Professional Administration Service Centres Pty Limited v Commissioner of Taxation

INtroduction 1 This is an appeal, pursuant to leave granted on 7 June 2012, from the judgment and orders of a judge of this Court made on 2 March 2012, but stayed up to and including 9 March 2012, dismissing the proceeding (order 1) and requiring the appellant to pay the respondent's costs of the proceeding (order 2). 2 By order made on 9 March 2012 the primary judge ordered that the appellant's application to rescind orders 1 and 2 made on 2 March 2012 be dismissed. 3 On 15 June 2012 a notice of appeal was filed pursuant to the grant of leave and on 10 July 2012 an amended notice of appeal was filed pursuant to r 36.10 of the Federal Court Rules 2011 ("Federal Court Rules").

Background 4 During the quarterly periods between 1 July 2004 and 30 December 2006 ("the relevant periods"), numerous solicitors and barristers represented Mr Nikytas Nicholas Petroulias in defending criminal charges. Many of the tax invoices for performing that work appear to have been rendered to and paid for by the appellant. The appellant claimed that it was entitled to input tax credits for those payments on the basis that the various legal services, together with some other expenditure, were taxable supplies to the appellant and that they were acquired by the appellant in furtherance of an enterprise of "litigation funding". Accordingly, it claimed a refund of the GST paid in respect of the various services (and certain other matters) during the relevant periods. 5 The respondent disputed that the appellant was entitled to any such refund. He gave effect to that view by issuing assessments to the appellant in respect of its net amount of GST liability for the relevant periods. The appellant objected against the assessments in the manner prescribed in Part IVC of the Taxation Administration Act 1953 (Cth) ("the TAA") and the respondent made a decision disallowing the objection. The proceeding was an application by the appellant under Part IVC of the TAA by way of appeal against the objection decision. 6 The parties filed and served appeal statements. Relevantly, the respondent contended that the appellant was not carrying on an enterprise as a litigation funder and that it had not made creditable acquisitions within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"). The respondent disputed that the costs allegedly incurred by the appellant during the relevant periods were in fact incurred by it; that such costs were incurred in pursuance of the claimed enterprise; and that the various services were supplied to the appellants. 7 The parties filed and served affidavit evidence to be relied on at trial. Two things appeared from the affidavit evidence filed by the appellant in reply in mid 2011. The first was that the evidence exhibited (for the first time) a number of tax invoices purportedly rendered to the appellant during the relevant periods, but which appeared to have been altered in some way. For example, some appeared to have been issued first to someone else and, on some of them, details of the subject of the supply were obscured. The second was that the evidence exhibited (again, for the first time) a number of tax invoices rendered by solicitors and barristers and in respect of which input tax credits were claimed. 8 The respondent identified 34 invoices in the appellant's reply evidence which appeared to have been altered in some way. On 12 October 2011 the respondent issued a notice to produce pursuant to r 20.35 of the Federal Court Rules seeking production of the originals of those 34 documents, or any other version of those documents. 9 In response, the appellant sought an order pursuant to r 20.35 that the respondent produce, relevantly, copies of all of the documents which he had obtained when his officers took access to certain premises in 2008. The respondent applied for an order that this notice to produce be set aside. 10 Both notices to produce were returnable on 2 November 2011, but the appellant did not comply with the respondent's notice. No explanation was offered. As such, District Registrar Wall: (a) Set aside the appellant's notice to produce; (b) ordered the appellant to file an affidavit explaining the delay in complying with the respondent's notice to produce; (c) stood the respondent's notice to produce over for further return at 2:15 pm on 9 November 2011; and (d) gave leave to the respondent to file and serve an application for discovery. 11 On 2 November 2011 the respondent filed an application for discovery in relation to certain tax invoices from solicitors and barristers exhibited to the appellant's reply evidence. Broadly, the respondent sought discovery of any retainers or fee agreements with the lawyers who rendered fees in respect of which the appellant claimed input tax credits, together with any correspondence about invoicing and any other invoices rendered by those lawyers in respect of those matters. 12 The matter came back before District Registrar Wall at 2:15 pm on 9 November 2012. The appellant neither complied with the notice to produce at that time, nor filed any affidavit explaining the delay in complying with that notice, as it had been ordered to do the previous week. Accordingly, the respondent sought an order for production pursuant to r 20.31(3) of the Federal Court Rules in respect of the documents specified in the notice to produce. 13 Also at that hearing, the appellant consented to an order for discovery, subject to some minor amendments to the terms of the proposed order. The Registrar invited the parties to bring in short minutes of order in relation to the order for production and the order for discovery. 14 The appellant did not respond to attempts to agree short minutes. Eventually, on the morning of the following Monday, 14 November 2011, the solicitor for the appellant (Mr Peter Jackson) sent an email to the Registrar in which he contended for the first time that no orders should be made, contrary to the submission made at the hearing in the previous week. 15 Later on the morning of 14 November 2011 the Registrar forwarded an email containing two sets of orders made in chambers: an order granting discovery ("the Discovery Order"); and orders that the appellant produce the 34 original documents which had been sought in the notice to produce ("the Orders for Production"). 16 The appellant did not comply with the Discovery Order or the Orders for Production. The correspondence between the parties in relation to the appellant's compliance with those orders is set out in the affidavit of Mr Stephen Jones sworn 18 January 2012, particularly paras 39-47. In letters of 16 December 2011 and 11 January 2012, the new solicitor for the appellant, Ms Rosita Luk, disputed the respondent's entitlement to discovery on the basis that it amounted to an "ethical attack" and "interference with legal representation". Instead of complying with the Orders for Production she proposed informal inspection. 17 As such, on 19 January 2012, the respondent filed an interlocutory application for an order pursuant to r 5.23 of the Federal Court Rules that the proceeding be dismissed or, alternatively, an order for the appellant to comply with the Discovery Order and Orders for Production by a date to be fixed, in default of which the proceeding be dismissed. The affidavit of Mr Jones filed in support of that application fully described the history of the matter recounted above. 18 On 30 January 2012, following service of the respondent's application, Ms Luk wrote to assert (wrongly) that the documents subject to the Discovery Order and Orders for Production were the same and that "our client has no fee agreements to produce or discover". She repeated her argument as to why the respondent should not have the benefit of the orders. 19 The application was finally listed before the primary judge for hearing on 2 March 2012. As at that date, the appellant had still not complied with the Discovery Order or the Orders for Production in any way whatsoever. The appellant was represented by Ms Luk. The material on which the appellant relied at that hearing was as follows: (a) An affidavit of Mr Ian Daley sworn 29 February 2012. Mr Daley was the sole director and shareholder of the appellant. His evidence was that in 2006 and 2008 the respondent had taken access to certain premises of an "administrative sub-agent" of the appellant - or perhaps that the appellant was an "administrative sub-agent" of the occupier of the premises - and that the respondent had taken similar access to other premises in 2008; that the respondent obtained the documents which would fall within the Discovery Order at that time; that in any event the documents sought under the notice to produce had subsequently been destroyed by fire; that certain documents had been in the possession of a Ms Dior Sabatini (elsewhere referred to as Denise Clark) who, having been intimidated by an officer of the respondent, moved to New Zealand and had become a resident of Panama; but that some five folders of documents had arrived in Australia in the third week of November 2012 [sic] and been "offered" to the respondent in lieu of the discovery and production which had been ordered. (b) An affidavit of Ms Luk sworn 29 February 2012. Her affidavit was rejected but received as a submission. To that extent it was a submission unsupported by any evidence. The document likewise sought to explain that the respondent already had the documents he was seeking; that the respondent had engaged in misconduct; and that the respondent's stance in the proceeding was a "contemptuous interference with legal representation". 20 The primary judge rejected the appellant's explanations in an ex-tempore judgment that day and made orders dismissing the proceeding with costs. His Honour stayed those orders for one week and made orders for the appellant to take certain steps as a pre-condition to a grant of leave to apply to the Court on 9 March 2012 for the orders to be rescinded. The orders made on 2 March 2012 were as follows: 1. The proceeding be dismissed. 2. The applicant pay the respondent's costs of the proceeding. 3. Orders 1 and 2 be stayed up to and including 9 March 2012. 4. If, no later than 6 March 2012, the applicant: (a) Gives discovery in accordance with rules 20.16 and 20.17 of the Federal Court Rules 2011 of: (i) Any agreement or retainer for the matters the subject of the invoices set out in Schedule 1 to the interlocutory application filed on 2 November 2011, and all documents which record communications with the providers of those invoices in relation to any such agreement or retainer; (ii) Documents which record communications with the providers of any of the invoices set out in Schedule 1, including, but not limited to, directions or instructions as to the manner in which invoices were to be provided; and (iii) All invoices for the matters the subject of the invoices set out in Schedule 1; (b) Pursuant to rule 20.31(3) of the Federal Court Rules 2011, produces for inspection at the offices of Maddocks at Level 21, 123 Pitt Street, Sydney, NSW 2000 the documents called for in the Notice to Produce filed and served on 12 October 2011; and (c) Files an affidavit in proper form explaining why the orders of 14 November 2011 have hitherto not been complied with; the applicant be granted leave to apply to the Court on 9 March 2012 for Orders 1 and 2 to be rescinded. 5. No later than 12 noon on 5 March 2012, a copy of these orders be provided to Mr Ian Daley, the director of the applicant, at 29 Baileys Road, Tallai, Queensland. 6. The applicant's notice of motion be stood over to 9 March 2012. 7. The proceeding be listed for directions and interlocutory hearing at 9.30 am on Friday, 9 March 2012. 8. The applicant pay the respondent's costs to date of the respondent's motion seeking summary dismissal of the proceeding, including the costs of today. 21 There was substantial compliance, although not strict compliance, albeit out of time, with the orders which were the pre-conditions to the grant of leave to apply for rescission of the primary orders. 22 The matter came on for further hearing before the primary judge on 9 March 2012. Ms Luk again appeared for the appellant. In addition to the material described at [19] above, Ms Luk also relied on an affidavit sworn by her that day. His Honour treated her submissions as an application to rescind orders 1 and 2 made on 2 March 2012, notwithstanding non-compliance with the conditions on which leave was granted. His Honour rejected this application. 23 As at the hearing on 9 March 2012, the extent of compliance with the Discovery Order consisted of the service of a purported List of Documents. The extent of compliance with the Order for Production was that copies, but not originals, of the documents sought had been produced directly to the respondent's solicitors and originals were produced at Court on 9 March 2012. Neither task, to the extent to which it had been completed, had been done within the time permitted by his Honour in his orders of 2 March 2012. The documents had only been provided on the afternoon of 7 March 2012. 24 There was no affidavit in proper form explaining why the orders of 14 November 2011 had hitherto not been complied with, as contemplated by the 2 March 2012 orders. Ms Luk's affidavit gave no meaningful explanation of that matter. To the extent it could be said that Mr Daley's affidavit verifying the list of documents amounted to an explanation, he was required for cross-examination but apparently was overseas. There was no evidence that order 5 had been complied with. 25 The foregoing summary of the background to the appeal is principally taken from the respondent's written outline of submissions, but in substance is not disputed by the appellant.