FEDERAL COURT OF AUSTRALIA

Roberts v Deputy Commissioner of Taxation [2013] FCA 1108

THE COURT ORDERS THAT:

1.    Judgment for the respondent against the applicant with respect to the whole of the proceeding pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth).

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

REASONS FOR JUDGMENT

INTRODUCTION

1    This is an application by the respondent, the Deputy Commissioner of Taxation, for summary judgment against the applicant under s 31A(2) of the Federal Court of Australia Act 1976 (Cth). The respondent also relied on Rule 26.01 of the Federal Court Rules 2011 (Cth) but it is not necessary for me to discuss the operation of that Rule. There is also an application by the applicant for discovery of documents by the respondent under Rule 20.13 of the Federal Court Rules 2011 (Cth). For reasons I will give, it is appropriate for me to deal with the respondent’s application first.

2    The applicant in the proceeding, Mr Reginald George Roberts, seeks the following relief under s 39B of the Judiciary Act 1903 (Cth):

1.    That the Amended Notices of Assessment dated 22 February 2008 be quashed;

2.    A declaration that the Amended Notices of Assessment are invalid pursuant to section 21 of the Federal Court of Australia Act 1976 (Cth);

3.    A declaration pursuant to section 175 of the Act that there has been maladministration of the Income Tax Assessment Act 1936 or a deliberate failure to comply with the provisions of the Income Tax Assessment Act 1936.

3    On 22 February 2008 the respondent issued Notices of Amended Assessment to the applicant for each of the income years ending 30 June 2003, 30 June 2004, 30 June 2005 and 30 June 2006. That was done under s 167 of the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”). The amended taxable income and tax of the applicant in relation to each of these four years was as follows:

4    In addition to these assessments, two further assessments were issued to the applicant on 22 February 2008 dealing with penalties imposed in relation to shortfall amounts. These assessments also contained a statement of the reason for the penalty:

5    I will refer to the assessments issued on 22 February 2008 as the “2008 Assessments”.

6    In the proceeding, the applicant claims that the 2008 Assessments were affected by jurisdictional error and that he is entitled to the relief referred to above.

7    On the application for summary judgment, the respondent relied on the Notices of Amended Assessment and provisions in the ITAA 1936 relating to assessments. In opposition to the application, the applicant relied on an affidavit he had sworn on 20 March 2013 and a number of affidavits sworn by his solicitor.

8    One of the documents put before the Court on the application was a letter from the respondent to the applicant dated 21 February 2011. That letter referred to a notice of objection to the 2008 Assessments lodged by the applicant on 16 July 2009. In his evidence before this Court the applicant referred to his letter dated 26 May 2009 as his objection. At all events, in his letter dated 21 February 2011 the respondent advised the applicant that he had considered the applicant’s objection and that he had decided to allow it in part. He attached to his letter his reasons for that decision. When I refer to the respondent in these reasons, I include his officers and employees. The allowance of the applicant’s objection resulted in substantial reductions in the assessment of taxable income and tax. The details are set out in the following table:

9    There were also reductions in the penalties for shortfall amounts, and, in addition, the reason for the penalties was stated to be recklessness and the penalty was assessed at a rate of 50%.

10    I was told by counsel for the respondent that further Amended Notices of Assessment were issued by the respondent and I assume that was done shortly after his letter (“the 2011 Assessments”). They were not put before me on the present application. The respondent’s letter dated 21 February 2011 also advised the applicant that if he disagreed with the decision he had 60 days from the date the letter was served on him to seek a review.

11    In the course of submissions on the application for summary judgment, I asked the respondent’s counsel about the effect of the 2011 Assessments. Counsel told me that those assessments were not being challenged by the applicant. I asked counsel about the effect of the 2011 Assessments in terms of the applicant’s claims for relief in relation to the 2008 Assessments. Counsel told me that the respondent was content to deal just with the 2008 Assessments, and that the respondent was not at this stage making the submission that the issuing of the 2011 Assessments meant that the applicant’s application challenging the 2008 Assessments was futile.

12    I should also note that in 2009 the respondent brought recovery proceedings against the applicant in the District Court of South Australia. Those proceedings have not yet come to trial and are ongoing. The effect of the 2011 Assessments on those proceedings was not the subject of evidence or submissions before me.

SECTION 31A OF THE FEDERAL COURT OF AUSTRALIA ACT 1976 (CTH)

13    Section 31A of the Federal Court of Australia Act relevantly provides as follows:

31A    Summary judgment

…

(2)    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 defending the proceeding or that part of the proceeding; and

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

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

(a)    hopeless; or

(b)    bound to fail;

for it to have no reasonable prospect of success.

14    The High Court considered the meaning of s 31A(2) in Spencer v The Commonwealth of Australia (2010) 241 CLR 118 (“Spencer”). In that case, a judge of this Court had entered judgment in favour of the defendant to the proceeding under the section. An appeal to the Full Court of this Court was dismissed. The High Court allowed an appeal from the Full Court’s orders. French CJ and Gummow J said that the Full Court had erred because the appellant’s case raised potentially important questions of constitutional law and it involved questions of fact about the existence of an arrangement between the Commonwealth and State of New South Wales “which may justify the invocation of pre-trial processes such as discovery and interrogatories” (at 122 – 123 [4]). Section 31A could not be used in such circumstances. Their Honours said that the exercise of powers to summarily terminate proceedings must be attended with caution (at 131 [24]). Their Honours made the following observations (at 132 [25]):

Section 31A(2) requires a practical judgment by the Federal Court as to whether the applicant has more than a “fanciful” prospect of success. That may be a judgment of law or of fact, or of mixed law and fact. Where there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the Court has formed the view that the applicant is unlikely to succeed on the factual issue. Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter. Existing authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law. But where the success of proceedings is critically dependent upon a proposition of law which would contradict a binding decision of this Court, the court hearing the application under s 31A could justifiably conclude that the proceedings had no reasonable prospect of success.

15    Their Honours noted that the case was one which involved important questions of public and constitutional law and potentially complex questions of fact (at 133 [27]).

16    Hayne, Crennan, Kiefel and Bell JJ also made some observations on the scope of s 31A. Their Honours noted the difference between earlier procedural regimes which required a certainty of failure and the test under s 31A(2) of no reasonable prospect of successfully prosecuting an action. Their Honours said (at 141 [60]):

… The Federal Court may exercise power under s 31A if, and only if, satisfied that there is “no reasonable prospect” of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to “no reasonable prospect” can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase “just and equitable” when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.

THE RELEVANT PROVISIONS OF THE ITAA 1936 AND THE CASES

17    The respondent submitted that by reason of ss 175, 175A and 177(1) of the ITAA 1936 the grounds upon which the 2008 Assessments could be challenged under s 39B(1) of the Judiciary Act were very limited and none of the matters identified by the applicant raised an arguable case with respect to those limited grounds (see also as far as the assessment of administrative penalties is concerned, s 298-30(3) of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“TAA”)).

18    Section 175, 175A and 177(1) are in the following terms:

175    Validity of assessment

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

175A    Objections against assessments

(1)    A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

(2)    A taxpayer cannot object under subsection (1) against an assessment ascertaining that:

(a)    the taxpayer has no taxable income; or

(b)    the taxpayer has an amount of taxable income and no tax is payable.

(3)    Subsection (2) does not prevent the taxpayer from objecting against an assessment if the taxpayer is seeking an increase in:

(a)    the taxpayer's liability; or

(b)    the total of the taxpayer's tax offset refunds.

177    Evidence

(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.

19    The leading case on the scope of judicial review under s 39B(1) of the Judiciary Act when the decision in question is an assessment under the ITAA 1936 is the decision of the High Court in Commissioner of Taxation of the Commonwealth of Australia v Futuris Corporation Limited (2008) 237 CLR 146 (“Futuris”). The following principles emerge from that case:

(1)    Section 175 must be read with ss 175A and 177(1). The validity of an assessment is not affected by a failure to comply with the Act, but a dissatisfied taxpayer may object against an assessment in the manner set out in Part IVC of the TAA. Errors in the process of assessment do not go to jurisdiction where s 175 applies and so do not attract constitutional writs (at 157 [24]).

(2)    Section 175 does not protect from the reach of a constitutional writ a jurisdictional error which means that there is no “assessment” because of one of the following reasons:

(a)    the “assessment” is tentative or provisional; or

(b)    the “assessment” is the result of conscious maladministration in the assessment process.

(at 157 [25])

(3)    The equitable remedies of injunction (s 39B(1) of the Judiciary Act) and declaration (s 21 Federal Court of Australia Act), although not controlled by the principles of jurisdictional error, operate to declare invalidity and restrain unlawful exercises of power. Where s 175 operates there is no invalidity (at 162 [47]).

(4)    An assessment is tentative or provisional if it fails to specify the amount of the taxable income which has been assessed and the amount of tax payable (at 163 [50]).

(5)    A deliberate failure to administer the law according to its terms is a case of conscious maladministration and outside the protection afforded by s 175 of the ITAA 1936 (at 164 – 165 [55]). Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld (at 165 [60]).

(6)    Section 177(1) is not a privative clause in the ordinary use of that term. The section operates to change what otherwise would be the operation of the relevant rules of evidence. The section is not going to have any effective operation in the case of proceedings for judicial review because its wording is not apt to cover allegations of “corruption or other deliberate maladministration” (at 166 – 167 [64] – [66]).

(7)    The appeal was to be decided by the path taken in the reasons and not by any course assumed to be mandated by what was said in one or more of the several sets of reasons in Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Limited (1995) 183 CLR 168 (“Richard Walter Pty Ltd”) (at 168 [70]).

20    A leading case on the requirement that an assessment be definite and certain is Federal Commissioner of Taxation v Hoffnung & Company Limited (1928) 42 CLR 39. In that case the notice of assessment described the matter as “tentative” and the Commissioner had not established that it was definite and certain. An assessment which is definite and certain identifies a fixed and certain sum definitely due. Every assessment may be the subject of an alteration or addition and that does not make it tentative or provisional. An existing matter known to be a presently necessary factor and put aside for future adjustment will make the assessment tentative or provisional (at 56 per Isaccs J; at 58 – 59 per Higgins J; at 65 per Starke J).

21    The fact that an assessment might be amended because of an objection in relation to a prior year of income does not make the assessment tentative or provisional: F.J. Bloemen Propriety Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 360.

22    In McCleary v Federal Commissioner of Taxation (1997) 35 ATR 318 Hill J referred to Federal Commissioner of Taxation v Stokes (1996) 34 ATR 478 and then said (at 321) that an assessment will not be tentative provided that the notice of assessment purports to create a definitive liability and at least there is no evidence to the contrary.

23    As far as conscious maladministration is concerned, I refer to two decisions of the Full Court of this Court.

24    In Marijancevic v Mann, a Deputy Commissioner of Taxation (2008) 73 ATR 709 (“Marijancevic”) the Commissioner made default assessments under s 167 of the ITAA 1936 and the taxpayer argued that the Commissioner had engaged in deliberate or conscious maladministration of the ITAA 1936, or deliberately or consciously acted in excess of his powers in making default assessments to the taxpayer. The submission of the taxpayer was that the assessment was not an attempt to assess income, but rather it was an attempt to justify a garnishee notice which was designed to prevent money being returned to the taxpayer. The Full Court of this Court said that the Commissioner’s audit of the taxpayer’s affairs was a methodical one and that the assessments were a product of a genuine and considered attempt by the Commissioner to arrive at an amount properly included in the taxpayer’s taxable income. The taxpayer’s challenge to the assessment was dismissed. The Full Court also made an important point about the significance of the fact that a subsequent objection was allowed in part and a review which was allowed in even greater part to an allegation of deliberate or conscious maladministration. The Court said that the former did not establish the latter, but was “no more than the working out of the processes for which Part IVC of the TAA provides” (at 719). The Full Court also made the point that in making default assessments under s 167 of the ITAA 1936, the Commissioner was entitled to exercise his judgment to arrive at the figure upon which income tax ought to be levied even though he was not in possession of all relevant information and he was aware that the figure may well be incorrect (at 720).

25    In Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412 (“Denlay”) the Full Court of this Court made a number of points about the meaning of bad faith or conscious maladministration in the context of a challenge to an assessment under s 39B(1) of the Judiciary Act (at 433 [76] – [80]). First, the bad faith or conscious maladministration exception is concerned with actual bad faith and does not include constructive bad faith established by unwitting involvement in an offence. Secondly, the exception is concerned with the state of mind of the officers who made the assessment. Thirdly, the exception is concerned with the integrity of the process and the competence and honesty of the officers involved in making the assessment.

issues on the application

26    The applicant submits that on the facts the respondent’s application for summary judgment should be refused because he has raised an arguable case that the 2008 Assessments meet the description of tentative or provisional or of being the product of conscious maladministration or both.

27    The applicant raises a further argument which seems to raise a question of law. He contends that reckless maladministration is a sufficient basis upon which to set aside an assessment. In fact, his written submissions largely focused on reckless maladministration, although he did not abandon the submission that he had raised an arguable case of conscious maladministration.

28    Whilst the applicant did not attempt a comprehensive definition of recklessness, his written submissions referred a number of times to an absence of a diligent and conscientious approach to the assessment process. As a compound expression that may be accepted as an aspect of recklessness. However, recklessness in this context requires further explication. It seems to me that recklessness is very close to conscious maladministration in that it is proceeding with a course of conduct well knowing that it is likely that it is not in accordance with the law and prescribed administrative processes, but careless or indifferent to that fact. It includes a serious departure from the law and prescribed administrative processes to the point that one can infer wilful blindness or a state of mind akin to that. It does not include negligence, although negligence might be part of the evidence put forward on the issue. Although it is not entirely clear, I took the applicant to be submitting that recklessness in a more expanded sense would be sufficient.

29    In response to the applicant’s submission that recklessness in an expanded sense was sufficient, the respondent submits that the joint reasons of Gummow, Hayne, Heydon and Crennan JJ in Futuris (“joint reasons”) support the proposition that there were only two grounds upon which an assessment may be challenged by a proceeding under s 39B(1) of the Judiciary Act, namely, the assessment is tentative or provisional, or, the assessment is the result of conscious maladministration.

30    The applicant relied on various matters in support of his submission. First, he relied on the decision in Deputy Commissioner of Taxation v Warrick (No 2) [2004] FCA 918; 2004 ATC 4,779 (“Warrick”). That case involved an action by the Commissioner claiming unpaid tax from the taxpayer. The taxpayer filed a defence and counterclaim in which he asserted that the assessments were invalid and should be set aside on various grounds. French J (as his Honour then was) considered the operation of ss 175 and 177 of the ITAA 1936. His Honour said that the weight of High Court authority in relation to the operation of ss 175 and 177 stood against any challenge to the validity of an assessment where the purported assessment was a bona fide attempt to exercise the powers conferred by the Act, related to the subject matter of the Act and was reasonably capable of reference to those powers. His Honour referred to R v Hickman; Ex parte Fox (1945) 70 CLR 598 (“Hickman”) and Richard Walter Pty Ltd.

31    The particular passage in Warrick upon which the applicant relied is as follows (at 4,798 [100]):

In my opinion there is nothing in the materials put before the Court by Mr Warrick that would arguably support a finding of lack of bona fides on the part of the Commissioner. That is so even on the basis that want of bona fides may be established not only by showing bad faith, but also by showing the absence of a diligent and conscientious approach to the decision-making process involved in making an assessment: Applicant WAFV of 2000 v Refugee Review Tribunal (2003) 125 FCR 351. Whatever deficiencies can arguably be inferred about the reasoning process which may have been adopted by the Deputy Commissioner in characterising payments received by Mr Warrick as commission rather than loans, whatever non-sequiturs may be demonstrated, there is not disclosed an arguable failure to endeavour diligently and conscientiously to exercise the power entrusted to her by the statute. In particular, questions put in the course of the s 264 examination do not constitute evidence of the basis upon which the Deputy Commissioner finally made the assessments which are here under challenge. The reasons for the departure prohibition orders are also, at best, a slender basis for any inference and in this case do not support any inference of want of bona fides. The threshold for demonstrating a failure to exercise a power bona fide is not a low one. While it does not require proof of malice or dishonesty it does import a serious dereliction of duty which borders upon, if not amounts to, recklessness in the decision-making process. Want of bona fides is not a vehicle through which the taxpayer may challenge the adequacy of the Commissioner’s logic in making assessments of taxable income.

32    The applicant contended that the observations in this passage support the proposition that a lack of bona fides included recklessness in the decision-making process.

33    With respect, I do not think a great deal of weight can be placed on the decision in Warrick. His Honour’s observations were qualified and the decision was made before Futuris and in light of the two authorities of Hickman and Richard Walter Pty Ltd. It was made clear in the joint reasons in Futuris that the appeal in that case was to be decided by reference to the reasons of their Honours and not by any course assumed to be mandated by what was said in one or more of the several sets of reasons in Richard Walter Pty Ltd.

34    The applicant also contended that the joint reasons in Futuris do not exclude other grounds upon which an assessment may be challenged and those other grounds includes reckless maladministration in the expanded sense. The applicant referred to the reasons of Kirby J in Futuris and in particular, to his Honour’s strong observations to the effect that the two categories did not cover “the entire field of disqualifying legal (or “jurisdictional”) error for s 39B purposes” (at 185 [133]). The applicant contends that Kirby J was correct in observing that the diminution of judicial remedies was probably not intended in Futuris (at 188 [140]).

35    In the context of the reasons of Kirby J in Futuris the applicant referred to and relied upon the approach taken by Porter J in Woods v Deputy Commissioner of Taxation [2011] TASSC 68. In that case, Porter J considered an appeal from an Associate Judge who had ordered that the Deputy Commissioner of Taxation have summary judgment on a claim seeking a declaration that certain assessments were void. One of the grounds upon which it was alleged that the assessments were void concerned whether an opinion under the ITAA 1936 had been formed and that in turn raised issues concerning delegation. Porter J took the view that summary judgment should not have been entered. His Honour said that it was at least arguable that the joint reasons did not intend to limit the categories of jurisdictional error to the two categories identified (at 50). The applicant also relied on the fact that when discussing the alternative ground of conscious maladministration, Porter J suggested (so the applicant submits) that lack of good faith went further than simply conscious maladministration (at 72).

36    I think that the joint reasons in Futuris do limit the grounds of challenge to the two categories identified. I take that view for the following reasons.

37    First, their Honours state (at 157 [25]):

But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an “assessment”. Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an “assessment” to which s 175 applies. Whether this be so is an important issue for the present appeal.

38    Secondly, when considering how s 177(1) of the ITAA 1936 operated in the context of the evidence which may be received on an application for judicial review, their Honours said (at 167 [66]):

… What will be an issue here, as explained earlier in these reasons, are allegations of corruption and other deliberate maladministration. The attribution “correct” given by the concluding word of s 177(1) is inapt to describe this situation which would arise were such allegations (properly pleaded) made good in the judicial review proceeding. Considerations applied above in the construction of s 175 apply here also. The result is that, on its proper construction and its application to the present s 39B case, s 177(1) did not conclude against Futuris curial consideration of alleged deliberate maladministration of the Act with respect to the second amended assessment.

39    As I read this passage their Honours were saying that s 177(1) will not limit the evidence which may be received on a judicial review application because the terms of s 177(1) are not apt to protect the type of allegations, that is, corruption and other deliberate maladministration made in such proceedings.

40    Thirdly, their Honours made it clear that there was no scope for the operation of the so-called Hickman principle in considering the relationship between ss 175 and 177(1) of the ITAA 1936.

41    I note also that the conclusion I have reached is consistent with the observations of the Full Courts in Marijancevic and Denlay and with the observations of Kenny J in Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296; (2010) 81 ATR 40 at [48].

42    In my opinion there are only two categories of error which are not protected by s 175 of the ITAA 1936. The other forms of what constitutes jurisdictional error in other areas of administrative law are not sufficient, nor is recklessness in an expanded sense or carelessness in the administrative process. I accept as arguable for the purposes of this application that that form of recklessness which bears a close affinity with deliberate conduct (and which I have described above) may be sufficient and I will proceed on that basis. For reasons I will now give, the applicant’s case falls well short of establishing an arguable case of conscious maladministration or reckless maladministration in the sense I have described. Hereinafter, references to conscious maladministration includes reckless maladministration in the sense I have described.

43    In order to understand the background to the applicant’s challenges it is convenient to outline the respondent’s reasons for the 2008 Assessments and his reasons for the 2011 Assessments.

44    The respondent’s reasons for issuing the 2008 Assessments are detailed and divided into various sections being “Facts and background”, “Issues and Decisions” and “Discussion” with nine sub-headings under this last heading. I infer that the reasons reflect the results and conclusions of the audit conducted by the respondent.

45    In his affidavit at paragraphs 175 and 176 the applicant sets out the reasons for his contention that the respondent was guilty of maladministration. Those paragraphs are in the following terms:

175    I believe that the ATO has not acted bona fide in exercising its powers against me because:

   175.1    It has accused me of fraud with no evidence;

175.2    It has assessed a tax liability in my name that was a liability in relation to Diesel Fuel Rebates, which were not claimed in my name, but in the names of my associated companies;

175.3    It has made the assessment with a lack of good faith and continues to attempt to recover the tax liability in the District Court without explanation of why the assessment is in my name;

    175.4    It lost one of the envelopes containing pertinent documentation;

175.5    It has failed to return pertinent documents in the 15 to 16 boxes in a timely manner, in circumstances where it arranged, together with the ATO, to obtain those documents again almost immediately after they had been returned to me;

175.6    It has chosen to deny the existence of Mr Campbell and allege that his existence is fabrication without:

     175.6.1    using powers available to it; or

     175.6.2    making reasonable enquiries of his existence; or

     175.6.3    any real investigation of his existence; or

 175.6.4    following up the evidence that I provided to it about Mr Campbell’s existence.

175.7    It has failed to diligently exercise its investigative powers to locate David Campbell;

    175.8    It has treated me as being dishonest at all times without cause;

175.9    It has acted in concert together with the Australian Federal Police to target me and my business;

    175.10    It has failed to treat me fairly and reasonably.

176    I also believe that the ATO is using the court system to engineer a scenario where my businesses are liquidated and I become bankrupt. If I am to be bankrupt, then the calculation of the tax liability of taxpayer companies and, the connection of the tax debt to me personally will never be properly explained and challenged.

46    These reasons or grounds were refashioned or reformulated in the applicant’s written and oral submissions. At the centre of the factual background to the relevant events are a transport or haulage business or businesses, a number of companies controlled throughout or for at least part of the relevant period and diesel fuel rebates referred to in the material as DAFG (Diesel and Alternative Fuel Grants) and FTC (Fuel Tax Credits). Except where it is necessary to do otherwise, I will refer to the DAFG and FTC as diesel fuel rebates.

47    The applicant controlled various companies including Old No. 7 Transport Pty Ltd and Double R Logistics Pty Ltd and Old No. 7 Trucking Co Pty Ltd. The applicant alleged that on or about 1 July 2004 he sold the businesses of Double R Logistics and Old No. 7 Trucking Co to a Mr David Campbell who controlled a company called Interlink Freight Services Pty Ltd. This transaction was said to explain a number of payments to those companies and to the applicant.

48    The respondent considered whether or not there was a transaction of the type described by the applicant. He found that the evidence did not support the existence of such a transaction or, in fact, the existence of Mr Campbell. In his reasons the respondent stated that “System enquiries have failed to find any clear evidence that Mr Campbell exists more than in name only”. The respondent found that after 18 January 2003 there was no evidence that Old No. 7 Trucking Co was or is carrying on an enterprise before or after the alleged sale of business transaction and he found that there was no evidence that Double R Logistics was or is carrying on an enterprise before or after the alleged sale of business transaction. He made a similar finding in relation to Interlink Freight Services. He also found that there was no evidence that Double R Logistics received any payment from customers from the opening of the bank account up to, including or after the alleged sale of business transaction. He made a similar finding in relation to Old No. 7 Trucking Co from 18 January 2003 onwards. He made a finding that there was no evidence that Interlink Freight Services had received any income from customers from the opening of the bank accounts examined up to, including or after the date of alleged sale of business transaction. He found that business activity ceased for Old No. 7 Trucking Co from 17 January 2003 “and that this date may have been as early as November 2002”. He found that there was no evidence that there was any business activity or enterprise being conducted by Double R Logistics from any date.

49    The respondent found that the applicant had not accurately accounted for all income received during the period from 1 July 2002 to 30 June 2006.

50    The respondent said that it could not be established that Mr Campbell existed as a living person and that the evidence showed that the applicant possessed significant control over Interlink Freight Services. The respondent found that the most likely explanation for the alleged sale of business transaction was to provide additional support for the lodgement of BAS figures and claims for DAFG and FTC. He said:

Interposing the business sale provides an appearance of a legitimate purpose for you to access to the funds generated from the payment of DAFG and FTC into the accounts of Trucking and Double R, whilst offering the protection of a corporate veil to the true nature and circumstances of the receipt of funds by these entities. By having significant purchase and sale figures on BAS lodged for all entities, a cursory perusal of the BAS figures may avoid scrutiny about the significant DAFG and FTC payments being deposited into the account of Double R, Trucking and Inter Link.

51    The respondent noted that the applicant was the legal owner of Old No. 7 Trucking Co and Double R Logistics and that he was clearly controlling the funds deposited into all accounts examined “with the possible exception of the Commonwealth Bank account in the name of Mr Campbell”. The respondent noted that even in relation to this account, the applicant was the principal beneficiary of the funds withdrawn from the account over the period examined. The respondent said that Old No. 7 Trucking Co after 17 January 2003, Double R Logistics and Interlink Freight Services were not entitled to receive the funds from the payment of DAFG or FTC claims as the entities were not carrying on an enterprise and the value of the DAFG and FTC payments into the accounts did not make sense. He concluded that the applicant had access and in fact used the funds deposited into and withdrawn from Old No. 7 Trucking Co, Double R Logistics and Interlink Freight Services accounts and as these entities did not have a business nature by virtue of the fact that no evidence could be found of any enterprise being conducted (with the exception of Old No. 7 Trucking Co for which the activity appears to have ceased from 17 January 2003), the funds were attributable to the applicant personally. The respondent noted that Taxation Ruling TR 93/25 provided that proceeds from an illegal activity or transactions were income according to ordinary concepts.

52    The respondent’s reasons contain the following:

In this capacity Trucking (after 17 January 2003), Double R and Inter Link are merely acting as conduits for the receipt of DAFG and FTC payments from the ATO and for which it would be significantly more difficult for you to claim as an individual. Thus, the payments of DAFG and FTC to these entities have no basis in terms of a legitimate claim for fuel expended in an enterprise but relate to a deliberate and carefully constructed scheme to manipulate the DAFG and FTC system for the purpose of channelling funds through a corporate structure to the ultimate benefit of one individual. This individual is shown through the cash flow analysis to be you.

53    I turn now to the respondent’s reasons in relation to 2011 Assessments. The first important point to note is that the respondent’s findings of fact mirror in all material respects the findings he made in relation to the 2008 Assessments. I note that the respondent again states that system enquiries had failed to find any clear evidence that Mr Campbell existed any more than in name only and he went on to say that there was no evidence of Mr Campbell having had dealings with a third party unrelated to the applicant who could corroborate the fact that Mr Campbell actually existed as a living person.

54    As far as I can see, the methodology used in the reasons for the 2011 Assessments differed from the methodology used in the reasons in relation to the 2008 Assessments in that the respondent utilised the deemed dividends provisions in the ITAA 1936.

55    I start with conscious maladministration as that was the focus of the applicant’s submissions. Those submissions fell into three broad categories viz., a complaint about the respondent’s approach to Mr Campbell’s existence, a complaint about alleged inconsistency by the respondent to the diesel fuel rebates and a collection of complaints about loss of documents, contact with the Australian Federal Police (“AFP”) and other matters. The applicant submitted that individually or collectively these matters raised an arguable case of conscious maladministration. I do not think that they do.

56    As to the first matter, the existence of Mr Campbell, the respondent said that he was not satisfied that Mr David Campbell “exists as a living person”. He conducted system inquiries which presumably is a reference to a system which stores information. He said that he had no evidence of dealings between third parties and Mr Campbell which might verify the latter’s existence. He was aware that it was said that there was an account at the Commonwealth Bank in Mr Campbell’s name and he had a document which apparently bore Mr Campbell’s signature. Furthermore, it is reasonable to infer that the evidence which supported the conclusion that the alleged sale of business transaction did not take place also supported (although not as a matter of course) the conclusion that Mr Campbell was a fictitious person.

57    The applicant submitted that the respondent did not conduct “a proper investigation into Mr Campbell’s existence”. He submitted that the respondent did not have regard “to evidence from Mr Campbell and his existence”. I am not sure precisely what this latter allegation means. At all events, the applicant pointed to evidence before the Court of Mr Campbell and his involvement in the alleged sale of business transaction including the applicant’s own sworn evidence, documents suggesting Mr Campbell had an account with the Commonwealth Bank and an Electronic Lodgement Declaration apparently signed by Mr Campbell on 31 August 2005. The question on this application is whether the respondent’s finding on this matter establishes (arguably at least) conscious maladministration by the respondent having regard to the evidence he had, or was aware he did not have but could have obtained. I do not think the applicant’s submission can succeed and in fact, I think that it is hopeless. Even if there were other inquiries the respondent could have made (and I am not satisfied that is so), that circumstance and the respondent’s conclusion falls a long way short of establishing conscious maladministration.

58    As to the second matter, the alleged inconsistency in the respondent’s approach, it is necessary to consider in more detail the respondent’s reasons for the 2008 Assessments. The applicant’s amended assessable income was calculated by the respondent by reference to funds received by the applicant or by companies with which he was found to be associated, being Old No. 7 Transport, Old No. 7 Trucking Co., Double R Logistics and monies paid by a company with which the applicant was found to be associated: Interlink Freight Services Pty Ltd. The respondent concluded that the applicant did not sell the business of Old No. 7 Trucking or Double R Logistics to Interlink Freight Services or Mr Campbell. He concluded that none of Old No. 7 Trucking (after 18 January 2003), Double Logistics and Interlink Freight Services were conducting an enterprise. He had examined a number of bank accounts associated with these entities and with the applicant and Old No. 7 Transport. He concluded that the applicant was lodging diesel fuel rebate claims and Business Activity Statements (BAS) for Old No. 7 Transport, Old No. 7 Trucking Co., Double R Logistics and Interlink Freight Services. He concluded, as I have said, that the last three of these entities were not conducting an enterprise. Substantial amounts for DAFG and FTC were paid into the accounts of Old No. 7 Trucking Co., Double R Logistics and Interlink Freight Services.

59    The respondent found that the applicant had created a scheme which he considered “deliberate and results in the systematic manipulation of the DAFG and FTC schemes for the purpose of deriving a monetary gain for yourself personally”. The scheme involved payments of DAFG and FTC to Old No. 7 Trucking, Double R Logistics and Interlink Freight Services where there was no legitimate basis for such payments and where the payments were channelled through various corporate entities for the ultimate benefit of the applicant.

60    Of the income assessable over the four years ($3,744,402.44) (see the table in [3] above) all but about $100,000 (2002/2003: $74,927; 2003/2004: $25,574.84) was paid to Old No. 7 Trucking Co. or Double R Logistics or by Interlink Freight Services or were payments made by Interlink Freight Services to Old No. 7 Transport. In other words, the payments by or through Old No. 7 Transport (and excluding the payments by Interlink Freight Services) amounted to no more than about $100,000. Furthermore, apart from the period from 23 July 2003 to 17 May 2004 the respondent accepted that Old No. 7 Transport carried on business activities during the relevant period. It seems to me clear from the reasons for the 2008 Assessments that the bulk of the assessable income relates to payments by way of DAFG and FTC to Old No. 7 Trucking Co., Double R Logistics and Interlink Freight Services.

61    The applicant also pointed to a letter from the respondent to the applicant in his capacity as director of Old No. 7 Transport dated 14 March 2008 wherein the respondent acknowledges the legitimacy and propriety of claims by Old No. 7 Transport for diesel fuel rebates during part of the period and immediately thereafter.

62    The applicant submits that nevertheless there is a significant inconsistency between the basis of the respondent’s calculations for the 2008 Assessments and other material. An item of evidence which is crucial to this submission is a note in those ATO papers which have been provided to the applicant. The note was apparently prepared by a Mr Chris Goodwin of the ATO on 3 March 2009 which was approximately one year after the 2008 Assessments. The context appears to be that Mr Goodwin received a message from the applicant who queried his alleged debt to the respondent. Mr Goodwin spoke to the auditor, a Mr Justin Clarke. The following then appears in the note:

The amended assessments under Mr Roberts personal TFN arose as a result of an Audit also done by Justin Clarke, when he was in GST Audit. The amended assessments were prepared by another officer in GST Audit. And a letter was issued to Mr Roberts in 2007 explaining the basis of the amended assessments. After the interview on 4/2/09 Justin arranged that a copy of that letter would be issued to either Mr Roberts or his nominated representative.

The basis of the amendments was that money was transferred from Old No & (sic) Transport Pty Ltd to Mr Roberts’s personal bank accounts and the auditor assessed this undeclared money as fraudulent income. The money came to Old No 7 Transport Pty Ltd as a result of fraudulent diesel fuel rebate claims.

ADD show that Mr Roberts’s amended assessments issued on the following dates:

2003

Penalty notice – 22/2/08

Amended assessment – 22/2/08

2004

Amended assessment – 22/2/08

2005

Amended assessment – 22/2/08

2006

Penalty notice – 22/2/08

Amended assessment – 22/2/08

Further amendment – 13/10/08

Further amendment – 9/12/08

All of the notices issued to Reginald Roberts at PO Box 1040, Fitzroy North VIC 3068

63    The applicant submits that this explanation of the basis of the 2008 Assessments – monies received and passed through Old No. 7 Transport from fraudulent diesel fuel rebate claims – is fundamentally inconsistent with the basis disclosed in the reasons for the 2008 Assessments, the reasons for the 2011 Assessments and with the fact that the respondent did not otherwise suggest that Old Transport No. 7 did carry out business activities or was not otherwise entitled to make DAFG and FTC claims.

64    I am not entirely sure what Mr Goodwin’s note means. However, if it be assumed that it means at the bulk of the applicant’s assessable income were monies received by Old No. 7 Transport as a result of fraudulent diesel fuel rebate claims by that company, that does appear to be inconsistent with the reasons for the 2008 Assessments, the respondent’s letter dated 14 March 2008 and the reasons for the 2011 Assessments. Nevertheless, I am not satisfied that that bears on the reasons for the 2008 Assessments. I must make a practical judgment and I do not think that there is a disputed issue of fact as to the reasons for the 2008 Assessments. They are the reasons produced at the time and, in a sense, confirmed by the reasons for the 2011 Assessments. Those reasons are not inconsistent with Old No. 7 Transport conducting a transport or haulage business and all things being equal, being entitled to make claims for DAFG and FTC. For example, the respondent in his reasons for the 2008 Assessments accepted that apart from the period from 23 July 2003 to 17 May 2004 Old No. 7 Transport was conducting a legitimate business. To the extent that there are any factual errors they could be the subject of Part IVC proceedings. They are not evidence of conscious maladministration.

65    As to the third matter, being various specific complaints, those complaints and my response to them are as follows:

(1)    The applicant claims that the respondent has lost some of the important documentation. It seems to me that, even if that occurred, there is nothing to suggest that it establishes conscious maladministration.

(2)    The applicant claims that the respondent has co-operated with AFP. That seems to have been some time after the 2008 Assessments and is unsurprising in view of the respondent’s conclusions in 2008 and again in 2011.

(3)    The applicant claims that the respondent has stated that it is his goal to bankrupt him. I think that is taking the relevant comment out of context. What was said was that after summary judgment was obtained, the next debt collection action will be bankruptcy.

66    In conclusion, I do not think that the applicant has an arguable case of conscious maladministration.

67    The applicant submits that the 2008 Assessments were tentative or provisional because investigations by the respondent continued after they had been made and because if the applicant was conducting the enterprise and not the various companies, the applicant has not been afforded his entitlement to the diesel fuel rebates. As to the first matter, none of the correspondence or notes to which I was referred and which suggested, for example, that the AFP was investigating Mr Roberts’ companies for fraud, that the respondent was investigating trusts associated with the applicant or, that in late 2010 the applicant’s objection was not then finalised suggests to me that the assessments were tentative or provisional. As to the second matter, I cannot see how even if there has been a mistake about entitlement to diesel fuel rebates, that that matter, although relevant in Part IVC proceedings, tended to establish or established that the 2008 Assessments are tentative or provisional.

68    In conclusion, I do not think that the applicant has an arguable case that the 2008 Assessments are tentative or provisional.

69    The respondent has made out a case for summary judgment. In other words, I am satisfied that the respondent has shown that the applicant has no reasonable prospect of successfully prosecuting the proceeding.

70    In his originating application, the applicant made an application for discovery by way of interlocutory relief. The documents were identified more precisely in paragraph 7 of the affidavit of the applicant’s solicitor sworn on 27 March 2013. The applicant asked me to deal with his application for discovery before the respondent’s application for summary judgment. I heard them together, but I decline to determine the application for discovery first. If a party is entitled to summary judgment that application should be dealt with as expeditiously as possible. As French CJ and Gummow J said in Spencer, summary judgment may not be warranted because there are issues of fact which may justify “the invocation of pre-trial processes such as discovery and interrogatories” (at 123 [4]).

71    Even if I determined the application for discovery first, that would not avail the applicant. The existing authorities seem to me justify a refusal of discovery where as here the applicant falls well short of establishing an arguable case: WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175; Carmody v MacKellar (1996) 68 FCR 265; Jilani v Wilhelm (2005) 148 FCR 255 at 273 [108].

CONCLUSION

72    The respondent is entitled to an order under s 31A(2) of the Federal Court of Australia Act that it have judgment against the applicant with respect to the whole of the proceeding.

Associate:

Dated:    29 October 2013