in relation to the pleading of material facts of beneficial ownership and of an intention to defraud creditors for the purpose of s 37A. As to grounds 3(a) and (c), in my view, the primary judge's reasons at [15]-[20] do not disclose any error, and I respectfully agree with her Honour's reasoning in those paragraphs. 12 Grounds 3(b) and (d) raise a different matter which is concerned with [21] of the primary judge's reasons in which her Honour concluded that the statement of claim pleads reasonable causes of action in relation to the s 37A and beneficial ownership claims. 13 Dealing first with the s 37A case, this concerns the allegations made in paragraphs 81 to 128 in relation to various property transactions and the funding of the purchase of items of real property, and paragraphs 129 to 134 which deal with alleged sales of shares in three companies. Dealing first with the funding of the real property transactions, it is alleged that ZWF Pty Ltd ("ZWF", now known as Arabian Owl Pty Ltd, the ninth respondent in the proceedings) funded various purchases of real property by Koch71 Pty Ltd and Koch Commercial Pty Ltd, and that Mr Kocic caused ZWF to do so. 14 ZWF's funding of those property purchases is then alleged to have been an alienation of property by Mr Kocic which was made with the intent to defraud creditors, and the Commissioner alleges that he is thereby prejudiced in that he is a creditor of Mr Kocic. Paragraph 60 of the statement of claim alleges that Mr Kocic was the beneficial owner of the shares in ZWF from 1 November 2011 to 11 July 2023 by reason of the matters alleged at paragraphs 39 to 57 of the statement of claim, but I do not see how paragraphs 37 to 57 can sustain that allegation of beneficial ownership of the shares in ZWF. 15 A better way of the Commissioner putting his case than the allegation that Mr Kocic was the beneficial owner of the shares in ZWF, which was adopted by senior counsel for the Commissioner at the hearing before me, is that, upon ZWF dissipating its assets by funding the various real property purchases, the commercial value of Mr Kocic's shares in TransGroup were diminished by the diminution in value of TransGroup's shares in ZWF. That kind of allegation may well fall within what Davies J had in mind in Royal v El Ali [2016] FCA 782 at [202], in saying that the express terms of s 37A do not require that the alienated property be the property of the bankrupt and that the concept of "alienation of property" within the meaning of s 37A has the widest possible application. It may also be what the primary judge had in mind in her Honour's earlier judgment in Deputy Commissioner of Taxation v Kocic (No 2) [2024] FCA 372 at [29] in saying that there was a sufficient basis to make out the s 37A claim in the transactions to which ZWF was a party. 16 In any event, paragraph 121 of the statement of claim alleges that Mr Kocic personally partly funded the acquisition of a property by paying $1,000,035, that being an allegation of alienation of property owned by him, as reflected in paragraph 125. I note that that money is also alleged to have come from Mrs Kocic and is thus alleged to have been an alienation of her property at paragraphs 122 and 126. Accordingly, in my view, there is a sufficient basis in the statement of claim to conclude that the funding of the property which is the subject of the allegations in paragraphs 121 and 125 may be the subject of a s 37A claim, and as I have indicated above, the transactions involving ZWF may also fall within a tenable construction of s 37A. 17 As to the alleged sale of shares in three companies, referred to at paragraphs 129 to 134, only one of those transactions is alleged to have been of shares owned legally or beneficially by Mr Kocic, being the sale referred to at paragraphs 131 to 132. The others were of shares held by TransGroup and AusSteel and of shares in ZWF. As I have said above, there is a pleading at paragraph 60 of the statement of claim that the shares in ZWF were beneficially owned by Mr Kocic, but I do not think that there is a tenable basis pleaded for that allegation. However, as I have indicated above, Mr Kocic did have a commercial interest in both TransGroup and ZWF and the transactions involving those companies may conceivably fall within a wide construction of s 37A. Accordingly, I am of the view that a reasonable cause of action has been shown in relation to s 37A. 18 Turning to ground 3(b) concerning the question of beneficial ownership of properties purchased by Koch71 and Koch Commercial referred to at paragraphs 81 to 128, I can see how there might be a basis for that allegation in respect of the one property that Mr Kocic is alleged to have partly funded (as alleged in paragraph 121). The allegation of beneficial ownership is presumably based on a purchase money resulting trust, and I note that it is not necessary for the Commissioner to plead matters of law such as the particular characterisation of the trust on which he relies, the Commissioner's obligation being to plead the material facts. 19 However, I do not see how the allegations of beneficial ownership in relation to the properties other than the one referred to in paragraph 121 could give rise to the allegation of beneficial ownership by Mr Kocic which is made at paragraphs 135 and 136. Accordingly, I think there is merit in ground 3(b) in respect of the purchase of the properties other than the one alleged in paragraph 121. 20 Ground 4 of the draft notice of appeal alleges that the primary judge erred in finding that upon the matters pleaded in the statement of claim, it could be inferred that the first appellant possessed an intention to defraud creditors at the time of each relevant alienation of property. This is an attack on the primary judge's reasoning at [22] in dealing with the Kocic parties' submission that the alienation of property referred to in the s 37A claim is alleged to have occurred between April 2015 and June 2019, before the assessment of Mr Kocic's tax liability on 18 November 2021. 21 The statement of claim at paragraph 63 alleges the assessments and amended assessments were issued on 18 November 2021 for the income years ranging from 2012 to 2020, and those assessments were in substantial amounts. The allegations as to intention to defraud creditors in paragraph 85, 91, 97, 103, 109, 115, 124-6, 129 and 131 of the statement of claim are expressly cross-referenced to the tax liabilities (pleaded at paragraphs 62 to 71) in relation to years which included the years in which the relevant transactions sought to be impugned under s 37A are alleged to have occurred. 22 In my view, that is a sufficient pleading of the matters from which the Commissioner will seek to draw an inference as to an intention to defraud creditors at the time of each relevant alienation of property. Further, I note that the primary judge at [22] recorded that, unlike his other submissions, Mr Kocic does not suggest that he does not understand this aspect of the case which is advanced. Accordingly, I do not think that there is merit in ground 4. 23 Ground 5 of the draft notice of appeal is that the primary judge erred in finding that the apparent relevance of alleged breaches of freezing orders by Mr Kocic pleaded at paragraphs 79 and 80 of the statement of claim related to proof of Mr Kocic's intention to defraud creditors. This is an attack on the primary judge's reasons at [23], in which the primary judge said that the apparent relevance of the alleged breach of freezing orders related to proof of Mr Kocic's intention. The alleged breaches of the freezing orders are said to have occurred on 1 October 2022 and 11 July 2023, whereas the allegedly fraudulent alienations of property occurred between April 2015 and June 2019. 24 It is well-established that proof of intention to defraud creditors can be by inference rather than direct evidence: Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546 at [25] (French CJ, Gummow, Crennan and Bell JJ). It is thus conceivable that an intention to defeat court orders which were made to protect judgment creditors several years later than the relevant alienation of property may have a bearing, albeit perhaps a limited one, on whether an earlier intention to defraud creditors can be inferred. I do not think there is merit in ground 5. 25 Accordingly, in my view, there are insufficient prospects of success to warrant the grant of leave to appeal, except in relation to ground 3(b), and even then, not to the extent that that ground refers to the transaction alleged in paragraph 121 of the statement of claim. 26 I turn then to the question of whether substantial injustice would result from a refusal to grant leave. 27 The fact that there is a reasonable cause of action disclosed in relation to the claims under s 37A and in relation to at least one aspect of the beneficial ownership claims means that the matter will proceed to trial. The most that the Kocic parties could realistically expect to achieve on an appeal if leave to appeal were to be granted would be to excise certain aspects from the leave granted to file the statement of claim, in particular, some of the transactions referred to in paragraphs 135 and 136 concerning beneficial ownership. If the Full Court on appeal were persuaded that the Commissioner should not have leave to plead paragraphs 135 and 136 in the full width of the present statement of claim, then those transactions will in any event be the subject of the allegations which the Commissioner makes in relation to s 37A. Accordingly, there would not appear to be any significant saving in time or expense if paragraphs 135 and 136 were to be limited to the one transaction which is referred to in paragraph 121 of the statement of claim. 28 In my view, the statement of claim is expressed with sufficient clarity for the Kocic parties to know the case which is sought to be made against them. In any event, that case will be fleshed out by other pre-trial steps such as the service of written evidence and documents for tender, and one might anticipate, an exchange of opening written submissions. Further, the Kocic parties will be entitled to insist that the Commissioner be held to the pleaded case. Accordingly, I do not see that substantial injustice would be occasioned if leave to appeal were refused. The application for leave to appeal should be dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.