Huston and Anor. v. Deputy Federal Commissioner of Taxation.
Judges:Fox J
Court:
Federal Court
Fox J.
I will deliver judgment in these matters immediately.
There are three cases before me, two for hearing, and one for directions. The two cases first-mentioned are being heard together, as they raise the same issues and the same evidence is relied upon. The third case is closely related, but I will for the moment postpone dealing with it.
The applicants are Mr. and Mrs. Huston, who are husband and wife. They proceed against the Deputy Commissioner of Taxation in reliance on sec. 5 of the Administrative Decisions (Judicial Review) Act 1977 (``the Judicial Review Act''). The particular paragraphs relied upon were not stated precisely, but appear to be sec. 5(1)(e), as elaborated in sec. 5(2); and sec. 5(1)(h).
The respondent, on 30 November 1982, issued notices under sec. 218 of the Income Tax Assessment Act 1936 (``the Act''), which is sometimes referred to as the garnishee provision of the Act, to various organisations and to the applicants' solicitors. It is not disputed that the decisions were decisions to which the Judicial Review Act relate, and which are reviewable under that Act.
The notices were based on a number of default assessments issued immediately beforehand to Mr. and Mrs. Huston respectively. The amounts involved totalled some $3,948,793.59.
After counsel for the applicants had opened his case, it was submitted by counsel for the respondent that, on the case put, the applicants would not succeed, and that the considerable body of affidavit evidence which had been filed would for the most part be objected to as irrelevant. If admitted subject to objection, pending the hearing of final argument, the respondent would want to cross-examine, and possibly adduce further evidence. The result, it was agreed, would be that the case, which was of some urgency, would not conclude in the two days allotted. I indicated that it could not be continued for at least six weeks thereafter. It therefore seemed a convenient course to entertain the legal argument as soon as possible, on agreed, or assumed, facts, with the intention of finalising the matter under O. 29 of the Rules of Court. A document called ``Statement of Facts'' was later handed in by counsel for the applicants, and I understand it to include all the material thought necessary to support an argument that the applicants' case could be sustained. The respondent did not admit the facts stated to be assumed, or their relevance. At the request of the respondent, a further paragraph (para. 15A) was inserted, and was agreed.
The Statement of Facts confirmed the following agreed facts:
``...
2. On the 30th day of November, 1982 the Deputy Commissioner of Taxation issued the following assessments and amended assessments against Mr. Huston, his wife J.L. Huston and associated companies. Particulars of those assessments and amended assessments are set out at para. 5 of Mr. Robin David Huston's Affidavit sworn the 27th January, 1983, and filed herein, and copies of them are the copies referred to in that paragraph. The aforesaid Income Tax assessments and amended assessments total $3,948,793.59.
...
4. On the 30th November, the 1st December and 2nd December respectively, Notices were issued by the Deputy Commissioner of Taxation, Mr. Scanlan, pursuant to sec. 218 of the Income Tax Assessment Act 1936 as amended. Details of those Notices are set out in full at para. 20 of Robin David Huston's Affidavit of the 27th January, 1983, and copies of the Notices are annexed as stated in that paragraph.
...
6. The bulk of the moneys from the National Bank were delivered by bank cheque to the Deputy Commissioner of Taxation on the 6th December, 1982. In all, pursuant to the said sec. 218 Notices, an amount of $421,859.54 was paid by the National Bank to the Deputy Commissioner of Taxation.
...
8. On the 24th January, 1983 objections were lodged to the assessments and amended assessments issued by the Australian Taxation Office. Income Tax
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Returns for the years ended 30th June, 1981 and 1982 have been lodged on 24th March 1983 in respect of all taxpayers the subject of the aforementioned assessments and amended assessments....
11. In respect of the said Notices directed to Gilshenan & Luton, Solicitors an amount of $29,416.48 in their trust account remains subject to the said Notice, and in respect of the Notice relating to Mrs. Huston directed to Chase N.B.A. Finance Limited, Merchant Bankers, an amount of $9,210.09 remains with that company and subject to the said Notice.
...
14. On the 18th November, 1982 criminal charges were laid against Mr. Huston being charges under the Criminal Code of Queensland, as set out in para. 29 of the said affidavit of Mr. Huston.
...
15A. Mr. Huston has been charged with and convicted of the offences specified in para. 20 to 26 inclusive of the affidavit of Mr. Talty, sworn on the 9th March, 1983 and filed herein.
...''
The following were assumed:
``...
5. On the 3rd December, 1982 Mr. Cooney of Gilshenan & Luton rang Mr. Talty, the Acting Commissioner of Taxation and requested that the Australian Taxation Office hold action on the abovementioned sec. 218 Notices. It is alleged that Mr. Talty agreed to hold action on the said sec. 218 Notices for a period of seven to fourteen days. It is alleged that in reliance upon that undertaking given by Mr. Talty the Applicants took no steps to seek a Court Order against compliance with the aforesaid Notices.
...
9. It is alleged that at all times in his appearances before the Royal Commissioner into the activities of the Federated Ship Painters and Dockers Union Mr. Huston by his Counsel made it clear that although he wished to leave the country at the end of 1982 he had no intention of doing so prior to completing his evidence before the Royal Commission and prior to having received back from the Royal Commissioner all documentation required for the completion of outstanding Tax Returns.
10. It is further alleged that Mr. Leo Wells of the Australian Taxation Office was fully aware that all the documentation had been subpoenaed by the Royal Commissioner in October of 1982.
...
12. It is alleged that the sum of $9,210.09 had prior to the service of the sec. 218 Notices upon the Merchant Bank been directed to be paid to Messrs. Gilshenan & Luton on account of expected fees.
13. It is alleged that in a conversation on the 6th December, 1982 Mr. Talty stated to the applicant's solicitor, Mr. Cooney, that the transfer of funds from the National Bank to the Australian Taxation Office was completely contrary to specific instructions that he, Mr. Talty, had given on Friday the 3rd December.
...
15. On the 18th November, 1982 Mr. Huston instructed the firm of Gilshenan & Luton, Solicitors of Brisbane to act on his behalf in defence of the said charges, and the sum of $29,416.48 was paid into trust on account of fees. On the same day Mr. Huston signed an Authority to Act and a Trust Account Authority in favour of Messrs. Gilshenan & Luton. A copy of that letter is marked with the letter `CC' annexed to Mr. Huston's Affidavit of the 17th January, 1983.
...''
Paragraph 16 (the last paragraph) was largely argumentative, but for the sake of completion I set it out:
``It is alleged that the decision to issue the aforesaid sec. 218 Notices was an improper exercise of the power conferred by the Income Tax Assessment Act. It is alleged that the decisions involved taking into account irrelevant considerations, involved an exercise of the power granted in sec. 218 of the Income Tax Assessment
ATC 4528
Act for a purpose other than a purpose for which the power is conferred, and involved an exercise of a power in a way that constituted an abuse of the power. Particulars in support of the above are as follows:
- (a) It is alleged that Mr. Talty of the Australian Taxation Office made the following comments to Mr. Christopher John Cooney of Gilshenan & Luton:
- `The Hustons have been blanketed with sec. 218 Notices.'
- `There is a mobility factor in the Huston Tax Assessments and the Taxable income.'
- (b) It is alleged that at the meeting held on the 7th December, 1982 Mr. Talty said that instructions were given by him that no action was to be taken to enforce payment under the sec. 218 Notices for a period of not less than seven days nor more than ten days.
- (c) It is alleged that Mr. Lynch of the Australian Taxation Office at the meeting of the 7th December, 1982 stated that what the Tax Department had done was to add up all of the deposits received into the bank in respect of R.D. Huston & Co. which was approximately $600,000, and that that amount was then applied to the three taxpayers, namely Mr. Huston, Mrs. Huston and Mrs. Huston as trustee of the family trust.
- (d) It is further alleged that the assessments were issued for the purpose of issuing sec. 218 Notices.
- (e) It is further alleged that the Deputy Commissioner had no bona fide belief that a liability to tax existed in the case of Mrs. Huston personally or in her capacity as trustee of the Huston Family Trust No. 3.''
The first submission of counsel for the applicants was expressed as follows:
``The assessments were not issued bona fide but were arrived at for the purpose largely or solely of issuing the sec. 218 notices without any or any proper attempt to compute the taxation liability but with the intention of immediately freezing the taxpayer's assets.''
There are two principal problems about the acceptability in law of this submission. One is the effect given by sec. 177 of the Act. This was a matter most recently dealt with in the High Court in
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 55 A.L.J.R. 451. The production of the notice of assessment is conclusive evidence both that an assessment was actually made, and that it was duly made. It cannot be said that it was made for an inadmissible purpose. The same case incidentally shows that the Commissioner can proceed under sec. 218 immediately upon the issue of the notice of assessment. The other difficulty is that by reason of sec. 3(1) and Sch. I of the Judicial Review Act, that Act does not apply to (e):
``(e) decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax or duty, or decisions disallowing objections to assessments or calculations of tax or duty, or decisions amending, or refusing to amend, assessments or calculations of tax or duty, under any of the following Acts:
- ...
- Income Tax Assessment Act 1936
- ...''
In the present case the making of the assessments is not entirely irrelevant, but plainly any review of them or any application of the Act to them is precluded.
The submission which I have set out does not, as possibly, on the facts, it may have done, attack separately the decision to issue the notices notwithstanding the conclusiveness of the assessments. Rather are the notices attacked because of defects said to taint the issue of the assessments.
In my view for the reasons I have briefly indicated, this submission must fail.
The second submission related separately to the notices flowing from the assessments issued to Mrs. Huston and the trustee of the family trust, but was to the effect that the exercise of the Commissioner's discretion was bad for the reasons given under the first submission and no others. When asked why he treated these assessments separately from
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the others, counsel said that there could be no bona fide belief on the part of the respondent that Mrs. Huston and the trustee, respectively, were liable for the tax for which they had been assessed. This submission seems to me to fail for the reasons I have already indicated.An additional submission related to an amount of $29,000 held in the trust account of the solicitors for the applicants. It was submitted that this was not an amount to which sec. 218(1) refers. The statement of assumed facts says that the sum of $29,416.48 was paid on account of fees. An authority dated 18 November 1982 given to the solicitors was in the following terms:
``I, ROBIN DAVID HUSTON do hereby authorise you to act on our behalf in the above transaction and to withdraw from our account in your Trust Account and pay to your General Account such reasonable costs and outlays if any as may be properly payable by us in accordance with the requirements of the Trust Accounts Act, as amended and to take effect from the 1st July, 1973.''
Contrary to the Statement of Facts, an affidavit which has been referred to says that while the authority was given in November, the amount in question was paid to the solicitors several weeks later.
It was submitted that the amount in question was not due or accruing to the applicants or either of them or held for them. It was said that the amount was committed for Mr. Huston's costs in defending himself against criminal charges. For the respondent it was submitted that the amount at any time remaining in the solicitors' trust account (and earmarked in accordance with the Trust Accounts Act 1973 (Qld.) (sec. 6, and see sec. 8)) was payable on request to the applicants. The statutory garnishment, it was said, could operate thereon. I doubt whether this latter submission is sound as a general proposition, but at the same time I do not know enough about the facts to come to any final determination. I think it is unsatisfactory to determine the issue in favour of one party or the other without having more detail concerning the account and liabilities referable thereto as at the date of issue of the notice to the solicitors. The solicitors can take their own course in relation to the notice served on him, but it may be thought better to have a ruling in this case. I will give the parties an opportunity of litigating the matter further before me if they wish.
In relation to the notice affecting this amount, it is also submitted that it would not be a proper exercise of the Commissioner's power to attempt to impound an amount appropriated for legal costs in respect of a defence against criminal charges. This is I think the only argument which really deals with the purposes of sec. 218. It is probably best to deal with it when considering the earlier submission. It certainly seems unreasonable that the Commissioner should have any power to deprive people of money necessary for the defence against criminal charges, but it is another question whether such a requirement is beyond power or an improper exercise of power. In the present case, too, one is entitled to have regard to the fact that assessments for very large sums were issued at the one time, that they were default assessments, that they may well be inaccurate and that the sec. 218 notices were issued immediately, even before notices of objection could be lodged.
The Commissioner does, however, have very wide powers which can undoubtedly in many cases create undue hardship. He is free to take proceedings for winding-up or bankruptcy or other proceedings in execution, as well as proceedings under sec. 218, notwithstanding that the assessments upon which he is relying are the subject of appeal. Even if the appeals are successful, he may in the meantime have ruined the taxpayer.
In the light of these circumstances and the wide effect which has been given judicially to provisions such as sec. 177, it seems to me very difficult to say that he cannot obtain moneys which are put aside for defence of criminal charges if they are committed to such a purpose by being in a solicitors' trust account. The position as I have already indicated may be that the section does not apply, but if it does apply in the present case, I would hold that the applicant cannot obtain relief under the Judicial Review Act.
Related to the amount of $29,000, to which I have referred, is an amount of $9,210.09 held by Chase N.B.A. Finance Limited. Before the issue of the notice to that
ATC 4530
bank, Mrs. Huston had given it a direction to pay the amount I have mentioned to the solicitors' trust account, with the intention apparently that it be added to the other amount available for costs and fees.Whatever may be said about the amount actually in the solicitors' trust account, it does not seem to me that this amount can be regarded as in the same position. In my view, it is covered by the general observations I have already made and the submission, which in effect seeks to protect it from the operation of the notices under sec. 218, fails.
I am therefore of the view that, subject to the question concerning the amount in the solicitors' trust account, the applicants must fail.
The remaining matter is the third of the cases to which I have referred. The claim is by Mrs. Huston and is for a money sum. It is said to be for moneys ``had and received by the defendant to the use of the plaintiff''. The purpose of the claim is to endeavour to recover moneys obtained as result of the sec. 218 notices and what I have already said will operate to debar such a claim. It is only necessary to add that in my view the claim is beyond the jurisdiction of this Court. This application should be dismissed with costs.
The case has not so far followed precisely the course set out in O. 29. The effect of my view of the law is, however, that subject to the question concerning the amount in the solicitors' trust account, the applicants must fail, and subject to that matter I will in due course dismiss the first two applications. I therefore stand down the first two applications for further hearing.
23 August 1983
I will now deal with the last aspect of the cases. It concerns the amount of $29,416.48 held by the taxpayers' solicitors, Messrs. Gilshenan & Luton in their trust account. On the resumed hearing leave was sought to read two affidavits which were in the same terms, of Christopher John Cooney, sworn on 19 August 1983. There being no objection, leave was granted on the basis that the material in the affidavits be part of the assumed facts, in each case respectively, but that in relation to para. 7, it be agreed that no account for any part of the money there referred to had been sent by the solicitors to either Mr. or Mrs. Huston. This course was agreed on both sides, the result being that the view was taken that sufficient material was before me to enable final argument to be presented in relation to the amount of $29,416.48. The view I then took was that this was the only matter in respect of which I had not already delivered a final opinion.
The major part of this sum, namely $28,300, was paid to the solicitors on 1 December 1982 and the receipt in favour of Mrs. Huston is as follows:
``Huston - You ats Police
Security for costs.''
Other amounts making up the total to which I have referred were paid in the following day, and were all shown as security for costs in relation to the same matter.
The amount was paid by the solicitors into their trust account. In the affidavits to which I have just referred, it is said that as at 2 December 1982, which was the date of service of the sec. 218 notice upon the solicitors, there was:
``... approximately $4,000 owing by Mr. Huston for costs, counsels' fees and outlays in respect of matters connected with the Queensland Criminal Code charges.''
In respect of this amount, and the holding of it in the trust account, I have been referred to the Solicitors Act 1891 (Qld.) and particularly sec. 16 thereof.
The respective cases of husband and wife proceeded on the basis that any moneys payable by the solicitors were payable to one or other or both of them, and it has not been a necessary part of the argument to draw any distinction between them.
Two matters are raised on behalf of the applicants. The first is concerned with the decision to issue the sec. 218 notice, and the second with what has been submitted was a decision not to revoke the notices at a later time.
In relation to the first matter, which concerns the decision to issue the notice, I was referred to the construction of sec. 218 and the decision of the High Court thereon in
Clyne & Anor. v. D.F.C. of T. & Anor. 81 ATC 4429; (1981) 35 A.L.R. 567. It was held in that case that in sec. 218(1) the word
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``due'' when appearing in the various paragraphs meant ``due and payable''. It was therefore said that the amount sought to be obtained by reason of the notice had to be due and payable by the solicitors to either or both of their clients, the present applicants.Several paragraphs of sec. 5 of the Judicial Review Act were relied upon. In the first place, it was put that the Deputy Commissioner of Taxation had exercised a discretionary power, being the power to issue the sec. 218 notice, in bad faith, on the basis that he was proceeding on a course of conduct which had the risk of depriving the applicant, Robin David Huston, of legal representation at pending legal proceedings.
It was also submitted that the Deputy Commissioner had exercised the power in a way which no reasonable person would have exercised it, and the power was exercised in a way constituting an abuse of power. It was said that there was no evidence to justify the Deputy Commissioner in issuing the notice, and that the decision was based on a conclusion that one or other of the facts referred to in sec. 218(1) para. (a), (b), (c) or (d) existed, and that this was not the case. It was in relation to this latter submission in particular that reference was made to Clyne's case, and I should note the reference to the earlier case,
Sicree & Watt v. D.F.C. of T. 80 ATC 4302; (1980) 32 A.L.R. 307.
As I mentioned in the course of argument, it seems to me that the submissions proceed on wrong assumptions about the scope of sec. 218 of the Act. When issuing a notice under that section the Commissioner is not confined to situations in which there is, at the time of service of the notice, money due and payable by any person to the taxpayer or which otherwise at that time satisfies one of the subsequent paragraphs.
A notice can be issued under sec. 218 which may have only a prospective application. I do not mean, in putting the matter that way, to suggest that the Commissioner, if challenged, must establish that at some time one of the paragraphs will apply, but rather that he is by the section enabled to issue a notice even if it may apply only to circumstances arising in the future, as between garnishee and taxpayer.
Assuming therefore that the solicitors were under no obligation to pay to the Deputy Commissioner any part of the sum of $29,000-odd to which I have referred, the notice would still be good. The notice was addressed to the solicitors, who may have come into possession of moneys payable to either or both taxpayers which they would hold on their account, such as, for example, moneys received on discharge of a mortgage in relation to a real estate dealing. It may be the fact, if the charges against their client were dropped, that surplus moneys would be immediately available and due to be paid to one or both taxpayers.
There is no direct evidence about the motive or intent of the Deputy Commissioner which would invalidate his decision to issue the notice, and in my view it is not possible to say that his issue of it comes within one of the paragraphs of sec. 5 of the Judicial Review Act.
The second basis upon which the argument was put was that the Deputy Commissioner decided not to revoke the notice once he became aware of the situation respecting the amount of $29,000. It is said that whatever his state of knowledge earlier, he was aware at a later point of time that the moneys were being held, or at least that it was claimed they were being held as security for costs in relation to the criminal proceeding.
It is not at all clear to me that there was a ``decision'', within the meaning of the Judicial Review Act, but what is relied upon is a letter of 14 December 1982 addressed to Mr. Talty, the Assistant Deputy Commissioner of Taxation, one paragraph of which reads, and I quote:
``We specifically ask that the sec. 218 notice directed to us and to Chase-N.B.A. Finance Limited be withdrawn and that no Notices be issued and no other steps taken in respect of any other money which might become available from the Hustons' property which we will list hereunder.''
The proceedings were commenced within a week, that is to say on 24 December 1982, and there is not sufficient material to suggest that a decision not to revoke the notice in any relevant sense was arrived at within that period. However, whatever the position be respecting the making of the decision, the matter that I have already referred to in relation to the first head of the argument still
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predominates. The Deputy Commissioner would not, in my view, be obliged to revoke the notice if the fact was that he knew that the moneys in the solicitors' trust account as at 2 December 1982 were not caught by the notice. I do not decide whether this would be so if they were being held by way of security for costs.As I have said, the notice applies to any surplus of those moneys which at any time could be said to be due and payable by the solicitors to the taxpayers and also to any other moneys that might fall within the terms of sec. 218.
It does not seem to me that if there were a decision not to revoke, based upon knowledge concerning the $29,000, that the Deputy Commissioner would be in breach of any of the provisions of sec. 5 of the Judicial Review Act by reason of his not revoking that notice or withdrawing it.
It is not for me in these proceedings to determine what part if any, of the amount of $29,000-odd is now, or was at the time of the issue of the notice, or has at any intermediate time been due and payable to the taxpayers. If this matter has to be litigated it will have to be in another forum, I would only mention some authorities on the matter to which I was referred, and which are of interest, namely the decision of Harman J. in
Loescher v. Dean (1950) 1 Ch. 491; Halsbury's Laws of England, 4th ed., vol. 44, para. 97 and 226; and Cordery on Solicitors (1981), at p. 274.
I am of the view that the applications fail in respect of this amount of $29,000. They therefore fail completely.
No steps were taken to follow the procedure under O. 29. It was not disputed that in the circumstances I should make final orders disposing of the matters.
These two cases are dismissed with costs.
THE COURT ORDERS THAT:
No. G131 of 1982 (Jill Lorraine Huston)
- 1. The application be dismissed.
- 2. The applicant pay the respondent's costs.
No. G132 of 1982 (Robin David Huston)
- 1. The application be dismissed.
- 2. The applicant pay the respondent's costs.
No. G23 of 1983 (Jill Lorraine Huston)
- 1. The application be dismissed.
- 2. The applicant pay the respondent's costs.
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