FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Grimaldi (No. 5) [2009] FCA 765

COMMISSIONER OF TAXATION v PHILLIP GRIMALDI, GARRY BONACCORSO, IFTC BROKING SERVICES LTD and MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND

NSD 407 of 2009

GRAHAM J

13 JULY 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  That judgment be given for the applicant against the first respondent in the sum of $36,341,461.73

2.                  That judgment be given for the applicant against the second respondent in the sum of $3,552,577.81

3.                  That the first respondent pay the applicant’s costs in respect of prayer for relief 3 in the Notice of Motion filed 24 June 2009

4.                  The second respondent to pay the applicant’s costs in respect of prayer for relief 4 in the Notice of Motion filed 24 June 2009.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     By s 5(1) of the Income Tax Act 1986 (Cth) income tax was imposed in accordance with the Income Tax Act 1986 and at the relevant rates declared by the Income Tax Rates Act 1986 (Cth). 

2                     Section 7 of the Income Tax Act 1986 (Cth) levied the income tax imposed by s 5(1) as follows:

‘7         The tax imposed by subsection 5(1) is levied, and shall be paid, for the financial year commencing on 1 July 1986 and for all subsequent financial years until the Parliament otherwise provides.’

3                     Under s 12(1) of the Income Tax Rates Act 1986 (Cth) the relevant rates of tax were as set out in Schedule 7 to that Act.  That schedule has been amended to record the prevailing rates from time to time.

4                     At all material times s 166 of the Income Tax Assessment Act 1936 (Cth) (‘the 1936 Act’) has made provision for the Commissioner to make assessments of the amount of the taxable income of a taxpayer and of the tax payable thereon and s 174 has made provision for the Commissioner to serve notices of assessment in writing upon persons liable to pay the tax the subject of the assessments.

The privative provisions of the 1936 Act

5                     Section 175 of the 1936 Act provided:

‘175     The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.’

6                     Section 177(1) of the 1936 Act provided for notices of assessment to have a conclusive evidentiary character both in respect of the due making of the assessment and that the amount and all the particulars of the assessment were correct.  Section 177(1) provided:

‘177(1)            The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.’

7                     Under regulation 172(2) of the Income Tax Regulations 1936 a certificate, notice or other document bearing the printed name of a person who was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner was deemed to have been duly signed by that person unless it was proved that the document was issued without authority.

8                     The present proceedings are not proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) (‘the Administration Act’).

9                     Section 175A of the 1936 Act provided for taxpayers who were dissatisfied with assessments made in relation to them to object against the relevant assessment ‘in the manner set out in Part IVC of the Administration Act’.

10                  As at April/May 2009, the period within which the relevant Notices of Assessment in this case were issued, Part IVC of the Administration Act commenced with s 14ZL and concluded with s 14ZZS.  The Part consisted of five Divisions which bore the headings:

Division 1 – Introduction

Division 2 – Interpretative Provisions

Division 3 – Taxation Objections

Division 4 – AAT Review of Objection Decisions and Extension of Time Refusal Decisions

Division 5 – Federal Court Appeals Against Objection Decisions

11                  Section 14ZL(1) of the Administration Act provided a connection between Part IVC of the Administration Act and s 175A of the 1936 Act.  It relevantly provided:

‘14ZL(1)          This Part applies if a provision of an Act … provides that a person who is dissatisfied with an assessment, determination, notice or decision … may object against it in the manner set out in this Part.’

Part IVC proceeded to provide for the review by the Administrative Appeals Tribunal of decisions by the Commissioner in relation to certain taxation objections and requests for extension of time and for appeals to this Court against decisions by the Commissioner in relation to certain taxation objections.

12                  In McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 (‘McAndrew’) at 280-282 Taylor J said of s 177(1):

‘The purpose of that sub-section [s 177(1)], is, subject to an important qualification, to make the production of a notice of assessment in judicial proceedings conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct.  The qualification is that upon proceedings on appeal against the assessment, the production of the assessment does not constitute conclusive evidence that the amount and all the particulars of the assessment are correct.  It will be seen that the sub-section contains two limbs and that the second limb applies only in proceedings which are not appeals of the character specified.  In all other proceedings both limbs apply.  But although doubts may exist as to what is comprised in each limb, the existence of these doubts in no way requires a modification of the view previously expressed.

…

There seems no doubt that s.177 (1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground and, accordingly, there is every reason for thinking that the second limb in s.177 (1) covers all grounds upon which an assessment may be challenged other than those covered by the first limb. … In my view s.170 (1) (sic) should be understood as precluding a taxpayer in proceedings other than an appeal (or a reference [now a review]) under the Act from challenging an assessment on any ground. …’

13                  In F. J. Bloemen Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 360 at 375, Mason and Wilson JJ cited with approval the observations of Taylor J in McAndrew.

14                  In Webb v Commissioner of Taxation (No 2) (1993) 47 FCR 394 at 400 Hill J said:

‘… the giving to the taxpayer of a notice which stipulates the taxable income and the tax payable referable to that taxable income in the year (a positive figure) will be a notice of assessment attracting the provisions of the objection and appeals procedure and s 177.’

His Honour then continued at 400-401 by saying:

‘My view is consistent with the decision of Hunt J in Deputy Commissioner of Taxation (Cth) v Clyne (1982) 60 FLR 45 and that of Enderby J in Commonwealth v Opiel (1986) 86 ATC 5,013.  The former case is not greatly different from the present.  In that case Mr Clyne, who had received a notice of assessment showing a credit for provisional tax, sought to argue that the giving of that credit constituted an admission by the Commissioner that payment had been made for that amount or that a claim was no longer made in respect of that amount, or alternatively that the provisions of s 177 rendered there conclusive evidence that the amount was no longer claimed by the Commissioner.  This somewhat audacious argument was rejected by Hunt J who regarded the particulars of assessment referred to in s 177 of the Act as constituting merely the two ingredients taxable income and the tax assessed with respect to that taxable income.   The other material on the notice, including the credit, were, his Honour thought, particulars of the notice but not particulars of the assessment.  The decision of Hunt J was followed by Enderby J in Opiel in holding that details of a refund stated in the assessment to be due to a taxpayer did not attract the conclusive evidentiary protection of s 177.’

See also Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Limited (1995) 183 CLR 168 (‘Richard Walter’).

15                  In Richard Walter, Mason CJ took the view that the relevant provisions of the 1936 Act did no more than require the making of an assessment, due compliance with the statutory provisions not being essential to the validity of the assessment (at 187).  His Honour said at 187 – 188:

‘The central element of the legislative regime is the making of an assessment by the Commissioner which ascertains the taxpayer’s liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantial liability to tax.’

16                  Mason CJ said of s 175 of the 1936 Act at 187:

‘That provision is of critical importance because it indicates that compliance with any of the provisions of the Act is not essential to validity.’

Earlier at 186 his Honour said:

‘The effect of s 177(1) … is to condition the exercise of jurisdiction upon production of the notice of assessment or a copy of it so that it is treated as valid, otherwise than in Pt IVC proceedings.’

At 187 His Honour said:

‘Viewed in the light of s 175, s 177(1) is a provision which gives effect to the substantive expression of intention in the earlier section.  The reference to “due making” of the assessment in s 177(1) reflects the content of s 175.’

17                  Mason CJ observed at 187 that the paramount purpose of the 1936 Act was to ascertain the liability of taxpayers to tax and that the Act, with that object in view, set up a legislative regime whereby the Commissioner assessed the taxpayer to tax, the taxpayer being liable to pay the amount stated in the notice of assessment, subject to a reference to the Administrative Appeals Tribunals or an appeal under Part IVC to the Federal Court.  His Honour said at 187:

‘In such an appeal, it is for the taxpayer to show that the assessment is excessive.’

(See also per Gyles J in Syngenta Crop Protection Pty Ltd (ACN 002 933 717) v Commissioner of Taxation [2005] FCA 1646 at [12]).

18                  It will be appreciated that Part IVC of the Administration Act gives the taxpayer the option to seek review of reviewable objection decisions, as defined in s 14ZQ, in the Administrative Appeals Tribunal, or to appeal to the Federal Court against an appealable objection decision, as defined in that section (see s 14ZZ of the Administration Act).  In relation to applications for review, s 14ZZK of the Administration Act dealt with the issue of grounds of objection and burden of proof as follows:

‘14ZZK           On an application for review of a reviewable objection decision:

(a)       the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)       the applicant has the burden of proving that:

(i)         if the taxation decision concerned is an assessment … the assessment is excessive; …’

19                  In relation to appeals to the Federal Court, s 14ZZO of the Administration Act relevantly dealt with the issue of grounds of objection and burden of proof as follows:

‘14ZZO           In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision:

(a)        the appellant is, unless the Court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)        the appellant has the burden of proving that:

(i)         if the taxation decision concerned is an assessment …- - the assessment is excessive; …’

20                  In Richard Walter, Mason CJ found that the first limb of s 177(1) of the 1936 Act was effective to preclude a challenge by a taxpayer, in proceedings in the Federal Court under s 39B of the Judiciary Act, to the validity of an assessment where the Commissioner had included the same amounts in the taxable income of more than one taxpayer.  His Honour said at 188:

‘Section 177 gives effect to the substantive provisions of the Act, in particular s 175, the effect of which is to ensure that the validity of an assessment does not depend upon compliance with any of the particular provisions of the [1936] Act or considerations of purpose.  On this view, s 177(1) is consistent with the Hickman principle.’

21                  In Richard Walter Brennan J, as his Honour then was, observed at 199:

‘The jurisdiction of the Federal Court on appeal from, or of the Administrative Appeals Tribunal on review of, a decision on an objection extends to every issue which affects the amounts ultimately included in the taxable income or tax liability of a taxpayer.  If any of these issues be resolved in favour of the taxpayer, an amendment of the assessment so as to reduce the taxable income or the tax liability of the taxpayer must follow.  The width of that jurisdiction and the evident purpose of the Act to channel all issues as to the true tax liability of the taxpayer into the objection, review and appeal procedures found the clearest implication that exceptions to the broadest literal application of s 175 must be narrowly confined and a corresponding operation must be attributed to s 177(1).’ 

(Footnotes omitted)

22                  It is immaterial to the validity of the power to assess one taxpayer to tax that the Commissioner believes it possible that another taxpayer is liable to tax in respect of the same particular income.  If uncertainty as to the taxpayer liable were to sterilise the Commissioner’s power to make an assessment or if the power could be exercised only when the Commissioner is satisfied on the balance of probabilities that one taxpayer, rather than another, is liable, the uncertainties which are the inevitable companions of complex commercial transactions would substantially erode the Commissioner’s ability to recover tax and would, contrary to the intent of s 177(1) of the 1936 Act, open the way to litigating liability to tax outside the objection, review and appeal procedures (per Brennan J in Richard Walter at 201).

23                  The fact that a tax liability remains outstanding against two taxpayers pending the ascertainment of the taxpayer truly liable is no bar to the exercise of the power to assess both to tax in respect of the same income. As Dixon J, as his Honour then was, observed in Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 at 207 when upholding the validity of an assessment to tax against a second person while the first person’s assessment remained on foot and unamended ‘it was not unnatural that [the Commissioner] should delay relieving one of two persons whom he considered culpable until the liability of the other was established’.  The co-existence of tax liabilities in two or more taxpayers in respect of the same income is, as Dixon J observed at 207, attended with difficulty.  Sometimes the difficulty will be removed by the objection, review and appeal procedures where the taxpayer will establish the facts in order to establish that the assessment is excessive (per Brennan J in Richard Walter at 201).

24                  The raising of concurrent assessments of two or more taxpayers to tax in respect of the same item of income has not hitherto been regarded as beyond the powers of the Commissioner.  The appropriateness of alternative assessment to tax of two taxpayers in respect of the same item of income was recognised in a dictum of the High Court in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 67.  The courts, if not the Commissioner, can diminish the difficulty of concurrent assessments by ensuring that there is no double recovery of tax (per Brennan J in Richard Walter at 201-202).

25                  The co-existence of tax liabilities arising from concurrent assessments is entirely consistent with the operation of s 177(1).  If the Commissioner employs s 177(1) in a proceeding to recover tax from taxpayer A, the liability of that taxpayer cannot be avoided by pointing to an outstanding assessment against taxpayer B.  Section 177(1) operates as between the Commissioner and the taxpayer served with the notice of assessment in a proceeding between them and the notice of assessment issued to another taxpayer does not qualify or affect the operation of s 177(1) (per Brennan J in Richard Walter at 202).

26                  By a Notice of Motion filed 24 June 2009 the applicant has sought summary judgment against the first, second, third and fourth respondents.  Upon the motion coming on for hearing on 13 July 2009, senior counsel for the applicant informed the Court that summary judgment was not presently sought against the fourth respondent.  He further indicated that consent orders were in contemplation as between the applicant and the third respondent.  In the circumstances the hearing of the Notice of Motion proceeded on the basis that relief was sought against the first respondent generally in accordance with paragraph 3 of the Notice of Motion, against the second respondent generally in accordance with paragraph 4 and against the third respondent generally in accordance with paragraph 5.  Needless to say, it was indicated that with the imposition of interest the amounts for which judgments are now sought were slightly greater than the amounts mentioned in the paragraphs mentioned in the Notice of Motion.  Following the conclusion of the hearing of the motion, but before the delivery of these reasons, that part of the proceeding as between the applicant and the third respondent was settled with appropriate orders being made in accordance with Short Minutes of Order signed by the solicitors for the respective parties.  Pursuant to those short minutes it was ordered that judgment be entered against the third respondent (IFTC Broking Services Ltd) in favour of the applicant in the sum of $3,664,366.20.

27                  The present application is brought pursuant to s 31A of the Federal Court of Australia Act 1976 (the ‘Federal Court Act’).

28                  Section 31A of the Federal Court Actwas inserted into the Act by the Migration Litigation Reform Act 2005 (Cth).  Section 31A makes provision for the Court to give summary judgment for an applicant in relation to the whole or any part of the proceeding upon it being satisfied that the respondent has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.  It also provided for a judgment in the nature of summary dismissal of the whole or any part of a proceeding on the application of a respondent in the event that it was satisfied that the applicant had no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

29                  The effect of s 31A was to soften the test for a successful application for summary judgment as stated by the High Court in Theseus Exploration N.L. v Foyster (1972) 126 CLR 507 (‘Theseus Exploration’) and also the test for a successful application for summary dismissal as stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (‘General Steel Industries’).

30                  Section 31A of the Federal Court Act provides as follows:

‘31A(1)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a)            the first party is prosecuting the proceeding or that part of the proceeding; and

(b)            the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.

…

(3)            For the purposes of this section, a defence … need not be:

(a)            hopeless; or

(b)            bound to fail;

for it to have no reasonable prospect of success.

(4)            This section does not limit any powers that the Court has apart from this section.’

31                  The Explanatory Memorandum circulated by authority of the Attorney-General in relation to the Migration Litigation Reform Bill 2005 revealed the purpose of the new s 31A of the Federal Court Act.  It relevantly provided:

‘21       Section 31A provides that the Court may give summary judgment in a matter where it is satisfied that a proceeding or part of a proceeding, or a defence to a proceeding or part of a proceeding, has no reasonable prospect of success.

22.       Subsection 31A(3) provides that for the purposes of giving summary judgment, a proceeding or part of a proceeding, or a defence to a proceeding or part of a proceeding, need not be hopeless or bound to fail for it to have no reasonable prospect of success.  This moves away from the approach taken by the courts in construing the conditions for summary judgment by reference to the ‘no reasonable cause of action’ test, in Dey v Victorian Railways Commissioners … and General Steel Industries Inc v Commissioner for Railways (NSW) … [both of which were summary dismissal cases].  These cases demonstrate the great caution which the courts have exercised in regard to summary disposal, limiting this to cases which are manifestly groundless or clearly untenable. 

23.       Section 31A will allow the Court greater flexibility in giving summary judgment and will therefore be a useful addition to the Court’s powers in dealing with unmeritorious proceedings.

…’

32                  In his Second Reading Speech in the House of Representatives (Hansard 10 March 2005 at p.3) the Attorney-General said, amongst other things:

‘The bill also strengthens the power of the courts to deal with unmeritorious matters, by broadening the grounds on which federal courts can summarily dispose of unsustainable cases. …’

A like observation was made by the Minister delivering the Second Reading Speech in the Senate (Hansard 11 May 2005 at p139).

33                  It may be observed that the word ‘may’ in the expression ‘may give judgment’ in s 31A(1) is permissive not mandatory.

34                  The concept of ‘no reasonable prospect of successfully prosecuting’ a proceeding, which is a relevant issue where summary dismissal is sought under s 31A(2) of the Federal Court of Australia Act, was addressed by Rares J in Boston Commercial Services Pty Ltd (ACN 114 658 070) v G E Capital Finance Australasia Pty Ltd (ACN 070 396 020) (2006) 236 ALR 720.  At [43] his Honour said:

‘The concept of a party having “no reasonable prospect of successfully prosecuting a proceeding” has some similarity to the test at common law for determining whether a jury properly instructed could reach a verdict for the plaintiff. …’

[emphasis added]

At [44] Rares J said:

‘[44]   In a case to which s 31A applies, where there is a real issue of fact to be decided in the sense identified in the above principle [a reference to [43] and to Hocking v Bell (1945) 71 CLR 430 at 441-2], and, possibly, where there is a real issue of law of a similar kind, it is obviously appropriate that the matter goes to trial. …’

35                  In Paramasivam v University of New South Wales [2007] FCA 875, another summary dismissal case under s 31A(2), Tamberlin J said at [14]:

‘… it is essential that the Court must be careful not to do an injustice by summarily dismissing proceedings, or denying an applicant an opportunity to ventilate their case. …’

36                  In White Industries Australia Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 Lindgren J said at [50] that s 31A ‘is concerned with the bringing and defending of proceedings, not just with pleadings; with substance, not just with form’. 

37                  Section 31A(1) of the Federal Court of Australia Act permits the Court to give judgment for an applicant against a respondent ‘in relation to…any part of a proceeding’ if the applicant is prosecuting ‘that part of the proceeding’ and the Court is satisfied that the respondent has no reasonable prospect of successfully defending that part of the proceeding.  The issue tendered by the notice of motion presently before the court is whether or not, in relation to those parts of the proceeding in which claims for relief are made against the first and second respondents, the court is satisfied that those respondents have no reasonable prospects of successfully defending the relevant parts of the proceeding brought against them.

38                  On the hearing of the Notice of Motion, senior counsel for the applicant read three affidavits of Aris Zafiriou, sworn 11 May 2009, 23 June 2009 and 9 July 2009.  The bundle of documents, which became exhibit A on the hearing of a motion filed by the applicant on 11 May 2009, was tendered again and became exhibit NMA on the hearing of the present application, with the exclusion of the documents that were at tabs 20, 21 and 22.  No objection was taken to any part or parts of the affidavits of Mr Zafiriou and no objection was taken to the tender of the bundle of documents which became exhibit NMA.

39                  The first respondent tendered three documents, which became exhibits NM1, NM2 and NM3.  The first document tendered was a copy of an order of Hislop J in the Supreme Court of New South Wales in proceeding S12212 of 2008 in the Common Law Division of the Supreme Court, on 25 October 2008;  Exhibit NM2 was a copy letter from the Deputy Commissioner of Taxation to the first respondent, dated 7 July 2009;  and Exhibit NM3 was a further letter from the Deputy Commissioner of Taxation, dated 7 July 2009, in this case directed to the fourth respondent, together with attached ‘Reasons for Decision’:  These documents were received into evidence, notwithstanding the fact that no claims are presently before the court in respect of the fourth respondent.

40                  I do not propose to refer in detail to the several documents which are to be found in exhibit NMA.  In relation to the first respondent, the relevant documents are at tabs 1 to 5, inclusive, of exhibit NMA, and in relation to the second respondent, the relevant documents are to be found at tabs 6 to 9, inclusive, of exhibit NMA. 

41                  The document at tab 1 is a Notice of Amended Assessment directed to the first respondent in respect of the year ended 30 June 2006.  The document at tab 2 is a Notice of Amended Assessment directed to the first respondent in respect of the year ended 30 June 2007.  The document at tab 3 is a Notice of Assessment directed to the first respondent in respect of the year ended 30 June 2008, and the documents at tabs 4 and 5 are Notices of Assessment and Liability to Pay Penalties. 

42                  The document at tab 6 is a Notice of Amended Assessment in respect of the year ended 30 June 2006, directed to the second respondent.   The document at tab 7 is a Notice of Amended Assessment directed to the second respondent in respect of the year ended 30 June 2007.  The document at tab 8 is a Notice of Assessment directed to the second respondent in respect of the year ended 30 June 2008 and the document at tab 9 is a Notice of Assessment and Liability to Pay Penalty directed to the second respondent. 

43                  Counsel for the applicant helpfully provided an ‘Outline of Submissions on Summary Judgment’ bearing date 2 July 2009.  Those submissions were supplemented by a further document under the heading ‘Applications for Summary Judgment’ of 13 July 2009 which was handed up in court by Senior Counsel for the applicant. 

44                  The amount for which summary judgment is sought against the first respondent is $36,341,461.73 which includes interest, as at 8 July 2009.  No further claim is made for interest between that date and today. 

45                  I am satisfied from a consideration of the relevant documents in exhibit NMA and the terms of the affidavit of Mr Zafiriou of 9 July 2009 - and in particular paragraphs 11, 12 and 15 of that affidavit and annexure A thereto - that the amount claimed by the Commissioner is due and payable. 

46                  Annexure A to the affidavit sworn 9 July 2009 is a certificate under s 255-45 of Schedule 1 to the Administration Act.  It relevantly certifies that as at 8 July 2009 the sum of $36,341,461.73 is a debt due and payable to the Commonwealth by Phillip Grimaldi in relation to the tax related liability referred to in the certificate.  The certificate referred to a series of assessments, notices of assessment and notices of amended assessment dated on various dates between 22 April 2009 and 30 April 2009. 

47                  In relation to the second respondent the amount claimed by the Commissioner is $3,552,577.81 as at 8 July 2009.  Having regard to the terms of the documents to which I have referred in exhibit NMA and to paragraphs 18, 19 and 22 in particular of the affidavit of Mr Zafiriou sworn 9 July 2009 and annexure B to that affidavit, I am satisfied that the amount of $3,552,577.81, as at 8 July 2009, is due and payable by the second respondent to the applicant.

48                  The certificate which is annexure B to the affidavit of Mr Zafiriou certifies that as at 8 July 2009 the sum of $3,552,577.81 is a debt due and payable to the Commonwealth by Garry Bonaccorso in relation to the tax related liability referred to in the certificate.  The earlier provisions of the certificate mentioned the Notices of Amended Assessment and Notice of Assessment which were issued on 5 May 2009 and which are included in the documents within exhibit NMA. 

49                  The second respondent did not seek to be heard in opposition to the applicant’s case for summary judgment.  Senior Counsel for the first respondent put two submissions to the Court.  The first one was that it was premature for the applicant to be seeking judgment against the first respondent on the basis that the Commissioner was endeavouring to ride two inconsistent horses. 

50                  Reference was made to the Commissioner’s ‘Reasons for Decision’ which were an attachment to the letter from the Deputy Commissioner of Taxation to the fourth respondent of 7 July 2009 being, together, exhibit NM3.  In particular, reference was made to the material appearing under the heading, ‘Issue 1’ in the Commissioner’s Reasons for Decision.  That part of the document appearing on page 2 of 18 provided:

‘Issue 1

Are the assets held by Iron Investment Pty Ltd (“Iron Investments”) assets of the Webtel Management Super Fund (“Fund”)?

Decision 1

Yes in response to Issue 1. Pursuant to a Trust Deed between the Fund and Iron Investment, the fund is the beneficial owner of the assets of Iron Investment.’

The first respondent submitted that the Commissioner appeared to be asserting that, at one and the same time, the assets of Iron Investment Pty Ltd were the assets of both the fourth respondent and also the assets of the first respondent. 

51                  Given the authorities to which I have referred, there is, in my view, no problem with the Commissioner being able to secure a judgment based upon the Notices of Assessment and the Certificate which is in evidence against the first respondent, notwithstanding that there may appear to be inconsistent claims in respect of matters which would suggest that the true liability is that of the fourth respondent.  In my opinion, no proper basis exists for the Commissioner to be denied summary judgment against the first respondent in respect of the first matter advanced by senior counsel for the first respondent.

52                  The second matter advanced by senior counsel for the first respondent was that a judgment for the applicant, against the first respondent, would be inconsistent with the terms of paragraph 8 of the Orders made by Hislop J in the Common Law Division of the Supreme Court of New South Wales on 25 October 2008.  Paragraph 8 was expressed in the following terms:

‘8.        Pursuant to section 10 of the Criminal Assets Recovery Act 1990 that no person is to dispose of, or attempt to dispose of, or otherwise deal with or attempt to otherwise deal with any interest in property (within the meaning of “interest in property” as defined in section 7 of the Criminal Assets Recovery Act 1990) of Phillip Felice Grimaldi, including the interests of Phillip Felice Grimaldi in the property specified in the Schedule hereto, except as provided in orders 9, 10, 11, 12 and 13 below.’

It is unnecessary for present purposes to set out in detail the assets referred to in the Schedule to Hislop J’s orders. 

53                  Section 10 of the Criminal Assets Recovery Act 1990 (NSW) allows for the imposition by the court of restraining orders:

‘… that no person is to dispose of, or attempt to dispose of, or to otherwise deal with or attempt to otherwise deal with, an interest in property to which the order applies except in such manner or in such circumstances (if any) as are specified in the order.’

54                  The Criminal Assets Recovery Act 1990 was formerly known as the Drug Trafficking (Civil Proceedings) Act 1990 (NSW), and its origins are to be found in the Drug Trafficking (Civil Proceedings) Bill 1990.  In relation to clause 10 of that Bill, Explanatory Notes were issued, which included:

‘Clause 10 enables the Commission to apply to the Supreme Court for a restraining order preventing the disposal of the interests in property of a person reasonably suspected of having engaged in drug-related activities.  A restraining order may be made in relation to interests in property of any other person if the Court is satisfied that there are reasonable grounds for suspecting that the interests are drug-derived property.  Provision is made for the Court to order the Public Trustee to take control of the property.’

55                  The Second Reading Speech in the Legislative Assembly of New South Wales was delivered by the then Premier, Mr Greiner, on 8 May 1990.  He said:

‘This legislation [referring to the Drug Trafficking (Civil Proceedings) Bill] is aimed squarely at those associated with major drug crime.  Its purpose is to deprive those involved in the drug trade of their illicit profits–profits earned at the expense of their victims and of the community generally.  Importantly, it is not only the profits of a discrete transaction but the proceeds of a life of crime that will be confiscated.  Also crucial is the fact that it is not only the person directly involved in the transaction but also those who knowingly benefit from his or her activities who will be called to account for drug-derived assets and profits.  Therefore, the legislation represents a comprehensive scheme designed to undermine entire organisations engaged in the drug trade.’

[Hansard 8 May 1990 page 2527]

56                  The Minister’s Second Reading speech in the Legislative Council commenced as did the Second Reading Speech of the Premier in the Legislative Assembly.  In the course of his speech in the Upper House the Minister said, amongst other things:

‘… the Supreme Court is empowered to make adequate provision to avoid hardship to the spouse, children and other dependants who are members of the person’s household.

However, it should be emphasised that this provision is not intended to enable families to maintain a standard of living which they enjoy only because of wealth accumulated through the drug trade.  It is merely designed to ensure that dependants’ basic living expenses can be met.  I would also emphasise to honourable members that the intent of the legislation is to squarely place the onus on those who benefit indirectly from drug activities to show that they are bona fide and without notice.  That is fundamental.  It is a clear signal to the underworld and also to those involved in legitimate commercial activity that they should not go anywhere near the drug trade;  they should ostracise the drug trade;  they should avoid any involvement at all.  Otherwise they will be put in the position where, at the very least, they may have to prove that their dealings are genuine commercial transactions without notice of illegality.’

[Hansard, 23 May, 1990 p4270]

57                  It is clear that the transmogrification of the Act into the Criminal Assets Recovery Act has taken it away from a situation where drug trafficking is the central focus of the legislation.  Nevertheless, it is clear to me that, contrary to the submission of Senior Counsel for the first respondent, the restraint imposed and permitted to be imposed by s 10 of the Criminal Assets Recovery Act 1990 was not intended to in any way affect the rights of parties who may have legitimate claims on the assets of a person such as the first respondent.  It is not open, in my view, to the first respondent to suggest that the restraint imposed by Hislop J had the effect of, for instance, precluding the Commissioner from obtaining a judgment against the first respondent or (say) a sheriff effecting execution or a trustee in bankruptcy seeking to gain access to assets - to preclude him or her from obtaining the property of a person in the position of the first respondent.

58                  In my opinion, neither the first respondent nor the second respondent has any reasonable prospect of successfully defending those parts of the proceeding which record the claims of the applicant upon them as found in paragraphs 3 and 4 of the Notice of Motion filed 24 June 2009 or, indeed, the updated claims which take into account interest up to 8 July 2009.  In my opinion, the Court should give judgment for the applicant against each of the first and second respondents as sought. 

Associate:

Dated:         17 July 2009