Sobey v Commissioner of Taxation

INTRODUCTION 1 These are applications for costs, first, by the Commissioner of Taxation ("the Commissioner") that Anthony Sobey pay the Commissioner's costs thrown away by reason of the trial of the proceedings being adjourned, including the hearings on 5 and 18 September 2008. The Commissioner also seeks orders that these costs be paid forthwith and on an indemnity basis. The Commissioner relies on the affidavit of Stephen Antony Linden sworn on 5 September 2008. Mr Sobey has also sought costs thrown away by reason of the adjournment. Shortly before the hearing on costs, Mr Sobey's solicitors filed an affidavit of Effie Kavadas sworn on 16 September 2008 (although this was neither formally tendered nor specifically mentioned in Mr Sobey's oral or written submissions). 2 For the following reasons, I would order that Mr Sobey pay the Commissioner's costs thrown away by reason of the trial of the proceedings being adjourned, including the hearings on 5 and 18 September 2008. I would further order that these costs be paid on an indemnity basis. 3 I set out below a procedural history of the proceedings to date since this history is pertinent to the consideration of these costs applications.

BACKGROUND 4 On 7 March 2008, Mr Sobey lodged two applications in the South Australian District Registry of the Court appealing against the objection decisions of the Commissioner disallowing Mr Sobey's objections to the Commissioner's income tax assessments for the years ended 30 June 2004 and 30 June 2005. The Commissioner's assessments were made on the basis of tax returns prepared and electronically lodged by Mr Sobey's then accountant, Mr Gregory Basso. Briefly stated, as reflected in his amended appeal statement of 11 June 2008, Mr Sobey contends that: (1) the amounts described as interest were in fact returns of capital invested with one Guiseppe Mercorella under a scheme (which, unknown to Mr Sobey at the time of his investment, was a fraudulent 'Ponzi' scheme); and that his income was therefore overstated; and (2) the tax returns upon which the Commissioner based his assessments were lodged with the Commissioner without Mr Sobey's authority. 5 On Mr Sobey's motion, the proceedings were transferred to the Victoria Registry of the Court, where they were managed in accordance with the Tax List Directions dated 4 April 2008. On 28 April 2008, the Commissioner filed the documents required by O 52B r 5 of the Federal Court Rules (Cth) ("the Rules"). Mr Sobey filed his appeal statement on 29 April 2008 (which as indicated above was amended on 11 June 2008) and his preliminary witness list on 30 April 2008. In this list, he indicated that he proposed to give evidence and to call the following persons: Mr Mark Lipson, Mr S Davies, Mr Greg Basso, Mr Mercorella, Mr N Formichella, an "investigating officer - ASIC" and a "NAB - Bank Officer - Borrowed money loaned to Mercorella and approved bank documents". 6 The judge coordinating the Tax List ("the Tax List Judge") held a scheduling conference on 30 April 2008, at which the Tax List Judge ordered, amongst other things, that: Mr Sobey was: (1) to file and serve any affidavit material on which he intended to rely relating to certain paragraphs of the Commissioner's appeal statement by 16 May 2008; and (2) to file and serve any affidavit material and submissions on which he intended to rely in relation to the matters referred to in his own appeal statement by 30 May 2008. Reference to the transcript of the hearing that day shows that the Tax List Judge sought to focus the parties' attention on the identification of operative issues and efficient preparation for trial. At this stage, the Tax List Judge encouraged Mr Sobey to get his "house in order as a matter of urgency and put on [his] affidavit material" and declined to make orders for discovery since discovery was likely to be "time consuming and voluminous". Finally, the issue of subpoenas was also canvassed when, amongst other things, counsel for Mr Sobey stated that the documents required to complete a forensic accounting analysis were held by the Australian Crime Commission ("ACC"). The Tax List Judge invited Mr Sobey "[i]n the mean time" to "[d]eliver [subpoenas] up to [Tax List Judge's] chambers" on the basis that her Honour would "give … leave if … appropriate". 7 On 26 May 2008, Mr Sobey's solicitors filed an affidavit that had been sworn by Mark Lipson, a chartered accountant engaged by Mr Sobey to carry out a prudential audit on the 2004 and 2005 returns of income that Mr Basso purportedly lodged for Mr Sobey. In this affidavit, Mr Lipson stated that there were deficiencies in the documents on which he based his audit apparently because "most of the relevant accounting records were with Mr Colin Nicol of McGrath [Nicol] and Partners, Chartered Accountants, who had been appointed as liquidators of the Mercorella Ponzi scheme". Mr Lipson added that he had been told that "the premises of [Mr Sobey were] raided by the Australian Crime Commission ("ACC") on 24 August 2004 and that all [Mr Sobey's] private and business records were seized on that day". Mr Lipson deposed that he had, however, been able to make findings "based on the amounts actually received into the bank accounts of [Mr Sobey]". Mr Lipson added that: I was told while in conference with [Mr Sobey's] counsel on Thurday 22 May 2008, that the ACC has returned 10 boxes of documents to [Mr Sobey] seized in the raid in 2004 … and that [Mr Sobey] had received 10 volumes of documents from the liquidator, but as yet I have not had time to examine those documents on behalf of [Mr Sobey]. 8 On 30 May 2008, Mr Sobey's solicitors filed an affidavit sworn by Mr Sobey, in which (amongst other things) Mr Sobey reiterated that: (1) Mr Basso had lodged returns for 2004 and 2005 in his name but without his authority; (2) Mr Sobey was persuaded by Mr Mercorella and Mr Formichella to appoint Mr Formicella and BCFR Accountants as his tax agents and to invest with them; and (3) Mr Sobey was subsequently persuaded by Mr Mercorella to appoint Mr Basso as his accountant. Further, Mr Sobey deposed to the fact that his home and the homes and businesses of other investors were "raided" by the ACC on 24 August 2004, with the result that "all [Mr Sobey's] private and business documents were seized". He added: Last week, ten boxes of documents were returned to me by the ACC with the exception of some documents of mine which related to my dealings with BCFR. Apart from the BCFR documents, I do not at this time know if all of my documents have been returned by the ACC. The 10 boxes of documents are now with my accountant, Mr Lipson for his examination and report. 9 On about 4 June 2008, Mr Sobey sought leave to issue subpoenas against the Australian Securities and Investments Commission ("ASIC") and Messrs Nicol and Davies, both of McGrath Nicol & Partners, to produce certain documents, but leave was refused - as indicated at the second scheduling conference - on the basis that the subpoenas were too wide. On 11 June 2008, the Tax List Judge granted Mr Sobey leave to issue a subpoena to the ACC. 10 The second scheduling conference was held on 13 June 2008 before the Tax List Judge. It is clear enough that, at this stage, the Tax List Judge was highly critical of Mr Sobey's lack of progress and commented that Mr Sobey had "a large amount of work … to do, and … has to do it really quickly". The issuing of subpoenas was re-visited by Mr Sobey's counsel, who said: I take it from what your Honour has said that your Honour regards them as too wide, and I'll also get some instructions as to what the position might be in - there may be a position where they amend those subpoenas, or narrow them down, bearing in mind what your Honour has said. The Tax List Judge responded: I think what really needs to happen internally within your client is that someone needs to stop and take stock about the … issues … And then, having made an assessment of that, then work out, having determined what their case is, whether or not the subpoenas are required. And given the breadth of them and to whom they're directed, I'm not going to prejudge them, but someone is going to look at them very carefully before they make a decision about issuing subpoenas of that nature. … [I]t seems to me that it's been a scattergun approach rather than someone stopping and taking stock about whether or not they're absolutely essential. 11 At this scheduling conference, the Tax List Judge ordered: (1) Mr Sobey to file and serve any material on which he intended to rely by 25 July 2008; (2) the Commissioner to file and serve any material on which the Commissioner intended to rely by 15 August 2008; (3) the parties to file and serve an outline of submissions and any objections to evidence by 29 August 2008; and (4) the matters to be set down for trial before me (as the docket judge) on 9, 10 and 11 September 2008. 12 On 24 July 2008, Mr Sobey gave notice of change of practitioner. On 25 July 2008, Mr Sobey filed an affidavit sworn by Giuseppe Falanga. 13 On 6 August 2008, the Commissioner sought leave to issue subpoenas against: (1) Messrs Nicol and Davies, to produce a copy of the transcript of examination of Mr Sobey on 22 December 2005 in this Court and the affidavit of Mr Davies sworn on 9 May 2007 and filed in this Court; and (2) Australian Securities and Investment Commission ("ASIC"), to produce copies of three affidavits filed in this Court on 12 July 2005 in SAD 160/2005. The Tax List Judge granted the requisite leave; and, at the return of the subpoenas on 20 August 2008, both parties were given leave to uplift, inspect and copy the documents that had been produced, subject to orders as to confidentiality in respect of the ASIC documents. On 28 August 2008, Damaris Amanda Sheldon, an ASIC employee, made an affidavit in support of ASIC's objection to access being granted to the parties in relation to specified parts of the documents that ASIC produced under subpoena. 14 On 29 August 2008, the Commissioner filed and served an outline of submissions as required by the orders of the Tax List Judge. These submissions concluded that Mr Sobey "has not discharged the onus upon him under s 14ZZO of the Taxation Administration Act 1953" and "[t]he Application[s] must be dismissed with costs". 15 Also on 29 August 2008, the Commissioner served a notice of intention to adduce evidence of previous representations in relation to the affidavit of Mr Davies sworn on 9 May 2007 and specified parts of the affidavit of Russell Gibb, an ASIC investigator, sworn on 12 July 2005, both which were produced under the subpoenas referred to in [13] above. On the same day, the Commissioner filed a notice specifying the Commissioner's objections to the affidavit evidence filed by Mr Sobey. 16 On 2 September 2008, Mr Sobey was granted leave to issue a subpoena to Mr Basso to produce documents and to attend Court to give evidence. This subpoena was returnable on the first day of trial. Also on 2 September 2008, Mr Sobey notified the Commissioner that he required the attendance for cross-examination of Mr Davies, Mr Gibb and other ASIC investigators. On that day too, Mr Sobey filed and served his outline of submissions, in which counsel for Mr Sobey stated that Mr Sobey "will also seek to rely on further affidavits from Sobey and Lipson; and oral evidence from subpoenaed witnesses". Mr Sobey's solicitors filed further affidavits from Mr Sobey and Mr Lipson on 3 and 4 September 2008 respectively. 17 Upon reading Mr Sobey's statement regarding further affidavits and oral evidence, the Commissioner requested an urgent hearing. This took place on 5 September 2008, during the course of which the trial dates were vacated. Some time thereafter, it came to light that the subpoena served on Mr Basso did not include a last date for service and, as a result, the original subpoena to Mr Basso was set aside and a new subpoena issued to him. 18 The foregoing provides the factual context that prompted the present applications, which were heard on 18 September 2008.