Clyne v. Federal Commissioner of Taxation.

Judges:
David Hunt J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 1 March 1982.

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Hunt J.

This is an application by the Commissioner of Taxation to have dismissed for want of prosecution Mr. Clyne's appeal against an assessment to income tax in relation to income derived during the year ended the 30th June, 1977. The basis of the Commissioner's application is Mr. Clyne's failure to comply with a peremptory order that he produce by Wednesday last at noon in Sydney certain documents for inspection by the Commissioner.

The history of the discovery procedures in this appeal have been as follows. On the 13th April last year, the Commissioner gave to Mr. Clyne a Notice for Discovery. On the 26th May, both parties gave an undertaking to Lee J., at the Administrative Law call-over to discover all documents in relation to the appeal by the 22nd June. An Affidavit of Discovery was sworn by Mr. Clyne on the 1st June. On the 4th August, when Lee J. fixed the appeal for hearing before me on the 8th March, complaint was made by the Commissioner that Mr. Clyne had failed to give discovery of certain documents which related to matters he had raised in his appeal. The appeal was then listed before me on the 6th November last to resolve, inter alia, the dispute concerning discovery.

The documents in question relate to the formation of an entity called an anstalt, known only to the laws of the Principality of Liechtenstein. Mr. Clyne's principal argument in his appeal is that all moneys received by or paid to him during the relevant year of income belong to this anstalt formed on his behalf, Warlock Investments Establissement (Vaduz), and that those moneys form no part of his own assessable income for that year.

On the 6th November, I directed Mr. Clyne to file within 14 days a supplemental Affidavit of Discovery which was to include all documents in existence which were presently or which had been in the possession or power of Warlock Investments, and to produce those documents for inspection by the Commissioner on or before the 15th January of this year. That order followed concessions by Mr. Clyne, appearing in person, that the documents of the anstalt were his documents and that they were thus within his own possession or control. A supplemental Affidavit of Discovery was filed by Mr. Clyne on the 10th November. That affidavit identifies six documents concerning the formation of the anstalt, which Mr. Clyne says had been inadvertently omitted from his previous affidavit, and which he concedes are or have been in his possession or control.

On the 11th January - that is, four days

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before those documents should have been produced for inspection by the Commissioner - Mr. Clyne gave notice that he would not be arguing the so-called ``Warlock'' issue, but would still argue the remaining grounds of appeal. These relate mainly to the deductibility of various outgoings. On this basis, Mr. Clyne said, the documents which he had been obliged to produce on the 15th January were no longer relevant in the appeal.

This assertion was challenged by the Commissioner when the matter was re-listed at his request before me on the 5th February. The Commissioner's argument, which in my view is clearly correct, is that the documents in question continue at least to relate to the remaining grounds of appeal concerning the outgoings claimed to have been incurred by the taxpayer in gaining his assessable income, and that therefore they still had to be produced upon discovery. Because Mr. Clyne was then overseas, the matter was stood over for one week to enable those representing him to inform him that a peremptory order for the production of the documents was being sought and to obtain instructions.

On the 12th February, a number of further arguments were put - that the matter should await Mr. Clyne's return to Australia (which was promised to be one week prior to the hearing, that is, today) or even to the hearing itself - but those arguments were rejected by me. I pointed out that it was not merely a question of whether Mr. Clyne could discharge his onus of proof if he failed to produce the necessary documents; I made it plain that the Commissioner was entitled to see those documents upon discovery in order to see whether they in some way assisted him to impeach Mr. Clyne's case, and also to assist the Commissioner in producing the expert evidence as to the laws of Liechtenstein which I have requested of him in my judgment of the 24th December rejecting Mr. Clyne's expertise on that subject: 82 ATC 4001. It was this last matter which made it particularly important that the documents be produced well in advance of the hearing. This fact was stressed at all times.

There was also some discussion on that occasion concerning the appropriate sanction to be imposed should Mr. Clyne fail to produce the documents in response to a peremptory order. Normally, of course, a failure by a plaintiff or by an appellant to comply with an order such as the production of documents leads to no more than a cancellation of his hearing date until the order is complied with. In taxation appeals, however, such a sanction would normally benefit rather than deter an appellant, and it would be the Commissioner who in most cases would suffer by any delay in having the appeal disposed of.

In relation to Mr. Clyne's matters, there has been some $108,000 seized by the Commissioner on account of the tax assessed to be owing for the years 1977-1980 (see
Clyne v. D.F.C. of T. 81 ATC 4429; (1981) 35 A.L.R. 567), but there is still some $542,000 outstanding in relation to the tax assessed for that period. There was no appropriation of any particular portion of that amount to the tax assessed for any particular year.

For all these reasons, I made the peremptory order that the documents be produced by last Wednesday, the 24th February. That gave Mr. Clyne, who has at all relevant times been in Vienna, twelve days to organise his attorney in Liechtenstein to send the documents from Liechtenstein to Sydney. Only three of the six documents identified in Mr. Clyne's supplemental Affidavit of Discovery were required by the Commissioner for inspection. I stated at the time that copies of these documents would suffice. I went on to say:

``No doubt later today somebody will be able to speak to Mr. Clyne and tell him that he has been ordered peremptorily to produce the documents within twelve days. Certainly, if there is some international air strike which prevents planes flying from Europe to here with the documents, you can come back and get an extension of time. But twelve days is not bad for getting documents out of Liechtenstein to Sydney, especially when you have had a week's warning that his view of the issues was wrong.''

These documents have still not been produced. When the matter was listed before me last Thursday, again at the request of the Commissioner, a letter from Mr. Clyne to

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one of his advisers was shown to me. It was dated the 14th February. In it Mr. Clyne stated that he now does not intend to return to Australia until the day before the hearing, but that he has asked his attorney in Liechtenstein to obtain ``the necessary documents'' which he, Mr. Clyne, proposed then to translate and send to Sydney. He also says that the ``Warlock'' issue is once more to be argued in this appeal. I was informed, and I accept, that on Monday last (the 22nd February) at 11 a.m. local time in Vienna Mr. Clyne's solicitor spoke to his client on the telephone and was told by him that he was about to put these documents in the post. There was no reference made at that time to any difficulty which Mr. Clyne might experience in obtaining the documents themselves. I was also told later the same day, after a further telephone inquiry of Mr. Clyne, that the documents had in fact been put into the post by way of express mail on the 22nd February and that, according to the Austrian Consul and to Australia Post, they were expected to arrive here in Sydney some three to four days later.

But all that has happened, I am informed, is that a letter arrived from Mr. Clyne this morning in which he enclosed an affidavit from a Dr. Frick, his attorney in Liechtenstein, purporting to give expert evidence concerning the laws of that Principality. That letter had been posted in Austria on the 22nd February. There were no other documents sent with it. There is no reference in that letter from Mr. Clyne to any difficulty which he was experiencing in obtaining the particular documents which were required.

A further telephone conversation took place with Mr. Clyne at 1 a.m. this morning local Vienna time. For the first time mention was made that there had been some difficulty in obtaining the relevant documents. They are, I am told, in the hands of a Dr. Beck in Liechtenstein, who initially formed Mr. Clyne's anstalt but who is not being co-operative in relation to the production of the documents required. It is conceded that there is some money owing to Dr. Beck. Mr. Clyne said during this morning's conversation that he had on the 22nd February requested Dr. Beck to send the documents to Sydney as a matter of urgency. This was ten days after the peremptory order to produce the documents had been made and 17 days after any misunderstanding Mr. Clyne may have had as to their relevance had been exposed. I draw the inferences - which I think are clearly open - that these documents will not be produced by Dr. Beck within the foreseeable future, and that Mr. Clyne knows that they will not.

One cannot avoid viewing these facts against the background of Mr. Clyne's notorious attitude in respect of tax avoidance, a matter touched upon in the evidence which was given by him in this matter last December. An important factor in that attitude which he has expressed is the delay which can be caused in the payment of tax through using the processes of appeal. I refer, as an example, to ch. 27 of Mr. Clyne's book New Adventures In Tax Avoidance, which was Exhibit 4 before me on the voir dire, in which those attitudes are spelt out in somewhat excruciating detail.

I am satisfied, on what has been said to me in this case and upon the evidence given on the voir dire, that the delay in this case in complying with the peremptory order to produce the documents for inspection has not been accidental. Mr. Clyne's inability to produce these documents was referred to, as I say, for the first time this morning. At no time was any extension of time sought on Mr. Clyne's behalf on the basis of any very special or urgent or unforeseen circumstances which had arisen since the peremptory order was made. The documents simply have not yet been obtained by Mr. Clyne to be sent to Sydney. I am satisfied that Mr. Clyne, if not deliberately thumbing his nose at the orders which have been made, has done next to nothing to ensure that they have been complied with.

The Income Tax Assessment Act 1936, sec. 196A, provides that the High Court Rules shall apply so far as practicable to the practice and procedures of the Supreme Court in the hearing of appeals to this Court under that Act. Order 65 r. 2 of those Rules also apply them to such appeals so far as practicable. Order 32 r. 20 provides that where a plaintiff fails to give inspection of documents in compliance with an order to do so, his action may be dismissed for want of prosecution. Applying that Rule so far as practicable to an appellant, the appropriate

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course, the Commissioner submits, is to dismiss this appeal for want of prosecution.

It is, as Mr. Adams has submitted on behalf of Mr. Clyne, a somewhat draconian remedy but, in the face of what has happened, I am satisfied that it is the appropriate order in this case. Mr. Adams has said everything that could possibly be said in favour of Mr. Clyne maintaining his appeal in this case. He has suggested that an order in relation to the costs thrown away by the vacation of the hearing date would be sufficient, but the absence of Mr. Clyne and of his assets overseas would make any order for costs against him of no value to the Commissioner in this case. Mr. Adams has also pointed out that the ``Warlock'' issue will nevertheless have to be decided at some time even if this appeal is dismissed, because the same issue has been raised by Mr. Clyne in relation to his assessments for the years ended the 30th June, 1978 and 1979. There is thus no benefit, he says, in not allowing it to be determined in the present appeal. His appeals relating to these later years are presently awaiting a hearing before a Taxation Board of Review (which, his client suggested in one letter before me, does not apply the rules of evidence as strictly as I do ``and the issue can be properly tested''). As a matter of sheer efficiency, I suppose, there is much to be said for this submission, but the Commissioner replies that he is not prepared to wait any longer to have this present appeal disposed of. If that is his wish as the respondent to this appeal, and if the appellant is prepared to show at the least a careless disregard for the orders of this Court (as I am satisfied that he is), then the appropriate course in my view is to grant the Commissioner's application.

I dismiss Mr. Clyne's appeal for want of prosecution. I order him to pay the Commissioner's costs, including those relating to the appearances before me on the 5th, the 12th and the 25th February and today. That order for costs is intended to include the part-heard hearing before me on the 15th December and the mentions which preceded that hearing.