FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Bollands (No 2) [2012] FCA 1148

THE COURT ORDERS THAT:

1.    A new paragraph 12 of Annexure "A" to the orders made on 18 April 2012 (as varied on 10 September 2012) be inserted in the following terms:

12    Nothing in this order precludes you from making demands from time to time upon the Fourth Respondent in its capacity as trustee of the D&J Discretionary Trust and in its capacity as trustee of the D&J Investment Trust with respect to:

(a)    your joint and individual loans to the D&J Discretionary Trust; and/or;

(b)    your joint and individual loans to the D&J Investment Trust;

for the repayment of such amounts as will be applied solely towards paying your reasonable legal expenses of this proceeding, any objections and

proceedings pursuant to Part IVC of the Taxation Administration Act 1953 with respect to the amended assessments and penalty assessments that are the subject of this proceeding and any judicial review proceedings against the Applicant's decision not to vary notices issued under section 260-5 of Schedule 1 of the Taxation Administration Act 1953.

2.    Paragraphs 12 to 14 of Annexure "A" of the orders made on 18 April 2012 (as varied on 10 September 2012) be renumbered 13 to 15, respectively.

3.    New paragraph 10 of Annexure "C" of the orders made on 18 April 2012 (as varied on 10 September 2012) be inserted in the following terms:

10    Nothing in this order precludes you from repaying from time to time such amounts as are demanded by the First Respondent up to the total amount of $250,000 (or such other amount as the Court may order from time to time) pursuant to paragraph 12 of Annexure "A".

4.    Paragraphs 10 to 12 of Annexure "C" of the orders made on 18 April 2012 (as varied on 10 September 2012) be renumbered 11 to 13, respectively.

5.    If any amounts are repaid, in respect of a demand made by the First Respondent pursuant to paragraph 12 of Annexure "A" of the orders made on 18 April 2012 (as varied on 10 September 2012), as amended, the Fourth Respondent must pay that amount into the trust account in the name of King & Wood Mallesons. Such amounts must only be applied for the First Respondent's reasonable legal expenses of:

(a)    this proceeding;

(b)    any objections and proceedings pursuant to Part IVC of the Taxation Administration Act 1953 with respect to the amended assessments and penalty assessments that are the subject of this proceeding; and

(c)    any judicial review proceedings against the Applicant's decision not to vary notices issued under section 260-5 of Schedule 1 of the Taxation Administration Act 1953,

(together, "the Proceedings").

6.    On 1 November 2012, the solicitors for the First Respondent file a written certificate in the form of Annexure "D" setting out the amount of the legal expenses reasonably incurred by the First Respondent in connection with the Proceedings up to 31 October 2012 and then every three months thereafter for expenses incurred in the preceding 3 months.

7.    There be liberty to apply.

8.    The Applicant pay the First Respondent's costs of the application.

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

ANNEXURE "D"

CERTIFICATE PURSUANT TO THE ORDERS OF THE HONOURABLE JUSTICE MCKERRACHER DATED [INSERT DATE]

FEDERAL COURT OF AUSTRALIA

DISTRICT REGISTRY: WESTERN AUSTRALIA

Division: General    No WAD 101 of 2012

I, David Wood, Partner of King & Wood Mallesons, solicitors for the First Respondent, certify that the amount of the legal expenses incurred by the First Respondent in connection with:

(a)    this proceeding;

(b)    any objections and proceedings pursuant to Part IVC of the Taxation Administration Act 1953 with respect to the amended assessments and penalty assessments that are the subject of this proceeding; and

(c)    any judicial review proceedings against the Applicant's decision not to vary notices issued under section 260-5 of Schedule 1 of the Taxation Administration Act 1953,

(together, "the Proceedings"), during the period between [insert relevant time period] is as follows:

I further certify that the amount of the disbursements incurred by the First Respondent in connection with the Proceedings during the period between [insert relevant time period] is as follows:

Having regard to the complexity of the issues in dispute and the nature of the work which has been undertaken, I consider these amounts to be reasonable.

Date: [insert date]

REASONS FOR JUDGMENT

INTRODUCTION

1    In Deputy Commissioner of Taxation v Bollands [2012] FCA 1050 (Bollands No 1) I made brief orders requiring the parties to file a consent minute or, alternatively, minutes of proposed orders reflecting the reasons in that decision. As a result the parties have helpfully agreed all aspects but one.

2    The point of departure is that the applicant (the Commissioner) contends that there should be a discrete break-down of the time and legal expenses incurred in each of the proceedings referred to in Order 5 in the self-certification regime imposed on the first respondent's (Mr Bollands) solicitors. The Commissioner seeks specific itemisation in relation to each of the three sets of proceedings described in Order 5, indicating in each instance the hours, hourly rate and name of the solicitor or counsel who worked on the matter. Mr Bollands objects to providing such a break-down of costs for each of these proceedings.

RESPECTIVE CONTENTIONS

3    The Commissioner argues that providing a broad break-down between the three sets of proceedings is in accordance with the 'measured approach' in my reasons 'going a little further than self-certification' (Bollands No 1 at [28]).

4    The Commissioner also notes from Bollands No 1 that the legal fees and disbursements for Mr Bollands could be substantial and that changing circumstances may affect the estimates as time moves on. On that basis, the Commissioner contends that it is appropriate that the parties be aware of the total costs requiring self-certification for each of the three proceedings over the period.

5    In support of his contention, the Commissioner argues that it would not be onerous given Mr Bollands' solicitors professional responsibility to provide ongoing costs disclosures to Mr Bollands in accordance with s 3.4.9(1)(c) and s 3.4.16 of the Legal Profession Act 2004 (Vic). Equally it would be necessary for the solicitors to be aware of the separate incurring of costs should costs orders be made in favour of Mr Bollands in any of the legal proceedings. The Commissioner contends that any additional administrative burden borne by the solicitors in allocating costs to the respective three files should not result in increased legal costs.

6    Mr Bollands, however, argues that the costs break-down proposed by the Commissioner would have no utility. My reasons in Bollands No 1 contemplate an initial global cap of $250,000 which Mr Bollands is entitled to use to meet his reasonable legal expenses. There is no further condition contemplated in my reasons. Mr Bollands says that he is entitled to use such a sum to meet the reasonable legal expenses in any of the proceedings as he sees fit.

7    Mr Bollands points out that the current proceeding and the related proceedings arise from a single event, being the issue of amended income tax assessments to Mr Bollands on 9 March 2012. My reasons do not impose 'sub-caps' for specific categories or aspects of work which are undertaken by the solicitors for Mr Bollands.

8    Mr Bollands contends that a costs break-down would be unduly intrusive in light of my observation in Bollands No 1 (at [18]) that 'it is not for the Court to sit over the shoulder of his solicitors to make sure that they are charging appropriately for the work which is being carried out'. Mr Bollands contends that an imposition of a requirement to provide a discrete costs break-down for each proceeding would be unnecessary scrutiny and would impose unreasonable and unnecessary administrative burden which would result in additional costs.

CONSIDERATION

9    Having regard to the starting point that Mr Bollands should be entitled to access funds for properly incurred legal costs, there remain two competing considerations. On the one hand, there are the interests of creditors generally, including, potentially, the Commissioner, in ensuring that the estate is not depleted unduly by excessive or unnecessary expenditure. On the other hand, having regard to the fact that Mr Bollands is entitled to be properly represented by his professional advisors, it is an additional feature of that proper representation that to the extent he is entitled to client legal privilege, that privilege should not be eroded in any way by any form of intrusion into the detail of the work done or services provided to him.

10    As the self-certification regime proposed by the Commissioner simply contemplates a broad allocation or division between practitioners and proceedings of the totality of expenditure between the three areas of professional activity, it might be thought that there is no obvious risk of any intrusion upon principles of client legal privilege.

11    It seems that the main issue is whether it would be unduly burdensome to allocate professional charges between the various proceedings. This requirement, particularly in circumstances where it is quite possible that the professional services provided could relate to all of the activities at certain times, is probably the factor which tends to make the break-down in some circumstances unwieldy. The work which might be done on one aspect of the matter generally could at some stage be necessary for all three areas of advice and representation.

12    In those circumstances, I am inclined to the view that the benefit to be attained by the break-down proposed by the Commissioner is outweighed by the burden in doing so. This is for the simple reason that it would be necessary to determine in each and every instance whether the work being done was referable to only one or multiple proceedings and, if so, how many of them. It is true that this exercise may be necessary on a taxation of costs but it is one thing to address these issues in analysing whether work was necessary for a particular purpose only but another thing to be addressing that consideration in advance and throughout and making the allocation in accordance with the self-certification regime proposed.

13    I do not think this difficulty should be overstated because at any given date it may only be possible for services to relate to one of the proceedings. But certainly at some point in the professional services timeline the allocation of services to one only proceeding may be unworkable and unrealistic. Ultimately, in my view and bearing in mind there is always liberty to apply to vary the orders, it seems to me that the benefit in the break-down proposed by the Commissioner is outweighed by the burden.

CONCLUSION

14    Accordingly, I will settle Annexure D of the proposed orders in the terms sought by Mr Bollands.

Associate:

Dated:    19 October 2012