Clyne v. Federal Commissioner of Taxation.

Judges:
Bowen CJ
Lockhart J
Morling J

Court:
Federal Court

Judgment date: Judgment handed down 20 August 1982.

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Bowen C.J., Lockhart and Morling JJ.

This is an appeal from a decision of a judge of the Supreme Court of New South Wales, dismissing for want of prosecution an appeal brought to that Court by the appellant against an assessment to income tax made by the respondent Commissioner of Taxation. There is also before this Court a motion that the appeal from the Supreme Court's decision be dismissed for want of prosecution. However, when the motion was called on for hearing the parties put before the Court sufficient material to enable it to hear the appeal and invited the Court to determine it on the merits. The Court agreed to do this. In these circumstances the motion to dismiss the appeal for want of prosecution no longer raises a live issue, save as to costs.

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ATC 4398

The assessment which gave rise to the appeal in the Supreme Court was made on 29 November 1979 and was in respect of the income year ended 30 June 1977. The appellant lodged a Notice of Objection to the assessment and in due course the objection was disallowed. Pursuant to sec. 187 of the Income Tax Assessment Act 1936 (``the Act'') the appellant requested the Commissioner to treat his objection as an appeal and forward it to the Supreme Court of New South Wales.

The progress of the appeal in its early stages is unclear. However, it appears that on 13 April 1981 the Commissioner gave a notice for discovery to the appellant. On 26 May 1981 both parties gave an undertaking to the Supreme Court to discover all documents in relation to the appeal by 22 June 1981. The appellant swore an affidavit of discovery on 1 June 1981. The Commissioner was dissatisfied with the affidavit and complained that the appellant had failed to discover some documents relating to matters raised in his appeal. The appeal was then listed before Hunt J. on 6 November 1981 to resolve, inter alia, the dispute concerning discovery. On that day the appellant was directed to file within 14 days a supplementary affidavit of discovery, which was to include certain specified documents, and to produce those documents for inspection by the Commissioner on or before 15 January 1982. The specified documents related to the formation of an entity called an anstalt, known only to the laws of the Principality of Lichtenstein. The name of the anstalt was Warlock Investments Etablissement (Vaduz). The principal argument upon which the appellant originally proposed to rely in support of his appeal against the assessment was that all moneys received by or paid to him during the relevant year of income belonged to this anstalt (the ``Warlock issue''). It appears that the appellant proposed to argue that those moneys formed no part of his assessable income for the relevant years.

On 10 November 1981 the appellant filed a supplemental affidavit of discovery. The affidavit identified a number of documents concerning the formation of the anstalt. However, on 11 January 1982 the appellant gave notice to the Commissioner and to the Supreme Court that he would not be arguing the Warlock issue, but would still argue the remaining grounds of his appeal. These related mainly to the deductibility of various outgoings in the year of income. Upon this basis the appellant claimed that the documents he was obliged to produce on or before 15 January were no longer relevant in the appeal. This assertion was challenged by the Commissioner and the matter was relisted before Hunt J. on 5 February 1982. His Honour upheld the Commissioner's argument that the documents in question remained relevant in the appeal and ruled that the appellant was still obliged to produce them. Because the appellant was then overseas the matter was stood over for one week to enable his solicitor to inform him that a peremptory order for the production of the documents was being sought.

When the matter was relisted on 12 February 1982 the appellant's counsel argued that the question whether his client should be obliged to produce the documents should await the appellant's return to Australia for the hearing of the appeal. This argument was rejected by Hunt J. who thereupon made an order which read, in part, as follows:

``I make a pre-emptory [sic] order that the appellant produce in Sydney for inspection on or before Wednesday, 24th February, at noon, the documents numbered 3, 4 and 5, in para. 3 of his affidavit of discovery of 7th November last... I grant liberty to apply.''

The matter again came before his Honour on 25 February 1982. The documents had still not been produced. His Honour was furnished with a letter dated 14 February 1982 from the appellant to his solicitors. He stated in it that he now did not intend to return to Australia until the day before the date fixed for the hearing, i.e. 10 March 1982, that he had asked his attorney in Lichtenstein to obtain ``the necessary documents'' which he, the appellant, proposed then to translate and send to Sydney, and that the Warlock issue was once more to be argued on the appeal. His Honour was informed that on 22 February the appellant's solicitor had spoken to his client on the telephone and had been told by him that he was about to put the documents in the post. His Honour was also informed, later on 25 February, that the appellant had

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ATC 4399

again been contacted by telephone and had said that the documents had in fact been put into the post by way of express mail on 22 February. His Honour was informed that the documents were expected to arrive in Sydney some three or four days after 22 February. The matter was stood over until 1 March to enable the Commissioner to pursue an application for the appeal to be dismissed for want of prosecution.

On 1 March his Honour was informed that, although a letter from the appellant had arrived that morning, having been posted in Austria on 22 February, it did not contain any of the relevant documents. The letter did not refer to any difficulty that the appellant was experiencing in obtaining the relevant documents. His Honour was informed that the appellant's solicitor had spoken to the appellant on the telephone later that day. Apparently, the appellant then raised for the first time that he may have been experiencing some difficulty in obtaining the relevant documents. They were said to be in the hands of a third person who had been requested by the appellant on 22 February to send the documents to Sydney as a matter of urgency.

Hunt J. was of the opinion that the delay in complying with the order to produce the documents for inspection had not been accidental. After adverting to the circumstance that no extension of time had been sought to comply with the order his Honour said:

``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.''

His Honour held that notwithstanding that dismissal of the appeal for want of prosecution was a Draconian remedy, it was the appropriate order to make in the circumstances of the case. He said that the making of an order for costs against the appellant would be of no value to the Commissioner because of the appellant's absence from Australia and because, so he said, his assets were overseas. He said that he was satisfied that the appellant was prepared to show a careless disregard for the orders of the Court. His Honour held that the appropriate course was to grant the Commissioner's application and to dismiss the appeal for want of prosecution.

It is clear that his Honour had jurisdiction to make such an order. See O. 32 r. 20 and O. 65 r. 2 of the High Court Rules, made applicable, so far as practicable, to appeals to the Supreme Court under the Act by sec. 196A thereof. It was not contended otherwise.

The principles upon which a power to dismiss proceedings for want of prosecution should be exercised are not in doubt. The power must not be lightly exercised - see
Van Reesema v. Giameos (1979) 27 A.L.R. 525 and cases therein referred to at p. 530. In one of those cases,
Allen v. Sir Alfred McAlpine & Sons Limited (1968) 2 Q.B. 229, Diplock L.J. (as he then was) said at pp. 259-260:

``What then are the principles which the Court should apply in exercising its discretion to dismiss an action for want of prosecution upon a defendant's application? The application is not usually made until the period of limitation for the plaintiff's cause of action has expired. It is then a Draconian order and will not be lightly made. It should not in any event be exercised without giving the plaintiff an opportunity to remedy his default, unless the Court is satisfied either that the default has been intentional and contumelious, or that the inexcusable delay for which the plaintiff or his lawyers have been responsible has been such as to give rise to a substantial risk that a fair trial of the issues in the litigation will not be possible at the earliest date at which, as a result of the delay, the action would come to trial if it were allowed to continue. It is for the defendant to satisfy the Court that one or other of these two conditions is fulfilled. Disobedience to a peremptory order of the Court would be sufficient to satisfy the first condition. Whether the second alternative condition is satisfied will depend upon the circumstances of the particular case; but the length of the delay must of itself suffice to satisfy this condition if the relevant issues would depend upon the recollection of witnesses of events which happened long ago.''

As the Court pointed out in Van Reesema

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ATC 4400

v. Giameos (supra) each case depends on its own circumstances. The appellant, who appeared in person, urged several matters in support of his argument that his Honour had erred in striking out his appeal. He submitted that the documents that he had failed to produce in compliance with the Court's order ceased to be relevant after he gave notice to the Commissioner and the Court in his letter of 11 January 1982 that he would no longer rely on the Warlock issue. Being of no relevance thereafter, so it was argued, their non-production in compliance with the Court's order should not have been used by his Honour as the basis for striking out his appeal.

There are two answers to this submission. In the first place, no challenge was made to his Honour's order that the documents be produced. It could have been made the subject of an appeal had the appellant wished to challenge it. No appeal against it having been instituted his Honour properly proceeded upon the basis that it was extant and binding upon the appellant when he made the order on 1 March dismissing the appeal for want of prosecution.

In the second place, we do not agree that the documents had become irrelevant to the consideration of the remaining issues in the appeal. Those issues involved, inter alia, the question whether the appellant had incurred certain outgoings which were allowable deductions under sec. 51(1) of the Act. Whether outgoings are deductible under sec. 51(1) raises the question whether they were incurred in gaining or producing assessable income or in carrying on a business for the purpose of gaining or producing assessable income. There must be a relevant connection between the outgoing on the one hand and the assessable income on the other. Whether the connection in the present case between the outgoings claimed by the appellant to be deductible under sec. 51(1) and the income derived by him in the relevant tax year was sufficient to satisfy the requirements of the section might well have depended upon the relationship between the appellant and the anstalt. As counsel for the Commissioner pointed out, a finding may or may not have been made that it was the appellant himself who derived the relevant income. Until the Court had determined that matter, it may not have been possible to determine whether there was a sufficient connection between the outgoings for which deductibility was claimed and the income assessed to tax. The Commissioner needed to consider the documents ordered to be discovered in order properly to evaluate the claim for deductibility of the outgoings.

It was next argued that his Honour's order was not the kind of peremptory order that leads automatically to dismissal of proceedings. It was put that the order did not state that non-compliance with it would lead to dismissal. It is true that the order did not state that non-compliance with it would necessarily lead to dismissal of the appeal. But it was unnecessary that it should do so. The Court's power to dismiss proceedings for want of prosecution was not trammelled by the form of the order made on 12 February 1982. It must have been clear to the appellant's solicitors that if the order were not complied with there was at least a serious risk that the appeal would be dismissed for want of prosecution. We have no reason to doubt that the terms of the order were communicated to the appellant. He made no suggestion that his legal advisers were at fault in this or any other respect.

It was further argued that there was no evidence before his Honour to justify the view that dismissal of the proceedings was the only appropriate remedy. It was put that dismissal should only have been adopted as a remedy of last resort and that an alternative remedy open was rejected by his Honour for reasons not supported by the evidence. The alternative remedy was said to be an order requiring the appellant to pay the costs incurred in the discovery application as well as the costs thrown away by the vacation of the hearing date. It was argued that his Honour's rejection of this alternative was occasioned, at least in part, by his view that the appellant's assets were overseas and that an order for costs against him would be of no value to the Commissioner. It is true, as the appellant pointed out, that there was no evidence before his Honour that an order for costs against the appellant would be of no value to the Commissioner. Certainly there was no evidence that the appellant's assets were overseas. But an examination of the whole of his Honour's reasons discloses that his view of the value of an order for costs was not the determining factor in his decision.

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ATC 4401

The considerations that led his Honour to make the order were the Commissioner's proper desire to have the appeal disposed of and his Honour's view of the appellant's careless disregard for the orders of the Court.

It was also submitted that his Honour was in error in forming the view that the appellant was deliberately trying to delay the hearing of the appeal. His Honour was assisted in forming this view by statements made by the appellant in his book ``New Adventures in Tax Avoidance''. This book had been tendered on the voir dire on an earlier interlocutory hearing of the same appeal. It was argued that evidence on the voir dire should not have been relied upon by his Honour on the application to dismiss the appeal for want of prosecution. Whether this is so or not, there was other material before his Honour supporting the view that the appellant was using the processes of appeal to delay payment of the tax to which he had been assessed.

Notwithstanding our rejection of the arguments advanced in support of the appeal, we have reached the conclusion that the appeal should be dismissed only with some hesitation. The order made by his Honour was Draconian, as he himself recognised. The prejudice to the Commissioner occasioned by the delay in giving discovery was serious but not overwhelming. The fact that the appeal was pending did not in the meantime affect the assessment the subject of the appeal, and the Commissioner was entitled to recover tax assessed as if no appeal were pending - vide sec. 201 of the Act. Moreover, although there had been a long and inexcusable history of delay in giving discovery, the peremptory order made on 12 February allowed only twelve days for compliance. Further, as we have said, the order did not in terms state that non-compliance with it would lead to dismissal of the appeal.

But all these matters were no doubt present to his Honour's mind when he made the order. He had a discretion to grant or refuse the application. His decision involved balancing a number of considerations. Opinions might reasonably differ as to their relative weight in the circumstances of the case in hand. In these circumstances, as Lord Diplock pointed out in
Birkett v. James (1978) A.C. 297 at 317:

``... an appellate Court ought not to substitute its own `discretion' for that of the judge merely because its members would themselves have regarded the balance as tipped against the way in which he had decided the matter. They should regard their function as primarily a reviewing function and should reverse his decision only in cases either (1) where they are satisfied that the judge has erred in principle by giving weight to something which he ought not to have taken into account or by failing to give weight to something which he ought to take into account; or (2) as in
Ward v. James (1966) 1 Q.B. 273, in order to promote consistency in the exercise of their discretion by the judges as a whole where there appear, in closely comparable circumstances, to be two conflicting schools of judicial opinion as to the relative weight to be given to particular considerations.''

See also
House v. R. (1936) 55 C.L.R. 499 at p. 505 per Dixon, Evatt and McTiernan JJ.

Plainly this is not a case of the second kind mentioned by Lord Diplock. Nor is it a case where it has been shown that the trial judge erred in principle. There was evidence before the learned trial judge upon which it was open to him to exercise his discretion in the way in which he did. We are of the opinion that the appeal should be dismissed.

As to the matter of costs, the appellant must pay the costs of the appeal. In view of the dismissal of the appeal on the merits, the respondent does not need the relief sought in the notice of motion. Nevertheless the respondent acted reasonably in moving to dismiss the appeal for want of prosecution and he should also have his costs of the motion.

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay to the respondent his costs of the appeal.

3. The appellant pay to the respondent his costs of the motion to dismiss the appeal for want of prosecution of 6 July 1982.