O'Neill v Deputy Commissioner of Taxation

1. The Second Applicant's interlocutory application be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PERRAM J: 1 By an interlocutory application filed on 6 April 2020 the Second Applicant seeks an order transferring this proceeding to the Family Court of Australia's Parramatta Registry pursuant to the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) ('the Act'). The relevant provision is s 5(5) which provides that where a proceeding is pending in this Court and it appears to this Court that the proceeding 'arises out of, or is related to, another proceeding' pending in the Family Court then this Court is to transfer the proceeding to the Family Court: s 5(5)(b)(i). The Court is also to transfer the proceeding if it concludes that it is 'otherwise in the interests of justice' that the proceeding be determined in the Family Court. When such a transfer occurs the effect of s 4(3) is then to invest the Family Court with jurisdiction to entertain the transferred proceeding. 2 In this Court the First Applicant, Ms Laura O'Neill, and the Second Applicant, Mr Patrick Willmott, seek to set aside separate decisions by the Deputy Commissioner of Taxation ('the Deputy Commissioner') to disallow claims made by each them for withholding credits in the financial year ending on 30 June 2016. They also seek orders compelling him to issue amended notices of assessment reflecting the inclusion of the claimed withholding credits. 3 Ms O'Neill and Mr Willmott both filed income tax returns for the financial year ending 30 June 2016 which returned certain amounts of income paid to each of them as an employee. As is done in the case of many employees, they also claimed a credit for the amounts of income tax which their employer had deducted from their salary on a pay as you go basis ('PAYG'). Both the amounts of income returned and the size of the corresponding PAYG credits were substantial. 4 The Deputy Commissioner disallowed both Applicants' claims for the PAYG credits on the basis that he was unable to confirm that the employer had remitted the PAYG deductions to the Deputy Commissioner. The employer was Aventis Partners Pty Ltd. The effect of disallowing the PAYG credits is that both Applicants have been left with substantial tax debts to the Deputy Commissioner. 5 A refusal by the Deputy Commissioner to allow claimed withholding tax credits is not a determination of an amount of income tax and hence is not subject to review under Pt IVC of the Taxation Administration Act 1953 (Cth). The only method of challenging such a decision is by means of a judicial review proceeding in this Court. In this case the Applicants have brought such a proceeding under s 39B of the Judiciary Act 1903 (Cth). 6 In this Court the Applicants' primary endeavour will be to demonstrate that Aventis did make the PAYG payments it should have made. The Deputy Commissioner submits that the Applicants will also need to prove that they were employed by Aventis. Mr Willmott has already filed affidavit evidence to that effect. Ms O'Neill has described an arrangement in which, on one tentative view, she appears not to have been employed by Aventis but to have received a portion of Mr Willmott's income by way of an income sharing arrangement. 7 If the Applicants' proceeding in this Court is successful it will, perhaps not precisely, balance out the amount of income tax to which each has been assessed. If it is unsuccessful they will continue to owe the debts currently disclosed in the amended notices of assessment which are $751,667 and $850,195 for the First and Second Applicants respectively, plus applicable interest. 8 The Applicants are also husband and wife. On 3 April 2020 Mr Willmott filed a proceeding in the Family Court of Australia at its Parramatta Registry. The first return date for the proceeding in the Family Court is 25 May 2020. The application names Ms O'Neill as a respondent together with Gavin Parsons and Associates Pty Ltd, a law firm, and Geoffrey McDonald, a barrister. Both the law firm and the barrister entered into costs agreements with Ms O'Neill and her husband under which she granted an equitable charge over premises owned solely by her at 23 Grand Parade Bonnells Bay ('the Bonnells Bay property') in New South Wales as security for the payment of legal fees. Caveats over those premises have since been lodged by both the law firm and the barrister. Mr Willmott contends in the Family Court that the equitable charges should be set aside because the law firm and the barrister breached their fiduciary duties by preferring their personal interests to those of their clients. This they did, so it is to be alleged, by seeking security for the payment of their fees which was, on this view, to prefer their interests to those of their clients. 9 Mr Wilmott also seeks an order for the sale of the Bonnells Bay property along with another property at Caringbah South ('the Caringbah South property') and an order for the net proceeds of the two sales to be split between Mr Willmott and Ms O'Neill on the basis that each will receive 50%. 10 Mr Willmott submits that this Court should transfer the judicial review action to the Family Court so that the two cases may be heard together. This is said to be advantageous for two reasons. First, as a matter of constitutional jurisprudence the taxation proceeding and the family law proceeding are part of a single justiciable controversy. Secondly, the rights of the Deputy Commissioner are potentially affected by the family law proceeding and he is therefore required to be a party to it. A convenient way of achieving that is to transfer the judicial review action to the Family Court. 11 I reject both of these submissions. Although the concept of a matter is not exhaustively defined by the pleadings, they nevertheless remain an essential point of departure for any analysis. The Applicants' proceeding in this Court is a judicial review proceeding under s 39B of the Judiciary Act 1903 and involves questions about the application of the Income Tax Assessment Act 1936 (Cth). They seek an order setting aside the amended notices of assessment which have been issued to them by the Deputy Commissioner and orders compelling the Deputy Commissioner to issue fresh assessments. Mr Willmott's claim in the Family Court involves two issues. The first is whether the law firm and the barrister breached the no-conflict rule by including in their respective costs agreement an equitable charge to secure their fees in the event that those fees went unpaid. The second is whether the Bonnells Bay property and the Caringbah South property should be sold and the net proceeds divided between Mr Wilmott and Ms O'Neill. 12 On its face, these two cases have nothing to do with each other. The fact that the Applicants have a tax liability to the Deputy Commissioner at the moment which they are attempting to dispel in this Court has no apparent impact on whether the law firm and the barrister breached their fiduciary duties and no impact on whether the two properties should be sold and the net proceeds divided between the Applicants. 13 Mr Willmott unsuccessfully sought to outflank this problem by connecting the debt currently owed to the Deputy Commissioner to the Bonnells Bay property. On 9 November 2018 Ms O'Neill entered into a contract to sell the Bonnells Bay property (which is in her sole name) for $1,005,000.00. The contract nominated a settlement period of four weeks and was therefore due to be completed by early December 2018. The solicitor acting for Ms O'Neill on the sale was a Mr Pegler. On 3 December 2018 the Deputy Commissioner served a notice on Mr Pegler under s 260-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) requiring him to pay to the Deputy Commissioner the sum of $1,352,512.54 out of any monies that he might hold on behalf of Ms O'Neill. 14 The practical effect of the notice would have been, had the sale proceeded, to require Mr Pegler to pay the whole of the sale proceeds from the Bonnells Bay property to the Deputy Commissioner rather than to Ms O'Neill. 15 On 13 December 2018 the barrister lodged a caveat over the property claiming an interest in the property by reason of the equitable charge arising from his costs agreements. On 15 January 2019 the law firm lodged a similar caveat. Beset on all sides by snarling creditors it was unlikely that Ms O'Neill would see any of the sale proceeds. On 30 January 2019 she pragmatically entered into a deed of rescission with the purchaser under which the contract for sale was rescinded and the deposit returned to the purchasers. There is not presently any other proposal of which the Court was informed to sell the Bonnells Bay property. Nevertheless, the Deputy Commissioner who issued the garnishee notices has not withdrawn them. 16 Mr Willmott submits that the Deputy Commissioner has an interest in the Bonnells Bay property and is a party therefore affected by the family law proceedings. I do not accept this submission. Although the effect of the notice is to impose upon Mr Pegler a statutory obligation to pay any money he receives on behalf of Ms O'Neill to the Deputy Commissioner this does not have the effect of turning the Deputy Commissioner into a secured creditor. For that reason he has no proprietary interest in the 'debt' which Mr Pegler may, in future, owe to Ms O'Neill: Bruton Holdings Pty Ltd v Commissioner of Taxation [2009] HCA 32; 239 CLR 346 at [14]. 17 Still less, in that circumstance, can the Deputy Commissioner have any proprietary interest in the property of which the proceeds of sale constitute the subject matter of the notice. Reflection on the Deputy Commissioner's entitlements in relation to that property confirms this conclusion. He has neither the right to sell nor to restrain the sale of the property. He cannot prevent the transfer of the property to a third party. And, although the Deputy Commissioner is entitled to take any money for which Mr Pegler must account to Ms O'Neill, the Deputy Commissioner's entitlement to do so springs from the relationship Mr Pegler has with Ms O'Neill and not from its characteristic as the source of the proceeds of sale of the property. Put another way, by the time the net proceeds come into Mr Pegler's hands they have been cleansed of the claims of any other person and the money is purely Ms O'Neill's. It is because the money is purely hers that the Deputy Commissioner is entitled to levy against it in Mr Pegler's hands. But none of this legal analysis relates in any way to the Bonnells Bay property in respect of which the Deputy Commissioner has no rights. 18 Consequently, reliance by Mr Willmott on cases such as Valceski v Valceski [2007] NSWSC 440; 70 NSWLR 36 ('Valceski') are beside the point. In that case, for example, the Supreme Court was seized of a debate about the proprietary interests in the same property that was the subject of the matrimonial proceeding. By contrast, this case does not involve any claim on matrimonial property. Once the attempt to rope the Bonnells Bay property into this case is rejected, cases such as Valceski are not to the point. 19 The issue presently before the Family Court is, inter alia, whether it should order the Bonnells Bay property to be sold and whether the net proceeds should be split between Mr Willmott and Ms O'Neill. No relief is presently sought in the Family Court which affects the Deputy Commissioner. If Mr Willmott was granted all of the relief he seeks in the Family Court the result would be as follows: the law firm's and the barrister's equitable charges would be set aside, their caveats would be removed, the order for sale would be made, the sale would occur, the purchase price less disbursements would arrive in Mr Pegler's trust account and Mr Pegler would then immediately pay the whole of those proceeds to the Deputy Commissioner (since that will certainly be less than $1,352,512.54). This will leave Ms O'Neill and Mr Willmott with nothing to divide between them. It follows, ineluctably, that the Deputy Commissioner is not affected by any relief which is presently being sought in the Family Court. 20 Since the Deputy Commissioner is not in any way affected by anything which is being sought in the Family Court it follows that Mr Willmott's submission that the Deputy Commissioner is a proper party in the Family Court proceeding fails because its premise is not made good. 21 Of course, it may be in due course that Ms O'Neill will seek orders under Pt VIII of the Family Law Act 1975 (Cth) ('the Family Law Act') which may impact on the Deputy Commissioner's entitlement to pursue all of the tax debt against Ms O'Neill's interest in the property of the marriage. But that has not occurred and until such time as it does occur any transfer of this tax case to the Family Court is pointless. 22 Even if Mr Willmott or Ms O'Neill had sought to obtain orders under s 79 of the Family Law Act which impacted on the Deputy Commissioner I would still not have transferred this case to the Family Court. On such a scenario, before embarking on the exercise of determining how the Deputy Commissioner's debt was to be apportioned as between them it would still be necessary to determine what the Deputy Commissioner's debt was. That debt is currently fixed by the amended notices of assessment but nevertheless is in some sense subject to the outcome of this proceeding. The outcome of this proceeding is a question of administrative law and tax law. This proceeding is not affected by what happens in the Family Court proceeding and that would remain the case even if it were being heard by the Family Court. In contrast to the Family Court, this Court is a specialist in both topics. Whilst the outcome of the Family Court proceeding may potentially be, if one of the parties should seek it, to adjust the Deputy Commissioner's rights, any such adjustment would necessarily be analytically subsequent to the determination of what that liability is. Nothing in the Family Court proceeding can affect the actual outcome of the tax case. 23 Finally, I would reject the suggestion that there are issues of credit which arise in both cases such that there would be a risk of inconsistent findings if the two cases proceed in different courts. Leaving aside the charges of the law firm and the barrister in which the interests of Ms O'Neill and Mr Willmott are identical, the remaining issues concern whether the properties should be sold and whether the proceeds should be split half and half. There is no suggestion yet as to whether that is controversial or not or, if it be controversial, what the nature of the controversy is. On the other hand, in this case it is clear that Ms O'Neill has decided to play no part in it, for there is no lawyer on the record for her and she is not proposing to appear herself (nor has she sought an adjournment). Mr Willmott will give evidence and be cross-examined. Mr Willmott's counsel told me that he proposed to call Ms O'Neill and there is a debate soon to be had as to whether this can be done in the current situation. He also flagged that he proposed to apply to cross-examine Ms O'Neill on the basis that she would be an unfavourable witness. All of those issues, in due course, will need to be dealt with but as matters presently stand, I can discern no risk of inconsistent findings in the two cases. 24 It was for these reasons that I refused the application. In terms of s 5(5)(b)(i) this proceeding does not arise out of a proceeding in the Family Court and does not relate to a proceeding in that Court. Even if it did, Mr Willmott has not shown it would be more appropriate for the question in this proceeding to be determined by the Family Court. Nor, in terms of s 5(5)(b)(ii) is it in the interests of justice that the proceeding be transferred. I indicated at the time that I would not be disposed to grant leave to appeal. I also drew to counsel's attention s 13 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 which provides that an appeal does not lie from a decision of a court in relation to the transfer of a proceeding under the Act. 25 Section 121(1) of the Family Law Act prevents the reporting of any proceeding under that Act which would identify the parties to it. Since the present proceeding is not under that Act the publication of these reasons is not engaged by s 121(1). The publication by a court of its reasons for judgment where those reasons contain references to identified parties to litigation under the Family Law Act was assumed by the Full Court in Davis v Insolvency and Trustee Service Australia (No.2) [2011] FCAFC 9 ('Davis') at [28]-[29] to not be prohibited by s 121(1). I see therefore no impediment to this Court delivering its reasons in this form. I will hear the parties, however, on whether the reasons should be published on the Court's website and made available to AustLII: cf. Davis at [36] ff. For now I will direct that these reasons not be disseminated beyond the parties and that they not be posted on the Court's website or any other website. The parties may make any submissions they wish on this issue within seven days hereof. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.