FEDERAL COURT OF AUSTRALIA

Denlay v Commissioner of Taxation (No 3) [2012] FCA 317

THE COURT ORDERS THAT:

1.    The taxation appeal is dismissed.

2.    The listing of the appeal for further hearing presently fixed to commence on 6 February 2012 is consequently vacated.

3.    Costs of and incidental to the appeal are reserved.

4.    The question of costs in respect of the appeal is to be heard on Friday 9 March 2012 at 10.15am.

5.    Mr Denlay is to file such affidavits if any upon which he proposes to rely in respect of the question of costs on or before 29 February 2012 together with a related outline of submissions.

6.    The respondent is to file such affidavits if any upon which he proposes to rely in respect of the question of costs on or before 7 March 2012 together with a related outline of submissions.

7.    The Commissioner of the Australian Federal Police is granted leave to deal directly with the Registrar in respect of the disposition of confidential exhibits and other material with liberty to apply being reserved in that regard.

8.    Liberty to apply in respect of costs is reserved.

9.    The costs of today is reserved.

10.    The Registrar is directed to send a copy of these orders to the trustees of the bankrupt estate of Mrs Denlay, Messrs Bettles and Khatri.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

THE COURT ORDERS THAT:

1.    The taxation appeal is dismissed.

2.    The listing of the appeal for further hearing presently fixed to commence on 6 February 2012 is consequently vacated.

3.    Costs of and incidental to the appeal are reserved.

4.    The question of costs in respect of the appeal is to be heard on Friday 9 March 2012 at 10.15am.

5.    Mrs Denlay is to file such affidavits if any upon which she proposes to rely in respect of the question of costs on or before 29 February 2012 together with a related outline of submissions.

6.    The respondent is to file such affidavits if any upon which he proposes to rely in respect of the question of costs on or before 7 March 2012 together with a related outline of submissions.

7.    The Commissioner of the Australian Federal Police is granted leave to deal directly with the Registrar in respect of the disposition of confidential exhibits and other material with liberty to apply being reserved in that regard.

8.    Liberty to apply in respect of costs is reserved.

9.    The costs of today are reserved.

10.    The Registrar is directed to send a copy of these orders to the trustees of the bankrupt estate of Mr Denlay, Messrs Bettles and Khatri.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

1        These tax appeals are presently part heard. The occasion for that is that the time previously allowed for their hearing proved not to be sufficient. Another consideration which has necessitated their adjournment until this month was the unfortunate circumstance attending Mrs Denlay’s health with a consequential inability, demonstrated upon medical evidence, for her to give evidence orally last year.

2        When the taxation appeals were last mentioned before the court in December there was no indication that there was any contingency then which might affect the resumption of the trial of each of the appeals next week. Thereafter, though, an event which does intrude in respect of their hearing occurred. Mr and Mrs Denlay, for reasons which seemed, doubtless, sound to them, determined each to present a debtor’s petition. They have, as a result, become bankrupts. The trustees of their bankrupt estates are Messrs Jason Bettles and Raj Khatri of the firm Worrells Chartered Accountants.

3        A communication signed on behalf of the trustees by Mr Bettles with respect to the taxation appeals was received yesterday. A copy of that is exhibit 1 in today’s proceeding. Materially, Mr Bettles advises by that letter and with respect to each of the taxation appeals:

As trustee of the bankrupt estates, I do not intend on continuing the action commenced by the bankrupts, nor is it currently my intention to attend the forthcoming directions hearing.

4        The “forthcoming directions hearing” is the proceeding today. Upon the case being called on, there was no appearance by or on behalf of the trustees in bankruptcy of Mr and Mrs Denlay. That being the case, an event of default has occurred by the person who, as a result of the bankruptcy, has the carriage of the taxation appeals.

5        Section 60 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) provides for a stay of legal proceedings for a time pending the making of an election by a trustee in bankruptcy as to their disposition. The letter from Mr Bettles of 1 February 2012 is not, insofar as the disposition of the taxation appeals is concerned, qualified in any way. It constitutes an election. An election to abandon, or discontinue for that matter, a proceeding can be constituted by correspondence in which the trustee evinces:

… a clear intention not to prosecute the proceeding; whether by way of discontinuance or abandonment does not much matter.

See Cole v Challenge Bank Limited [2002] FCAFC 200 at [14] to [16] and [22] per Nicholson, Gray and Emmett JJ. This is not a conditional election.

6        Another provision of the Bankruptcy Act also intrudes in relation to the disposition of the cases today. That is s 178. Section 178 permits the review by a bankrupt of a trustee’s decision. A bankrupt is allowed 60 days from the date upon which the decision comes to his or her attention to apply to the court for such a review.

7        The contingency of such a review moved McDonald J in Bendigo Bank Limited v Demaria [2002] VSC 218 at [34] to [38] to observe that in a circumstance where bankruptcy had intruded upon pending litigation, it may be more appropriate for the court to order that the proceeding be stayed until further order rather than be dismissed, so as not to create a respondent judicata and thus prejudice the bankrupt’s right to continue the action should the bankrupt apply to the court to review the trustee’s decision under s 178.

8        As it happened, there was an application this morning by Mr Tiplady of Nyst Solicitors, the firm which had hitherto been the solicitor on the record for Mr and Mrs Denlay in the taxation appeals, for leave to appear this morning on their behalf. A grant of such leave was not opposed.

9        In the circumstance where a contingency of review, at least in law, existed, it seemed appropriate to me, particularly, to have the benefit of submissions and any instructions on that subject made to the court. Leave, therefore, was granted to Mr Tiplady to appear on behalf of each of Mr and Mrs Denlay. I drew to his attention the contents of exhibit 1, the letter of 1 February from Mr Bettles. He informed the court, on instructions, that it was not the intention of either Mr or Mrs Denlay to seek the review of their bankruptcy trustee’s decision not to continue with the prosecution of the taxation appeals.

10        In those circumstances the Commissioner sought an order that the appeals be dismissed. They are presently listed to resume on Monday next. However, it is quite apparent from the trustee’s communication of 1 February 2012, as well as the absence of any appearance today by or on behalf of the trustees, that there is no intention at all to prosecute those taxation appeals. That being the case, the appeals must, in my opinion, be dismissed.

11        There is no reason to make an order for their stay because it has been expressly stated that there is no intention on the part of either Mr or Mrs Denlay to seek the review of the trustee’s decision.

12        Upon that circumstance of dismissal, the Commissioner foreshadowed that he wished to have an order for costs in his favour. Such an order would be one made after bankruptcy. Upon that intention being signified, it was submitted on behalf of Mr and Mrs Denlay that there were reasons why the usual order, ie, that costs would follow the event, should not be made. It seems to me that a costs application where the usual order is said not to be applicable ought not to be decided in a factual vacuum. That being so, it is necessary to make provision by direction in respect of the filing of material and for procedural fairness reasons, also for the filing in advance of outlines of submissions.

13        Another circumstance which attends these taxation appeals is that the court received and made special provision by direction for a volume of confidential material. There is a need for that material to be dealt with in a way which preserves its confidentiality but also which preserves the requirement for a court of record to maintain its record. The Commissioner of the Australian Federal Police has an interest in such material and it is appropriate that, in the first instance, the Federal Police Commissioner and the Registrar deal with each other as to the disposition of confidential material having regard to the considerations which I have mentioned and the Archive Act 1983 (Cth), with liberty to apply to the court in the event of there being some controversy as to how the material ought to be dealt with as a consequence of the dismissal of the taxation appeals.

Associate:

Dated:    28 March 2012