FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Vasiliades [2015] FCA 412

REASONS FOR JUDGMENT

1    The Deputy Commissioner of Taxation (“the Commissioner”) seeks judgment and declaratory orders against Mr and Mrs Vasiliades. The Commissioner seeks judgment against Mr Vasiliades in default under r 5.23 of the Federal Court Rules 2011 (Cth), and alternatively summary judgment under s 31A of the Federal Court of Australia Act 1976 (Cth) or r 26.01 of the Federal Court Rules 2011 (Cth). The Commissioner also seeks declaratory orders against both Mr and Mrs Vasiliades that an amount in an account in the name of Mrs Vasiliades is held on trust for the benefit of Mr Vasiliades. Mr and Mrs Vasiliades did not appear at the hearing of the Commissioner’s application. Their representative had previously informed the Commissioner’s legal representative that Mr and Mrs Vasiliades would not be represented at the hearing when it had been set to be heard on Friday 24 April 2015. It was adjourned on that day to be heard on 30 April 2015 and notice of the adjournment was given to Mr and Mrs Vasiliades by the Commissioner’s legal practitioners to their representative.

2    The Commissioner’s claim on which he seeks judgment against Mr Vasiliades is a debt in the sum of $30,315,876.54 for income tax, general interest charges, administrative penalties and shortfall interest charges. The Commissioner relied upon a certificate given under s 255-45 of Schedule 1 to the Taxation Administration Act 1953 (Cth) stating that the amount was due and payable by Mr Vasiliades to the Commonwealth as at 30 April 2015. The sum was made up of the following amounts:

Income Tax

Administrative Penalty Amounts in respect of statements

Shortfall Interest Charge

The Commissioner’s claim for judgment on this amount is brought in this Court under s 39B(1A)(c) of the Judiciary Act 1903 (Cth).

3    Original jurisdiction is conferred upon this Court in matters “arising under [a] law” of the Commonwealth. Section 39B(1A)(c) provides:

(1A)    The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:

[…]

(c)    arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.

The High Court explained in LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575, 581 that jurisdiction is attracted under a law of the Commonwealth in respect of a right or property “which is the creation of federal law”: see also Deputy Commissioner of Taxation v Cheung Kong Infrastructure Holdings Ltd [2013] FCA 707, [11]; Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 8) [2013] FCA 494, [12]-[13]. In the present proceeding, the Commissioner’s claim is for a debt due to the Commonwealth created by, and arising under, federal income tax legislation and, therefore, the judgment sought is within the jurisdiction conferred upon this Court by s 39B(1A)(c) of the Judiciary Act 1903 (Cth).

4    An applicant may seek default judgment under r 5.23(2)(c) if the Court is satisfied that the applicant is entitled to the order. Rule 5.23(2) relevantly provides:

If a respondent is in default, an applicant may apply to the Court for:

[…]

(c)    if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings—an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; […]

This proceeding was commenced by originating application and is supported by a statement of claim as contemplated by r 5.23(2)(c). An order giving judgment may be made under the rule if a respondent is in default. Rule 5.22 identifies the circumstances constituting default for these purposes and provides:

A party is in default if the party fails to:

(a)    do an act required to be done, or to do an act in the time required, by these Rules; or

(b)    comply with an order of the Court; or

(c)    attend a hearing in the proceeding; or

(d)    prosecute or defend the proceeding with due diligence.

In this case both Mr and Mrs Vasiliades are in default within the meaning of r 5.22 by not having complied with orders made by the Court. On 20 February 2015, Gordon J made orders including that Mr and Mrs Vasiliades file and serve a defence by 26 March 2015. Neither has done so. Each had also been required, as parties to the proceeding, to attend the directions hearing on 20 February 2015 and failed to do so either in person or by their legal practitioner. I am satisfied, therefore, that the Commissioner is entitled to judgment against Mr Vasiliades in default under r 5.23(2)(c) .

5    The Commissioner also relied, in the alternative, upon s 31A of the Federal Court of Australia Act 1976 (Cth) and r 26.01 for summary judgment against Mr Vasiliades. Section 31A enables the Court to give summary judgment for a party against another if satisfied that the other party “has no reasonable prospect of successfully defending the proceeding”. Section 31A(3) provides that a defence need not be hopeless or bound to fail for it to have no reasonable prospect of the success. Rule 26.01 also provides that a party may apply to the Court for summary judgment where, relevantly, “the respondent has no reasonable prospect of successfully defending the proceeding or part of the proceeding”. It is not strictly necessary to consider whether the Commissioner has also satisfied the requirements to obtain summary judgment under these provisions, but it may be desirable to deal with the question as it was also relied upon and was dealt with in both written and oral submissions.

6    The Commissioner sought summary judgment in reliance upon certificates produced under s 255-45 of Schedule 1 to the Taxation Administration Act 1953 (Cth) which provides:

(1)    A certificate:

(a)    stating one or more of the matters covered by subsection (2) or (3); and

(b)    signed by the Commissioner, a *Second Commissioner or a *Deputy Commissioner;

is prima facie evidence of the matter or matters in a proceeding to recover an amount of a *tax-related liability.

(2)    A certificate may state:

(a)    that a person named in the certificate has a *tax-related liability; or

(b)    that an *assessment relating to a tax-related liability has been made, or is taken to have been made, under a *taxation law; or

(c)    that notice of an assessment, or any other notice required to be served on a person in respect of an amount of a tax-related liability, was, or is taken to have been, served on the person under a *taxation law; or

(d)    that the particulars of a notice covered by paragraph (c) are as stated in the certificate; or

(e)    that a sum specified in the certificate is, as at the date specified in the certificate, a debt due and payable by a person to the Commonwealth.

(3)    A certificate may state:

(a)    that a *foreign revenue claim for an amount specified in the certificate has been made by the competent authority under the relevant international agreement; or

(b)    that the relevant requirements of the relevant international agreement have been complied with in relation to the foreign revenue claim; or

(c)    that the claim was registered under Division 263 on the date specified in the certificate; or

(d)    that, as at the date of the certificate, the Commissioner has or has not received advice from the competent authority under the relevant international agreement about the reduction or discharge of an amount to be recovered under the claim; or

(e)    that the particulars of any reduction or discharge of an amount to be recovered under the claim are as specified in the certificate.

The Commissioner produced a certificate under s 255-45 dated 30 April 2015 certifying that as at that date “the amount of $30,315,876.54, [was] a debt due and payable by Socrates Vasiliades to the Commonwealth of Australia”. He had previously produced three similar certificates dated 31 March 2015 for the amounts due and payable in respect of the debt claimed as at 31 March 2015. Each certificate, and relevantly the latter in time, stands as prima facie evidence of the amount claimed. The debt sued upon (set out above) arises from notices of amended assessment increasing the tax liability of Mr Vasiliades for income tax for the years of income ended 30 June 2007, 30 June 2008, 30 June 2009 and 30 June 2010, and from notices of assessment of administrative penalty for those years. Mr Vasiliades became liable to pay the shortfall interest charge as a result of the increase to his liability to income tax by operation of s 280-100 of Schedule 1 to the Taxation Administration Act 1953 (Cth). General interest charge accrued on the amounts which were due and payable (a) pursuant to s 5-15 of the Income Tax Assessment Act 1997 (Cth) and Part IIA of the Taxation Administration Act 1953 (Cth) under the amended assessments for the relevant years, and (b) pursuant to s 298-25 of Schedule 1 to the Taxation Administration Act 1953 (Cth) and Part IIA of the Taxation Administration Act 1953 (Cth) in respect of the notices of assessment of administrative penalty for the years in question. Neither Mr Vasiliades nor Mrs Vasiliades appeared at the hearing or sought in any way to challenge the liability sued upon in this proceeding and in those circumstances I am satisfied (had it been necessary) that the Commissioner would also be entitled to summary judgment against Mr Vasiliades for the amount of $30,315,876.54.

7    The Commissioner next sought a declaration that Mr Vasiliades has an equitable interest in the proceeds of the sale of a property which had been registered solely in the name of Mrs Vasiliades. The proceeds are held in an account in her name with Macquarie Bank and the Commissioner also sought an order declaring that Mrs Vasiliades holds half of the proceeds of the sale of the property, namely the amount of $2,710,196.68, in her account for, or on account of, Mr Vasiliades. The net proceeds of the sale in the account are made up of the net proceeds of the deposit of $1,795,950 and the net proceeds of the balance payable at settlement of $3,624,443.35 totalling $5,420,393.35. Half of that amount is held by Mrs Vasiliades on behalf of her husband, namely, $2,710,196.68.

8    The declaratory orders are sought by the Commissioner in the accrued jurisdiction of the Court pursuant to s 32 of the Federal Court of Australia Act 1976 (Cth), which in the case of civil proceedings, relevantly provides:

(1)    To the extent that the Constitution permits, jurisdiction is conferred on the Court in respect of matters not otherwise within its jurisdiction that are associated with matters (the core matters) in which the jurisdiction of the Court is invoked.

(2)    The jurisdiction conferred by subsection (1) extends to jurisdiction to hear and determine an appeal from a judgment of a court so far as it relates to a matter that is associated with a matter (the core matter) in respect of which an appeal from that judgment, or another judgment of that court, is brought.

(3)    Subsections (1) and (2) do not apply in relation to a core matter that is an indictable offence matter.

[…]

The scope of a controversy that may come within the exercise of the Court’s jurisdiction was considered in Fencott v Muller (1983) 152 CLR 570, where it was said in the joint judgment of Mason, Murphy, Brennan and Deane JJ at 608:

Claims which are described by these or similar phrases cannot be determined by exercise of the judicial power referred to in s. 71 of the Constitution, for that power can be exercised only to determine those matters in which federal jurisdiction is or can be conferred under Ch. III of the Constitution. For precisely this reason, however, it is necessary to attribute to “matter” in ss. 75 and 76 of the Constitution a connotation which does not deny to federal judicial power its primary character: that is, the power of a sovereign authority “to decide controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property” (per Griffith C.J. in Huddart, Parker & Co. Pty. Ltd. v. Moorehead (19)). The unique and essential function of the judicial power is the quelling of such controversies by ascertainment of the facts, by application of the law and by exercise, where appropriate, of judicial discretion. In identifying a s. 76(ii) matter, it would be erroneous to exclude a substantial part of what is in truth a single justiciable controversy and thereby to preclude the exercise of judicial power to determine the whole of that controversy. What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships. The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues in controversy are defined and the claims for relief are set out. But in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.

The declarations sought by the Commissioner in this case are within the accrued jurisdiction of the Court. The primary claim by the Commissioner against Mr Vasiliades is for judgment on a debt in respect of which the Court has jurisdiction. The ancillary declarations sought by the Commissioner facilitate, and relate to, the enforcement of that debt. The freezing order originally made in this proceeding was similarly related to the claim the Commissioner was seeking to enforce in the Court’s jurisdiction: see also Sarkis v Deputy Commissioner of Taxation (2005) 59 ATR 33.

9    The Commissioner submitted in support of the declarations that Mr Vasiliades has an equitable interest in the proceeds of the sale by Mrs Vasiliades of the land at 3 Towers Road Toorak by virtue of a presumed or resulting trust. The Commissioner pleaded facts against Mr and Mrs Vasiliades which are taken to be admitted pursuant to r 16.07(2) because neither Mr nor Mrs Vasiliades specifically denied any of the matters pleaded by the Commissioner. The matters pleaded by the Commissioner are, in any event, consistent with evidence given by them on affidavit in previous contested interlocutory applications in this proceeding and upon which the Commissioner relied.

10    The admitted pleadings and evidence establish that the property in question was acquired under a contract entered into by Mr Vasiliades which permitted him to nominate his wife as the purchaser of the property. The contract of sale was made on 8 May 2002 showing as the purchaser him “and/or nominee” for a purchase price of $4,600,000. Mr Vasiliades specifically deposed to that fact in an affidavit which he had filed in the proceeding in opposition to earlier orders which the Commissioner had sought, and in that affidavit Mr Vasiliades said that he had entered into the contract to purchase the property in his name “and/or nominee”. Similarly, Mrs Vasiliades deposed in her affidavit in the earlier contested application in the proceeding that her husband had entered into a contract to purchase their home on her behalf and that he had subsequently nominated her as the purchaser.

11    The contract for the purchase of the property was completed around 5 September 2002 by a transfer to Mrs Vasiliades. The purchase was funded partly by a joint loan to Mr and Mrs Vasiliades from the Commonwealth Bank in the amount of $3,925,000 and partly by contributions of money by them. The joint loan to them was secured by mortgage to the Commonwealth Bank over the property. The then existing dwelling on the property was subsequently demolished and a new family matrimonial home was constructed. The cost for the construction of the new dwelling was financed by the joint loan which Mr and Mrs Vasiliades had obtained from the Commonwealth Bank in the amount of approximately $2,100,000 and by a loan facility from Macquarie Bank of $3,700,000 taken out by South Yarra Station Development Co Pty Ltd. All of the shares in that company were beneficially owned by Mr Vasiliades. All of the payments to the Commonwealth Bank, and to Macquarie Bank, were made by Mr Vasiliades with none having been made by Mrs Vasiliades. In September 2012, Mr and Mrs Vasiliades opened a new joint facility with the Australia and New Zealand Banking Group Ltd (“ANZ”) for $5 million which was secured against the property. Part of the money advanced to Mr and Mrs Vasiliades from their joint loan with ANZ were used to discharge the mortgage over the property to the Commonwealth Bank which had been securing the joint Commonwealth Bank loan. The proceeds of the money lent by ANZ, after discharge of the mortgage to the Commonwealth Bank, were applied or used for the benefit of Mr Vasiliades. The net proceeds of the joint ANZ loan in the amount of $2,838,644.12 were credited to an ANZ Bank offset account in the joint names of Mr and Mrs Vasiliades on or about 5 October 2012. On 10 October 2012, the amount of $2,600,032 was transferred from the joint ANZ account to an account in the name of Mr Vasiliades with Nordea Bank in Luxembourg. Amounts totalling $238,567.76 were subsequently transferred from the joint ANZ account between 6 November 2012 and 6 September 2013 to accounts of Mr Vasiliades.

12    Mr Vasiliades arranged a new loan facility with Macquarie Bank on 2 September 2013 in the name of Mrs Vasiliades for $7,500,000 which was secured against the property. Mr Vasiliades guaranteed his wife’s obligations in respect of the Macquarie Bank loan and had authority to operate the Macquarie Bank loan account. $5,049,566.34 was drawn down on 19 September 2013 on the Macquarie Bank loan, and on 26 September 2013, a discharge of the mortgage held by ANZ over the property in respect of its loan was registered, and a mortgage to Macquarie Bank was registered. Amounts totalling $2,360,000 were drawn down on the Macquarie Bank loan between 30 October 2013 and 1 April 2014 for the benefit of Mr Vasiliades or for the benefit of Mr and Mrs Vasiliades jointly. On 21 May 2014, Mr Vasiliades arranged for the limit on the Macquarie Bank loan to be increased to $12,500,000.

13    The property was sold by Mrs Vasiliades by a contract made on 19 June 2014 for a sale price of $18,550,000. The contract required the payment of a deposit of $2 million and the payment of the balance on 20 October 2014. $1,795,950 of the deposit was paid to Mrs Vasiliades on 4 August 2014 by transfer of that amount from an account of the real estate agents Kay and Burton Pty Ltd to an account in the name of “Celesta Doukaki” held with the Nordea Bank in Luxembourg. The sale of the property settled on 20 October 2014 with the payment of $16,157,225.36 to Macquarie Bank. The net amount payable to Mrs Vasiliades at settlement was $3,624,443.35 after deduction of the amount owing to Macquarie Bank of $12,532,782.01. Amounts totalling $5,088,400 had been drawn down between 24 June 2014 and 23 September 2014 on the Macquarie Bank loan for the benefit of Mr Vasiliades or him and his wife.

14    The Commissioner relies in part, as previously mentioned, upon the admissions which are deemed to have been made by Mr and Mrs Vasiliades by virtue of their failure specifically to deny the allegations of fact pleaded against them by the Commissioner. It is generally desirable to be cautious when declarations are sought on admissions rather than evidence (Bank of Kuwait and The Middle East v Ship MV “Mawashi Al Gasseem” (No 2) (2007) 240 ALR 120, [10]) because of the need to preserve the integrity of the Court and the judicial process (see Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2006) 236 ALR 665, [55]-[59]; Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2014] FCA 1434, [3]). In this case, however, the Commissioner also relies upon the facts found in affidavits made by Mr and Mrs Vasiliades in earlier contested disputes in the proceeding and upon affidavits made on behalf of the Commissioner in those earlier contested disputes. The matters deposed to in the affidavits by the respondents substantially support the facts pleaded by the Commissioner against Mr and Mrs Vasiliades. It is accepted by each of Mr and Mrs Vasiliades in their affidavits that the property was purchased by Mr Vasiliades under a contract which permitted Mrs Vasiliades to be nominated as the transferee. Each give evidence that they are married to each other and that the property was the family home. The loan agreements with the banks, and the facilities opened by Mr and Mrs Vasiliades with the banks, were substantially established by their own evidence in sworn affidavits.

15    The admitted pleadings and evidence establishes a presumed or resulting trust in the proceeds of the sale of the property for the benefit of Mr Vasiliades. In Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 the High Court said in a joint judgment at 302-3:

The present case concerns the traditional matrimonial relationship. Here, the following view expressed in the present edition of Professor Scott’s work respecting beneficial ownership of the matrimonial home should be accepted (109):

“It is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labor to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.”

To that may be added the statement in the same work (110):

“Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one-half interest in the property, regardless of the amounts contributed by them.”

The legal ownership by Mrs Vasiliades of the property was intended to be, and was, for the benefit of them both jointly. The property was purchased by funds from joint loans and in circumstances making them both contributors to the purchase of the property from those funds: Calverley v Green (1984) 155 CLR 242. The proceeds from the sale in the Macquarie Bank account are, therefore, held in part on behalf of Mr Vasiliades.

16    Accordingly, there will be:

(a)    Judgment in the amount of $30,315,876.54 against Mr Vasiliades in favour of the Commissioner together with further general interest charge pursuant to s 5-15 of the Income Tax Assessment Act 1997 (Cth) and Part IIA of the Taxation Administration Act 1953 (Cth) from 30 April 2015 to judgment.

(b)    Declarations that:

(i)    Mr Vasiliades has an equitable interest in the net proceeds of the sale of the property at 3 Towers Road, Toorak in the State of Victoria, to the extent of $2,710,196.68 in the Macquarie Bank account plus any interest accruing thereon.

(ii)    Mrs Vasiliades holds the amount of $2,710,196.68 in the Macquarie Bank account (together with any interest accrued on that amount) for or on account of Mr Vasiliades.

(c)    An order that the respondents pay the applicant’s costs of and incidental to the proceeding.

Associate:

Dated:    5 May 2015