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[2012] FCAFC 180
Federal Court of Australia (Full Court)
2012-12-13
Adam P, Ms J, Mr J, Nicholas JJ
Original judgment source is linked above.
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.
The PRimary Judge's Reasons 26 The primary judge's reasons for judgment on 2 March 2012 (published on 27 March 2012) do not, on their face, disclose how the primary judge reached the result embodied in his order (that the proceeding be dismissed) save that: (1) The orders made on 14 November 2012 [sic] have not been complied with (at [4]); (2) no satisfactory explanation for the failure to comply had been offered (at [4]); 27 At [5], the primary judged expressed his reservation, having heard the solicitor for the appellant, as to whether or not there had been a full comprehension of the obligations arising from those orders, but went on to say that the respondent Commissioner could not be held responsible; he had taken active steps to endeavour to ensure compliance, but to no avail. But these observations led the primary judge to explain at [6] why he made the orders he did, in particular, staying order 1 (dismissal) up to and including 9 March 2012. 28 In respect of the primary judge's reservations referred to in [27] above it is instructive to observe that in response to a submission by counsel for the respondent that there was no explanation for why the orders had not been complied with, his Honour retorted (T 21/26-29): "Other than sheer incompetence." 29 And a little later, his Honour said (T 22/21-23): I understand that and there has to be a time reached at some stage but frankly I'm concerned that the level of competence that has been applied to this proceeding is just not adequate. And then (T 22/28, 29): Well, I haven't had the management of this proceeding for six months or more and that's why I'm disposed to take the course that I'm suggesting. 30 The primary judge's reasons for judgement on 9 March 2012 (also published 27 March 2012) noted the appellant's failure to satisfy the first two conditions by 6 March 2012 (at [2]). His Honour also noted that on 7 March 2012 an affidavit of Mr Daley, purporting to annex a list of documents, was delivered to the respondent Commissioner's solicitors (at [2]). His Honour further noted that the documents called for in the notice to produce may have been made available today (9 March), but were certainly not made available on or before 6 March (at [2]). Finally, his Honour referred to an affidavit of Mr Daley sworn and filed on 5 March 2012 but said that he did not regard that affidavit, assuming it were admissible, as offering any satisfactory explanation as to why the orders of 14 November 2011 were not complied with by 2 March 2012 (at [3]). 31 His Honour noted that the solicitor for the appellant, Ms Luk, moved for an order that orders 1 and 2 made on 2 March 2012 be rescinded, notwithstanding non-compliance with the conditions. His Honour noted that Ms Luk accepted that she was at fault for the conditions not being satisfied, however, his Honour found that there was no satisfactory evidence as to the circumstances that led to the failure to satisfy the conditions (at [4]). 32 Relevantly, in conclusion his Honour said: [5] I am simply not persuaded that there is any good reason, on the material presently before me, for rescinding the orders that I made on 2 March 2012, and I decline to do so. The orders were, of course, interlocutory. It would be open to the Taxpayer to make a formal application for the orders to be set aside. Such an application, of course, would have to be supported by evidence that indicates that there is a genuine intention on the part of the Taxpayer to comply with Court orders in a competent and timely fashion. [6] It may well be that it would be appropriate, in entertaining any such application, if it were to be made, for the Court to consider the merits of the proceeding. That is something which has not been investigated to any extent at this stage. It may be, for example, that the Commissioner sought to satisfy the Court that there would be no utility in entertaining any application to rescind or set aside the orders made on 2 March 2012 because there was little prospect of the proceeding having any success. I have formed no view, because I have not considered the merits of the proceeding at all.
The Appellant's Appeal to thIS Court 33 The amended notice of appeal filed pursuant to r 36.10 of the Federal Court Rules contained eight grounds of appeal: 1. That in dismissing the application made by the Appellant on 9 March 2012 to rescind orders 1 and 2 made on March 2012 [sic], [the primary judge] erred in failing to accede to the Appellant's request in circumstances where:- a) There was evidence that there had been substantial compliance with order 4 made 2 March 2012; b) There was evidence before the Court to explain the delays and lack of compliance by the Appellant with the Court's directions; c) There was no evidence to demonstrate that the Respondent would suffer any actual prejudice if the orders of 2 March were rescinded; and d) The Appellant was exposed to significant prejudice by failure to rescind the orders made on 2 March 2012 give [sic] that time had expired to commence any further proceedings. e) The order made by His Honour on 2 March 2012 that the proceeding be dismissed was not in accordance with Rule 5.23(1) of the Federal Court Rules in that it was neither immediate nor conditional. 2. That in dismissing the proceedings with costs on 2 March 2012 (which orders were stayed until 9 March 2012), [the primary judge] erred in making the orders in circumstances where:- a) There was evidence before the Court to explain the delays and lack of compliance by the Appellant with the Court's directions; b) There was no evidence to demonstrate that the Respondent would suffer any actual prejudice if the proceedings were not dismissed; and c) The Appellant was exposed to significant prejudice by the making of the orders, in that time had expired to commence any further proceedings. 3. The orders made by His Honour on 2 March 2012 that the proceedings be dismissed were not in accordance with Rule 5.23(1) of the Federal Court Rules in that they were neither immediate nor conditional. 4. That in ordering that the proceedings be dismissed on 2 March 2012 and further or in the alternative in failing to accede to the Appellant's application on 9 March 2012 His Honour erred in failing to take into account the impact and effect of the dismissal of the proceedings on the Appellant, which factor was a material consideration in the exercise of the Court's discretion. 5. That in ordering that the proceedings be dismissed on 2 March 2012, His Honour erred by acting on a wrong principle, as His Honour treated the fact of non-compliance with the Court's directions and orders as requiring the dismissal of the proceedings and failed to consider separately any other orders that may have been appropriate and proportionate to the non-compliance. 6. That in ordering that the proceedings be dismissed on 2 March 2012, His Honour erred in failing to take into account the following factors, which factors were material considerations in the exercise of the Court's discretion:- a. the fact that there was a change of solicitors for the Appellant in late 2011; b. the facts and circumstances surrounding the change of solicitors for the Appellant in late 2011; c. the evidence that the new solicitors for the Appellant had indicated a willingness to co-operate with the Respondent and the Court; and had offered to the Respondent to make available the documents sought by the Respondent per the Court's directions and orders made in November 2011; and d. the evidence that the Appellant had been unable, in so far as production of documents was concerned, to comply with the Court's directions and orders the documents not being in the possession of the Appellant at the time ordered for compliance 7. His Honour acted on a wrong principle by failing to approach the exercise of the Court's discretion in accordance with the principles set out by the Full Court in Lenijamar Pty Ltd & Ors v AGC (Advances) Limited (1990) 27 FCR 388. 8. To the extent that His Honour did approach the exercise of discretion in accordance with the principles set out in Lenijamar, His Honour failed to make any finding of wilful default on the part of the Appellant.
Relevant Principles 34 It was common ground that if there is appellable error on the part of the primary judge, the appellant must demonstrate error of the kind described in House v The King (1936) 55 CLR 499 where the High Court relevantly said (at 504-505): The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. (Emphasis added.) 35 The discretion conferred by r 5.23 of the Federal Court Rules is unconfined save that a party be in default. This power is similar to that conferred by the former O 10 r 7, the subject of the consideration by the Full Court in Lenijamar Pty Ltd & Ors v AGC (Advances) Limited (1990) 27 FCR 388 to which both parties referred at some length. 36 In that case, Wilcox and Gummow JJ stated that the task of establishing appellable error in discretionary orders on matters of practice and procedure was a "formidable" one: at 393-394, citing Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177. The plurality in that case referred to the oft-cited statement of Sir Frederick Jordan in Re the Will of FB Gilbert (dec) (1946) 46 SR (NSW) 318 at 323 and said (at 177): Nor is there any serious dispute between the parties that appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure … Not only must there be error of principle, but the decision appealed from must work a substantial injustice to one of the parties … For ourselves, we believe it to be unnecessary and indeed unwise to lay down rigid and exhaustive criteria. The circumstances of different cases are infinitely various … It is safe to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration. (Emphasis added.) 37 In Lenijamar, Wilcox and Gummow JJ pointed out at 395 that the power must be exercised against the backdrop of a case management system in which it is expected that parties will observe procedural directions. At 395-396 their Honours said: It is to be noted that the power given by this rule [Order 10.7, now rule 5.23 of the Federal Court Rules] is conditioned on one circumstance only: the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the Court's judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion conferred by the rule. There is no requirement of "inordinate and inexcusable delay" on the part of the applicant or the applicant's lawyers, although any such delay is likely to be a significant matter. There is no requirement of prejudice to the respondent, although the existence of prejudice is also likely to be significant. And it must be remembered that, in almost every case, delay adversely affects the quality of the trial and is an additional burden on the parties. 38 But their Honours immediately went on to say (at 396.4): The observations which we have just made about the scope of O 10, r 7 are not intended to convey the impression that any failure to comply with a procedural direction will appropriately result in the dismissal of the proceeding. On the contrary, the rules must be administered sensibly and with an appreciation both of the fact that some delays are unavoidable, and unpredictable, by even the most conscientious parties and their lawyers, and of the likely serious consequences to an applicant of staying or dismissing a claim; compare the approach taken to non-compliance with time limitations in respect of appeals in Van Reesema v Giameos (1979) 27 ALR 525. We would not wish our observations to cause respondents to apply for dismissal of proceedings simply because there has been a non-compliance with a direction by the applicant, even though it does not cause or indicate a continuing problem in preparing the matter for an early trial. 39 Their Honours stated that it was undesirable to attempt any exhaustive statement of the circumstances under which the power will appropriately be exercised: at 396.6. However, their Honours identified two situations where the use of the power will generally be warranted, namely, (a) where a history of non-compliance indicates an inability or unwillingness to co-operate with the Court and the other party in having the matter ready for trial within an acceptable period, and (b) where there is significant continuing default giving rise to undue prejudice and expense to the other party: at 396.7-396.8. 40 Their Honours at 396.9 stated that although the history of the matter will always be relevant, it is more likely to be decisive in the first of theses two situations: Even though the most recent non-compliance may be minor, the cumulative effect of an applicant's defaults may be such as to satisfy the judge that the applicant is either subjectively unwilling to co-operate or, for some reason, is unable to do so. Such a conclusion would not readily be reached; but, where it was, fairness to the respondent would normally require the summary dismissal of the proceeding. 41 In the second situation, their Honours at 397.1 said: [T]he continuance of the non-compliance is of the essence of this situation. If, when the Court looks at the matter, the direction has already been complied with, the defaulting applicant may be ordered to pay any wasted costs; but it would be difficult to justify the dismissal of the proceeding solely because of that default. 42 The third member of the Court in Lenijamar, Pincus J, agreed with Wilcox and Gummow JJ that attempts by the Court to prescribe exhaustive criteria and indicate their weight in relation to the exercise of the power granted under O 10 r 7 are not likely to be helpful. At 402.7, his Honour said: In some circumstances, the Court may, in my opinion, take into account such matters as whether the claim or defence of the party in default appears to have substance, whether the case is one in which delay in hearing is likely to be particularly damaging to prospects of correctly deciding the dispute, whether the party applying for dismissal has itself transgressed, whether the party in default has gained some advantage by delay (for example, where it has had the benefit of an interlocutory injunction), whether credible assurances (supported, perhaps, by arrangements to commit the conduct of the matter to another firm or other counsel) have been given as to the prompt carrying out of future steps and whether the delay has been such as to induce the party not in default to think that the matter has probably gone to sleep.
Consideration and Analysis 43 The primary judge did not refer to Lenijamar in either his reasons for judgment of 2 March or 9 March 2012. Nor did his Honour refer to the considerations which the Full Court indicated were relevant to the exercise of the power of dismissal, in particular that referred to by the plurality in Adam P Brown Male Fashions at 177 that "[i]t is safe to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration". 44 Under the umbrella of that overriding consideration fall a number of matters, although they are not intended to be exhaustive - (i) the nature of the default involved; (ii) the duration of the default and whether it is continuing; (iii) the circumstances in which the orders, in respect of which default has occurred, were made including whether the orders made accorded with the practice of the Court in making orders of that kind; (iv) the circumstances which occurred between the time of making the orders and the order for the dismissal of the proceeding, including whether any attempt was made by the defaulting party to amend or set aside the orders to accommodate or deal with these intervening circumstances; (v) whether the continuing default is occasioning unnecessary delay, expense or other prejudice or unacceptable burden on the respondent; (vi) the attitude of the applicant to the default and the Court's judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period; (vii) the stage that the proceeding has reached - whether they have only recently been commenced; whether it has been commenced for some time but not advanced due, in whole or in part, to the default; or whether the proceeding is in an advanced state ready or nearly ready for hearing; (viii) the likely disruption to hearing dates or, if not fixed, to setting the matter down for hearing at an early date; (ix) the consequences to the applicant of dismissing the proceeding. 45 Apart from the matters referred to in (i) - the nature of the default - and (ii) - the duration of the default and whether it was continuing - which, from the primary judge's reasons for judgment of 2 March 2012, were taken into account by his Honour, there is no indication that any other matters were taken into account. That is not to say they were not taken into account, but if they were, there is nothing on the face of those reasons, or the reasons of 9 March 2012, to indicate the weight attached to them as factors relevant to the exercise of the discretion. This is unfortunate because it leaves this Court in the position anticipated by the High Court in House v King referred to in [34] above where it said: It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. 46 As to matter (iii), the circumstances leading up to the making of the Discovery Order on 14 November 2011 are set out at [7] to [15] above. The respondent, in seeking such an order, and the District Registrar in making it, appear to have paid no regard whatsoever to the Court's Practice Note TAX1 for Part IVC taxation appeals, in particular para [6.5] which provides: 6.5 Discovery disputes - Before filing any application relating to a discovery dispute, the parties must meet and confer and attempt to resolve the dispute in good faith. If the parties are unable to resolve the dispute, any application to the Court must include a certificate by the moving party's lawyer that the "meet and confer" requirement was completed, though unsuccessful. Failure to so certify will result in the application being immediately refused. In the absence of compliance with this practice direction, the Discovery Order should never have been made. 47 As to matter (iv), the appellant concedes that at no point in time after the making of the orders on 14 November 2011 did it seek to have the orders set aside or amended by extending the time for compliance even though, on such evidence as does exist - relevant documents being outside Australia at the time the orders were made and subsequent changes in the appellant's legal representation - grounds, at least for an extension or extensions of time for compliance, probably existed. There is no evidence that the appellant's failure to seek an extension or extensions of time were due to any deliberate conduct on the part of the appellant to delay the hearing of its appeal, but was due, as the primary judge observed during the course of the hearing on 2 March 2012, to the "sheer incompetence" of the appellant's legal representatives (T21/29, 22/22-23). 48 As to matter (v), the appellant's failure to comply with the orders from the time they were made on 14 November 2011 until 2 March 2012 when the respondent's interlocutory application came before the primary judge for the first time occasioned a delay of some two to three months, but in the scheme of things this is hardly a significant delay. The proceeding was commenced in this Court in April 2010 and had been on foot for some twenty months at the time of the making of the 14 November 2011 orders. There is no evidence of any expense, other prejudice or unacceptable burden being occasioned to the respondent by the appellant's default. 49 As to matter (vi), there is nothing to indicate that the appellant does not wish the matter to go to trial within a reasonable period; indeed, at the hearing on 9 March 2012 the appellant's representative sought the fixing of a hearing date (T 2/28-30). 50 As to matter (vii), the proceeding is in a very advanced state. All the evidence upon which the parties propose to rely, including the appellant's reply evidence, has been filed and served and now that there has been, albeit out of time, substantial compliance with orders of 14 November 2011, there appears to be no reason why the matter could not be set down for hearing. 51 As to matter (viii), this is covered by what is said in [50] above. 52 As to matter (ix), the primary judge seems to have derived some comfort in refusing to rescind orders 1 and 2 made on 2 March 2012 from the fact that the orders were interlocutory and that it would be open to the appellant to make a formal application for the orders to be set aside: see [5] and [6] of his Honour's reasons of 9 March 2012. Insofar as his Honour regarded this as a relevant consideration to the making of the orders of 2 March and his refusal to rescind them on 9 March 2012, his Honour, with respect, was in error. 53 That such an application could, in the circumstances, subsequently be made is not in dispute: see r 39.05 of the Federal Court Rules. But that does not make it a relevant consideration to the exercise of the discretion to dismiss the proceeding pursuant to r 5.23 (formerly O 10 r 7). And there is good reason why it is not. It is well-established that the discretion conferred by r 39.05 of the Federal Court Rules (formerly O 35 r 7(2)) to set aside interlocutory orders once entered should be exercised in a judicial manner and only in exceptional circumstances: Dudzinski v Centrelink [2003] FCA 308 at [11]. This guideline is based on the principle of finality of litigation which counsels courts to exercise caution when considering whether orders previously made and final on their face and entered should be re-opened for consideration and set aside: McDermott v Richmond Sales Pty Ltd (in liq) [2006] FCA 248 at [25]; Kullilli People #2 and Kullilli People #3 v State of Queensland [2007] FCA 512 at [17]. 54 Further, in relation to matter (ix), there is no indication that the primary judge took into account that there was a substantial amount of tax in dispute (in excess of $500,000) and penalties (in excess of $290,000). This is undoubtedly a relevant consideration and goes to the heart of the overriding consideration referred to in [43] above.
Conclusion 55 For all these reasons, we are of the view that the exercise by the primary judge of his discretion to make the orders on 2 March, and not to rescind them on 9 March 2012, miscarried. In the circumstances, they were orders which were unreasonable or unjust and the appeal should be allowed with costs. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds, McKerracher and Nicholas.
Professional Administration Service Centres Pty Limited
Commissioner of Taxation
(1981) 148 CLR 170
(1936) 55 CLR 499
(1990) 27 FCR 388
(1979) 27 ALR 525