Nugawela v Commissioner of Taxation

GROUNDS OF THE APPLICATION 9 The grounds of the application relied upon by Dr Nugawela were confusing and appeared to proceed on a misunderstanding of the current status of the proceeding before the primary judge. As made clear in oral exchanges in the Full Court hearing, that proceeding remains live on the adjournment ground. Dr Nugawela indicated that he proposed to amend his grounds before the primary judge. It was made clear to him that that was a matter for the primary judge. It was also emphasised that the question before this Court was whether the primary judge had arguably erred in ruling that Dr Nugawela lacked standing to pursue his grounds of appeal other than the adjournment ground. 10 The grounds advanced in this Court by Dr Nugawela for completeness are substantially as follows: 1. The learned judge lacked jurisdiction to determine the substantive rights of appellant's AAT Appeal under s.44 of the Administrative Appeals Tribunal Act 1975. ("AAT Act"). 2. The learned judge lacked jurisdiction and erred in law in hearing and determining the respondent's ultra vires Notice of Objection to Competency under the FCR Administrative Decisions (Judicial Review) ("ADJR") Act 1977 when the appeal was based on the appellant's statutory right of appeal under the AAT Act. 3. The learned judge erred in reaching a Case Management decision to strikeout 37 paragraphs of the Appellant's AAT Notice of Appeal based on the decision and in sole reliance on a faulty edifice of a wrongful and ultra vires ADJR Notice of Objection to Competency[.] 4. The learned judge erred in law in finding that the appellant had no standing in the Federal Court to argue his AAT Appeal on several questions of law under s 44(1) of the AAT Act and findings of fact under s 44(7) of the AAT Act. 5. The learned judge denied the appellant opportunity and procedural fairness to establish, as a question of law under s 44(2) of the AAT Act, that locus standi or arguably concurrent standing should have been given to the Applicant at the AAT hearing, the subject of the AAT Appeal. 6. The learned judge failed to grant reasons for not hearing the appellant's Interlocutory application on 25 September 2018 seeking an extension of time for submitting and a vacation of hearing date and delivery of judgement. 11 It will be seen that the grounds travel beyond what must be the foundation issue before the Court, namely, Dr Nugawela's standing before the primary judge.

PROCEDURAL PROVISIONS 12 Rule 35.13 of the Federal Court Rules 2011 (Cth) (the FCR) requires an application for leave to be filed within 14 days after the judgment or order was made. The FCR permits an application to extend the time. The prospects of success of an application are relevant to any extension of time. 13 The Commissioner does not object to the short delay in Dr Nugawela filing his application. The question is what prospect the application would enjoy. 14 It is necessary to examine both the prospects of success and the risks of injustice if Nugawela (No 1) revealed error. The principles are well established: Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 (at 398-399) and Hogan v Australian Crime Commission (2009) 177 FCR 205 (at [64]). Relevantly, the test is whether in all the circumstances the decision under consideration is attended with sufficient doubt to warrant it being reconsidered by the Full Court and whether substantial injustice would result if leave were refused, assuming the decision below was made in error. 15 The Commissioner contends that leave should be refused as there insufficient doubt to warrant the decision being reconsidered by the Full Court. Further, the Commissioner contends there could be no substantial injustice if leave were refused as the merit of the Tribunal applications will be determined if they are restored by success on the remainder of the first instance appeal. Even if Dr Nugawela were not successful with the remainder of the first instance appeal before the primary judge, the merit of the Tribunal applications will be determined if they are restored by success in the separate challenge to review the decision of the trustee to abandon the Tribunal applications. That case was stayed indefinitely on 29 May 2018 pending compliance by Dr Nugawela with programming orders made on 12 April 2018 and an order made on 2 May 2018. 16 It should be assumed, for the purpose of determining this application only, that there would be substantial injustice if the decision under consideration were made in error. Dr Nugawela would potentially have been deprived of a right to challenge assessments in the Tribunal if the decision were wrong both in the Tribunal and by the primary judge. 17 However, Dr Nugawela has to succeed on both limbs of Decor.

Jurisdiction 18 Grounds 1 and 2 purport to challenge the Court's jurisdiction. Ground 1 claims that the primary judge lacked jurisdiction to determine the substantive rights of Dr Nugawela's Tribunal applications under s 44 of the AAT Act. This contention cannot be accepted. The primary judge did not exercise the Tribunal's jurisdiction to determine Dr Nugawela's substantive rights. Rather, his Honour considered only Dr Nugawela's competence to commence and pursue the appeal to the Federal Court, albeit that his Honour held that Dr Nugawela lacked competence for that purpose on essentially the same reasoning applied by the Tribunal in determining that Dr Nugawela lacked competence to pursue the Tribunal applications. 19 Ground 2 adds nothing to ground 1. There has been no final determination of the Tribunal applications by the Court. These grounds lack merit. They would not succeed if leave were granted.

Competency 20 Grounds 3 and 4 raise the core issue. The primary judge held in Nugawela (No 1) (at [27]) that the Tribunal was correct to find that by reason of his bankruptcy Dr Nugawela lacked standing to proceed with his Tribunal applications and that the same authorities demonstrated that he had no standing to commence an appeal when the Tribunal applications were dismissed. 21 This conclusion by the primary judge was preceded by the following relevant analysis (at [17]-[22] and [26]): Basis for application for summary dismissal 17 The basis for the Commissioner's application for summary dismissal is a claim that by reason of his bankruptcy, Dr Nugawela lacked standing to proceed with the applications before the Tribunal and continues to lack standing to start and prosecute an appeal against the dismissal of those applications. Reliance is not placed upon the consequences of any deemed abandonment by operation of s 60(3) of the Bankruptcy Act. 18 Therefore, given the way the Commissioner presents the case on the application it is not necessary to consider the relevance of the statutory abandonment as a basis for the dismissal of the proceedings by the Tribunal. The Commissioner's application for summary dismissal rests upon the claim that Dr Nugawela lacks standing as a bankrupt to bring the appeal given its subject matter. In effect, it advances the same argument that it relied upon before the Tribunal being an argument that was accepted by the Tribunal as a separate basis upon which the applications before the Tribunal should be dismissed. 19 In reaching its conclusions as to standing, the Tribunal relied upon the decision in Robertson Jnr v Deputy Commissioner of Taxation [2004] FCAFC 46; (2004) 137 FCR 513 which applied the decisions in Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 and McCallum v Federal Commissioner of Taxation (1997) 75 FCR 458. The same decisions are relied upon by the Commissioner on the present application. 20 In Cummings, proceedings were brought against Mr Cummings and Mr Fuller by Claremont Petroleum NL. After judgment was reserved, Mr Cummings and Mr Fuller became bankrupts. Sometime later, judgment was pronounced in favour of Claremont Petroleum. Mr Cummings and Mr Fuller filed notices of appeal. The appeals were dismissed as incompetent. The High Court held that the bankrupts had no standing to institute the appeals. 21 Brennan CJ, Gaudron J and McHugh J observed that if the appeals had been commenced prior to their bankruptcy then they would have been stayed by operation of s 60(2) of the Bankruptcy Act: at 130. They noted that the effect of bankruptcy is to divest a bankrupt of his property and to vest the property in a trustee to be made available for the payment of provable debts: at 132. Further, the right of creditors to take a fresh step in legal proceedings against a bankrupt or enforce against the property of a bankrupt in respect of a provable debt is, in general, denied to creditors: at 132. They accepted that a right to appeal does not have the character of property: at 133 136. However, 'so far as a judgment entered in an action against a bankrupt creates or evidences a provable debt … the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment': at 137-138. This was because 'the bankrupt is divested of both his interest in his property and liability for his provable debts': at 138. This led to the conclusion that the bankrupt could not appeal and it was a matter for the trustee whether to appeal: at 138. 22 Their honours then dealt with the possible injustice that may arise where a bankrupt wished to pursue the appeal in order to vindicate the personal or professional character of the bankrupt (the judgment that had been entered against Mr Cummings and Mr Fuller was based upon findings of conspiracy and deceit). Reference was made to the ability of a bankrupt who objected to a decision made by a trustee to decline to sue or appeal to apply to the court in the exercise of its supervisory jurisdiction concerning administration in bankruptcy now expressed in s 178 of the Bankruptcy Act. However, that step had not been taken. … 26 In Robertson Jnr, the party seeking to bring the appeal applied to the Tribunal to review the objection decisions of the Commissioner, but became bankrupt before the review application was heard. The Commissioner then raised an objection and the Tribunal found that standing to proceed was lost upon bankruptcy: at [3]. The court upheld that decision applying Cummings and McCallum: at [22]. 22 This topic was addressed by Dr Nugawela in written submissions where in substance he contended: (1) The Commissioner's notice of objection to competency was "seriously out of time". (2) In referring to McCallum v Federal Commissioner of Taxation (1997) 75 FCR 458, the primary judge noted that (at [24]): [A]n objection decision in relation to a particular assessment may have consequences in relation to the years following discharge when there would be personal liability, the position did not pertain in all instances… (3) Future personal tax debt following discharge from bankruptcy was raised by Lehane J in McCallum as a basis for granting a bankrupt standing in Tribunal taxation objection reviews. The Tribunal applications did impact on future tax debt as personal liabilities post-bankruptcy. This was not noted in the Tribunal's decision though notified of it. (4) The authority of McCallum as to standing was challenged by Dr Nugawela at the Tribunal, but not heard by the Tribunal, on the basis that there was no standing to hear the argument. This circular reference, separately accepted by the Court without the opportunity of being heard by Dr Nugawela, is appealed. (5) The trustee and Dr Nugawela were recognised parties at the Tribunal hearing. In granting Dr Nugawela concurrent standing, the Tribunal exercised its discretion under the AAT Act. (6) The failure of the Tribunal to address concurrent standing, which is legally permissible within the Tribunal's jurisdiction, was not addressed by the primary judge. (7) The Commissioner's discretion to "write his own invoice" without having to prove it and then invoke legal options to collect it is precisely what was referred to in McCallum by Hill J. 23 The Court understands the two submissions from Dr Nugawela (recorded in [22(6)] and [22(7)] above) to contend that the primary judge should have held that both the trustee and the appellant could have concurrent standing to address the Tribunal, a contention addressed below (at [26]). 24 The decisions of Cummings v Claremont Petroleum NL (1996) 185 CLR 124, McCallum and Robertson v Deputy Commissioner of Taxation [2003] FCA 944 (upheld on appeal in Robertson v Commission of Taxation (2004) 137 FCR 513) remain good authority. As noted by the Full Court (Spender, Branson and Stone JJ) in Robertson (at [21]-[22]): 21 The above statement of Lehane J followed from his Honour's conclusion that the principle laid down in Cummings v Claremont Petroleum NL was applicable to the determination of whether a bankrupt has standing to apply to the Tribunal for review of an objection decision under s 14ZZ of the TA Act. In Cummings v Claremont Petroleum NL at 137-138 the majority of the High Court (Brennan CJ, Gaudron and McHugh JJ), after citing a passage from an unreported decision of Hoffmann LJ, said: So far as a judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectively agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts. Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against the judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid. (Footnotes omitted [in original].) 22 McCallum v Commissioner of Taxation is, unless successfully challenged, authority for the proposition that the principle laid down in Cummings v Claremont Petroleum NL is applicable to the determination of whether a bankrupt has standing to apply to the Tribunal for review of an objection decision. As is mentioned above, the appellant did not challenge the authority of McCallum v Commissioner of Taxation. Nor did he contend that the fact that he had made his application to the Tribunal before he became bankrupt rendered McCallum v Commissioner of Taxation distinguishable. It follows inexorably, in our view, that the contention that he was entitled to maintain his application to the Tribunal under s 14ZZ because, absent any liability to the Commissioner, his estate would have been more than adequate to pay his remaining creditors must fail. 25 In the course of oral exchanges, Dr Nugawela appeared to accept two important propositions. First, the challenges in the Tribunal were in respect of the income years 2005-2010 and very much past debt. Secondly, he accepted, as he must on authority, that in respect of pursuit of challenges to those objections, he lacked standing. 26 Dr Nugawela alluded, however, to the possibility that those claims could possibly affect future tax liability. This was not the position as understood by the primary judge, it was not the position understood by the Commissioner on the appeal and there was absolutely no evidence or explanation as to how tax liability in 2005-2010 could affect Dr Nugawela's future tax position at a point in time when he may be discharged from bankruptcy. It may be accepted that Dr Nugawela also made reference to the mere possibility of such an effect before the primary judge and the Tribunal. But mere reference to a non-specific general possibility did not require further analysis. The remarks by Lehane J in McCallum (at 475) as to the possibility of concurrent standing were entirely obiter, as his Honour made very clear. Further, his Honour's comments were expressly confined to the possibility of concurrent standing in respect of the post-discharge or future years. There is no evidence or any attempt at a plausible explanation in this instance as to the manner in which such liability may be affected. That is sufficient to dispose of any question of any possible exception to the well-established principle of standing discussed above and we make no general comment as to standing in the context of potential future liability as it does not arise in this case. 27 Ground 3 and ground 4 would also fail and leave to advance them will not be granted.

Refusing an adjournment application 28 Ground 5 complains that Dr Nugawela was denied procedural fairness to establish before the primary judge his standing before the Tribunal or that "arguably concurrent standing should have been given to him at the [Tribunal] hearing". 29 Dr Nugawela had ample opportunity to make his case in relation to standing. As the primary judge noted in Nugawela (No 1) (at [13]-[16]): 13 At a case management hearing on 30 May 2018, I made orders listing the application for hearing on 4 September 2018 and directed Dr Nugawela to file and serve any affidavit or submissions upon which he proposed to rely at the hearing by 17 August 2018. I also gave liberty to Dr Nugawela to apply to vacate the hearing for cause at any time prior to 9 July 2018. I further directed that the hearing of the matter may proceed in the absence of Dr Nugawela if there is no appearance by him on 4 September 2018. 14 Orders were made in those terms because in May 2018 the Court had received a number of communications on behalf of Dr Nugawela concerning his medical treatment and his inability to attend court. He was not in attendance when the orders were made, but subsequently a copy of the orders was served upon him by the Commissioner. 15 In July and September 2018 further correspondence was received by the Court on behalf of Dr Nugawela requesting that the hearing listed on 4 September 2018 be vacated on the basis that he was undergoing medical treatment. He was informed that in the absence of a formal application supported by an affidavit the hearing would proceed. 16 On 4 September 2018, there was no appearance by Dr Nugawela. The Commissioner sought to proceed with the application and have it dealt with substantively. I heard oral submissions in support of the application. 30 Additionally, after publication of Nugawela (No 1) on 26 September 2018, some six months passed in which Dr Nugawela, who had the carriage of the appeal, could have applied to relist the matter to make further submissions in relation to the question of standing. As noted, it was not until 10 April 2019 that the proceeding before the primary judge was relisted for a case management hearing. Ample opportunity was afforded to him to attempt to make his case, difficult though it would have been. 31 The comments of the primary judge set out above also apply to any suggestion in ground 6 that the Court failed to give reasons for refusing to grant an adjournment prior to delivery of judgment in Nugawela (No 1). The same reasoning applies. There was a six month hiatus between the first and second hearings, in which Dr Nugawela took no steps to further advance further argument. 32 In Nugawela (No 2), it was noted that Dr Nugawela requested another adjournment at the time of that hearing for different reasons to those advanced on the first occasion. The primary judge refused the adjournment application, noting (at [4]-[5]): 4 Dr Nugawela brings to the attention of the Court the fact that he has an application for special leave to appeal on foot before the High Court. The High Court has indicated that it will shortly consider that application. The application for special leave to appeal seeks to challenge, in effect, the decisions that resulted in the sequestration orders as to his estate. Dr Nugawela asks for the case management hearing in this matter to be adjourned pending the outcome of that application for special leave. However, it seems to me that the short issue before the Court today about what grounds might be pursued in this appeal will not have consequences that require an adjournment until the outcome of that application is known. 5 The Commissioner seeks orders that these proceedings be stayed, pending the outcome of the application by Dr Nugawela seeking to review decisions by the trustee. Those proceedings are themselves stayed by orders that I made in May 2018 until compliance by Dr Nugawela with certain orders. In those circumstances, it seems to me that the short point that remains in this appeal ought be dealt with and is not itself dependent upon the circularity that might arise if there was a stay of these proceedings, in effect, while there is a stay of the application for review of the decision by the trustee. In particular, it might be important for Dr Nugawela to know whether he is able, in effect, through this appeal, to have matters before the Tribunal reinstated pending the outcome of the application to review the decision by the trustee. (Emphasis added.) 33 It is not shown that there was any error in the exercise of this discretion. The reasoning was entirely appropriate. 34 Emphasis is added to the reasons of the primary judge (above at [5]) to highlight the "circularity" to which the primary judge was referring. In oral argument, Dr Nugawela spoke of this reference. He did so in the context however of the standing issue in that he complained of "not having standing to argue standing". This was not the topic of circularity to which the remarks of the primary judge were directed. A ruling as to an objection to competency will only be made, as it was here before the primary judge and before this Court, when the affected parties have been afforded the opportunity to be heard on the competency issue. 35 Grounds 5 and 6 would not succeed.

CONCLUSION 36 As none of the grounds of appeal could succeed, the application for an extension of time and for leave to appeal will be refused with costs. In any event, the appeal lacks competency. For an abundance of caution we reiterate that it is open to Dr Nugawela to pursue the remaining adjournment ground (and any permitted amended ground) in the proceeding before the primary judge. 37 Costs should follow the event. This appeal was pursued by Dr Nugawela in his personal capacity, albeit that he lacked standing. It is not a proceeding pursued by the trustee. The costs order should be directed to Dr Nugawela in person. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices McKerracher, Banks-Smith and Jackson.