Hoare v. Deputy Federal Commissioner of Taxation

Judges:
Northrop J

Court:
Federal Court

Judgment date: Judgment handed down 17 December 1987.

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Northrop J.

By application filed on 23 September 1987, the applicant, Peter Leo Hoare (``the taxpayer''), is seeking an order under para. 11(1)(c) of the Administrative Decisions (Judicial Review) Act 1977 (``the Judicial Review Act'') that he be granted an extension of time in which to make an application to the Court for an order of review of a decision made by the respondent (``the Deputy Commissioner'') under sec. 206 of the Income Tax Assessment Act 1936 (``the Tax Act'') refusing to grant the taxpayer an extension of time in which to pay tax. Under para. 11(1)(c) of the Judicial Review Act, an application for an order of review must be lodged with a Registry of the Court within ``the prescribed period or within such further time as the Court (whether before or after the expiration of the prescribed period) allows''. Subsection 11(3) contains provisions for the calculation of the prescribed period. In the present case, a dispute exists as to the commencement date for the prescribed period, thus a consideration of the provisions of that subsection and their application to the facts of this proceeding will be deferred until later.

By service of an amended assessment of tax for the year ended 30 June 1981 served upon the taxpayer, tax in the sum of $1,664,923.15 became due and payable by the taxpayer on 3 June 1985. On 31 May 1985, the taxpayer's

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tax agents requested an extension of time under sec. 206 of the Tax Act. Subsection (1) of that section provides:

``206(1) The Commissioner may in any case grant such extension of time for payment of tax, or permit payment of tax to be made by such instalments and within such time as he considers the circumstances warrant; and in such case the tax shall be due and payable accordingly.''

On 11 June 1985, the tax agents, pursuant to sec. 185 of the Tax Act, lodged an objection to the assessment. By letter dated 10 July 1985, the solicitor for the taxpayer (``Mowbray''), relying upon sec. 206, sought an extension of time for the payment of the tax ``until fourteen (14) days after the final determination of the objection''.

By letter dated 18 July 1985, the Deputy Commissioner replied to the request by the tax agents for an extension of time to pay the tax. Certain proposals were put to the tax agents but the letter made it clear that the proposal ``would not extend to any subsequent appeal or request for reference to a Board of Review''. The taxpayer claims that he could not comply with the proposals made by the Deputy Commissioner. By letter dated 19 August 1985, Mowbray advised the Commissioner that the taxpayer was unable to meet the terms of the proposal contained in the letter of 18 July and that they had ``been instructed to prepare a detailed statement of assets and liabilities to be forwarded to you in due course, in this regard''. The letter contained the following paragraph:

``Thereupon you are requested to consider a further application, pursuant to sec. 206 of the Income Tax Assessment Act 1936 (as amended) to grant an extension in time for payment of the outstanding tax until 14 days after final determination of the objection or, in the event that the objection is referred to the Supreme Court, within 14 days of the decision of the Supreme Court.''

By notice given on or about 18 September 1985, the Commissioner made a decision disallowing the objection of 11 June 1985; see sec. 186 of the Tax Act. Pursuant to sec. 187, the taxpayer requested the Commissioner to refer the decision to a Board of Review and this was done on 5 February 1986. Under sec. 201, the reference did not affect the assessment and the tax due remained due and payable and could be recovered as if no review were pending. It is noted further that the request for an extension of time in which to pay the tax contained in the letter of 19 August, referred to Supreme Court proceedings and not to a reference to a Board of Review.

By letter dated 27 November 1985, Mowbray wrote to the Commissioner. The letter drew attention to Mowbray's letter of 29 July. That letter is not before the Court but, apparently, it was a letter to the Commissioner requesting an answer to the Mowbray letter of 10 July. There appears to have been confusion on the part of Mowbray, whether deliberate or not is not clear. The letter of 19 August had overtaken the earlier letter. The letter of 27 November 1985 contained some details of the ``financial circumstances'' of the taxpayer in apparent compliance with the statements contained in the letter of 19 August, but no reference was made to that letter. The letter of 27 November 1985 concluded with the following paragraph:

``In view of the foregoing you are requested to grant an extension to the taxpayer with respect to payment of outstanding tax until fourteen (14) days after final determination of this matter.''

By letter dated 13 January 1986, the Deputy Commissioner wrote to Mowbray. The letter referred to the Mowbray letter of 27 November 1985 and notified Mowbray that the request for deferment of tax was not granted. It warned that unless the tax was paid within seven days, legal proceedings for its recovery would be taken without further notice.

On one view, the time within which the taxpayer could commence proceedings for an order of review of that decision commenced to run from 13 January 1986. However, by letter dated 16 January 1986, Mowbray, pursuant to sec. 13 of the Judicial Review Act, requested the Commissioner to give his reasons for that decision. The Commissioner gave those reasons by letter dated 1 October 1986. The relevant part of the letter is set out:

``Pursuant to sec. 13 of the Administrative Decisions (Judicial Review) Act 1977, you are advised as follows:

• (a) The findings on material questions of fact are that:

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  • (i) the income tax due and payable by the taxpayer, for the year ended 30 June 1981, was $1,664,923.15;
  • (ii) the taxpayer had been involved in the profit strip of a company, Hoare Brothers (Quarries) Pty. Ltd. and as a shareholder in that company was assessed as having received deemed dividends;
  • (iii) an objection had been lodged and disallowed and that the taxpayer had requested a reference to a Board of Review;
  • (iv) representations had been received from the taxpayer by his accountant and by his solicitor, requesting that an extension of time for payment be granted until 14 days after the final determination of the dispute;
  • (v) a description of the taxpayer's income and assets had been supplied; and it was claimed that the taxpayer could not afford to make payment at present. No offer was made for payment by instalments. The taxpayer's annual income was in excess of $100,000.
• (b) The evidence and other material on which the findings were based are:
  • (i) letter dated 31 May 1985 received from Messrs Davidson England and McNaughton, accountants;
  • (ii) letters dated 10 July 1985, 29 July 1985, 19 August 1985, 27 November 1985, from Mr W.D. Mowbray, solicitor;
  • (iii) computer records of this office;
  • (iv) verbal advice of officers in the Compliance and Appeals branches of this office;
  • (v) copies of extracts from the Compliance file for the taxpayer.
• (c) The reasons for refusing to grant an extension of time for payment of the outstanding tax until 14 days after the final determination of the dispute were that:
  • (i) no offer had been made for payment of the outstanding amount by instalments;
  • (ii) the liability for income tax had arisen as a result of the taxpayer's participation in an artifical tax avoidance scheme;
  • (iii) the letter of 27 November 1985 did not give sufficient grounds for concluding that the taxpayer was unable to immediately make some payment.''

On another view, the time within which the taxpayer could commence proceedings for an order of review of the decision notice of which was given by the letter of 13 January 1986, commenced to run from 1 October 1986. Thus, in the present case, that time would have expired by the end of October 1986. However, by a letter dated 25 November 1986, Mowbray supplied to the Commissioner further details of the financial position of the taxpayer and made submissions in support of an extension of time under sec. 206 of the Income Tax Act. The last paragraph of the letter was as follows:

``Accordingly you are requested to reconsider the taxpayer's application for an extension in time for payment of the outstanding tax pursuant to sec. 206 of the Income Tax Assessment Act 1936 (as amended).''

By letter dated 31 December 1986, the Commissioner replied to the letter from Mowbray dated 25 November 1986. The letter was addressed to Mowbray at the post office box number appearing on all the letters from Mowbray to the Commissioner and to which the other correspondence had been addressed. The letter was as follows:

``Receipt is acknowledged of your proposal for payment of the amounts outstanding dated 25 November 1986.

You are advised that the proposal cannot be granted for the following reasons:

• Insufficient financial details were provided with your proposal to support your application (i.e. statements of assets and liabilities, weekly income and expenditure, current debtors and creditors, etc.).
• The proposal did not include a specific repayment schedule.

Unless payment in full of the amount outstanding viz. $1,646,462.42 is received

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immediately this office will have no alternative but to institute legal action for recovery of the amounts outstanding. If this course of action becomes necessary it will occur without further notice, and a liability for legal costs may accrue.

Additional tax for late payment continues to accrue at the rate of 20% per annum from the due date for payment. $512,923.10 has accrued to date.

No credit has been given for any amount which may be in transit.''

As will appear later, Mowbray claims the letter was not received.

On 15 April 1987, the Commissioner caused to be issued a Supreme Court writ by which the Commissioner claimed the sum of $2,248,207.16 against the taxpayer. That sum included the sum of $1,664,923.15 tax, credits from subsequent tax years and additional tax pursuant to sec. 207 of the Tax Act from 4 July 1985 to 14 April 1987. The writ was served on the taxpayer on 17 June 1987.

Some time before June 1987, Mowbray had moved office and had a new postal address. By letter dated 2 July 1987, Mowbray wrote to the Commissioner referring to their letter of 25 November 1986, the failure to have a reply to that letter and requesting a statement under sec. 13 of the Judicial Review Act of the reasons for the refusal to grant the extension of time sought by the letter of 25 November 1986. The letter was signed by Jennifer Davies. No reason was given as to why that letter was written some 14 days after the service of the writ on the taxpayer. The letter makes no reference to the writ but I infer Mowbray knew of the existence of the writ when the letter was written. The writ required an appearance to be entered within 10 days after service and in fact a defence is dated 17 July 1987. By letter dated 8 July 1987, the Commissioner replied to Mowbray's letter of 2 July 1987. It stated that a reply to the letter of 25 November 1986 issued on 31 December 1986 and was forwarded to the return address provided. It enclosed a copy of that letter. It contained the following paragraph:

``As reasons for non-allowance of the proposal contained in your letter of 25 November 1986 are set out in this office's reply of 31 December 1986, a statement pursuant to sec. 13 of the Administrative Decisions (Judicial Review) Act 1977 is not considered necessary.''

The present application was filed on 23 September 1987. Jennifer Davies, a solicitor in the employ of Mowbray, made an affidavit in support of the application. She was the person who signed the letter from Mowbray of 2 July 1987. In her affidavit she refers to the letter of 2 July 1987 but does not disclose the existence of the writ. She deposes to the fact that she has searched the files at the office of Mowbray but could not find the letter from the Commissioner dated 31 December 1986. She deposes that between 25 November 1986 and 2 July 1987 there had been a change of solicitor at Mowbray's who handled the taxpayer's matters and that when he received the letter of 8 July 1987 he took steps to try to obtain further information from the taxpayer to support an extension of time to pay the tax. It should be noted that no tax had been paid. She deposes to the fact that about 10 September 1987 she took over the conduct of the taxpayer's file and formed the view that an application be made to seek an extension of time within which to apply for an order of review of the decision contained in the letter of 31 December 1986. On this basis it was contended that the time within which the taxpayer could commence proceedings for an order of review commenced to run from about 9 July 1987.

The taxpayer does not specify in his application or in the form of an application for an order of review exhibited to his application, the precise decision he seeks to review. The decision is described as follows, namely the:

``decision was made purported to be made pursuant to the provisions of the Income Tax Assessment Act 1936 (`the Act') and being a decision made refusing to grant the Applicant pursuant to sec. 206 of the Act an extension of time in which to pay the income tax assessed to the Applicant in Notice of Amended Assessment No.385466/2 for the year of income ended 30 June 1981 together with any additional tax alleged to be due payable thereon (which said income tax and additional tax are hereinafter collectively referred to as `the said tax').''

Under para. 11(1)(c) of the Judicial Review Act, the prescribed period within which an application for an order of review must be

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made, is, on the facts of this case, the period ending on the 28th day after the statement under sec. 13 was furnished to the taxpayer; see subpara. 11(3)(b)(ii). From the material set out above, in my opinion, the decision sought to be reviewed is the decision contained in the letter of 1 October 1986, in which event the application for the order of review should have been made by the end of October 1986.

The actions on the part of the taxpayer suggest a calculated attempt to delay the taking of action by the Commissioner to enforce payment of tax due and payable. A decision to refuse to grant an extension of time under sec. 206 of the Tax Act was contained in the letter of 27 November 1985. The sec. 13 reasons for that decision were contained in the letter of 1 October 1986. That was a decision that could have been made the subject of an application for an order of review. Mowbray knew of the provisions of the Judicial Review Act, but instead of seeking an order of review, sought a reconsideration of that decision. In my opinion that course was an attempt to delay matters further. Mowbray did nothing further until after the writ was served. Even then, they made no reference to the writ but sought further delay by drawing attention to the fact that no reply had been received to their letter of 25 November 1986. Even after they had received the letter of 8 July 1987, they did not seek a review of the decision referred to in the letter of 8 July 1987, but waited until 23 September 1987 before making this application under sec. 11 of the Judicial Review Act. Even then, they failed to identify which decision they were seeking to review.

In my opinion, it is most undesirable that a taxpayer, by making repeated applications under sec. 206, should be able to delay the payment of tax and to delay the making of an application to review a decision of the Commissioner. On the view most favourable to the taxpayer, in the present case, any application for a review of the decision referred to in the letter of 31 December 1986 should have been commenced within 28 days after the furnishing of the sec. 13 reasons, namely by a date early in August 1987. In the present case, my opinion is the same whether that date or the date in October 1986 is the appropriate date, namely that the application should be dismissed.

The discretion conferred on the Court by para. 11(1)(c) of the Judicial Review Act to grant an extension of time within which to seek an order of review is unfettered. It is true that the discretion must be exercised judicially on relevant grounds. During the course of submissions, reference was made to a large number of authorities where the Court in some cases has granted an extension of time and in other cases has refused to grant an extension of time. These authorities are helpful in illustrating the approach of the Court in exercising the discretion conferred upon it, but they cannot fetter the exercise of the statutory discretion. There is a tendency for judgments on this issue to become longer and longer as all cases dealing with the discretion are analysed. To a large extent, the judgments become an exegesis of other judgments. In my opinion, such an approach is not appropriate.

For present purposes, reference is made to
Hunter Valley Developments Pty. Ltd. v. Cohen (1984) 3 F.C.R. 344 at pp. 348-350 where Wilcox J. analyses a number of earlier decisions of the Court when exercising the discretion conferred by sec. 11 of the Judicial Review Act. What is clear is that each case depends upon its own particular facts including the statutory provisions applying with respect to the exercise of the power exercised and the effect of a refusal to grant an extension of time. I do not propose to add to the many cases where a full review is had of all cases which have discussed the discretion conferred by sec. 11 of the Judicial Review Act. To do so would tend to impose fetters upon the unfettered discretion conferred by that section. I have considered the principles of law discussed by Wilcox J. in Cohen's case and by Burchett J. in
Winter v. D.F.C. of T. 87 ATC 4065 and
A.R.M. Constructions Pty. Limited & Ors v. D.F.C. of T. 86 ATC 4213. I would suggest that where the discretion sought to be reviewed is made under sec. 206 of the Tax Act, except where a clearly identified substantive issue arises on the face of the proposed application for an order of review, the Court should be wary of considering whether the order of review would be likely to be granted. That course permits the substantive issues to be canvassed on a procedural matter and tends to ignore the nature of the discretion conferred by sec. 11 of the Judicial Review Act. That section limits the time within which an application for an order of

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review may be taken. Finality in administration is of importance but, at the same time, some discretion must be allowed to be exercised in appropriate cases. Subject to this one comment, which will be referred to later, I propose to apply the principles discussed in Cohen's case.

In the present case, the taxpayer had engaged in a scheme which involved the profit strip of a company. The taxpayer, as a shareholder in that company, was assessed as having received deemed dividends in the execution of that scheme. The money passed through his hands. The tax has been due and payable since June 1985 but, to date, no amount of that tax has been paid. At all times he has left his affairs to be handled by his tax agents and by Mowbray. In those circumstances, their delay, as his agents, in commencing proceedings for judicial review, must be explained and justified. It is clear that the agents have engaged in a series of procedures which have had the effect of extending the time for payment of tax by the taxpayer. On the material before me, I am satisfied that at no time has there been a full and frank disclosure of the affairs of the taxpayer. This is illustrated by the fact that as late as August 1987, Mowbray was seeking information from the tax agents. There has been no real attempt to meet the requests of the Commissioner. Three different decisions under sec. 206 of the Tax Act have been identified. Mowbray knew of the provisions of the Judicial Review Act, but, on receipt of the sec. 13 reasons in October 1986, did not make application for an order of review of the decision of January 1986. I find the reasons given for not doing so are spurious. Instead of taking legal proceedings, they supplied some further information and requested a reconsideration of the decision of January 1986. They knew that the Commissioner was threatening to commence legal proceedings without further notice. Mowbray engaged in a course of conduct which attempted to delay further any step to enforce payment of tax.

Mowbray engaged in further activity of a similar kind after the writ was served on the taxpayer. Although the letter of 2 July was signed by Jennifer Davies, no explanation was given as to how that came about or what knowledge she had at that time of the affairs of the taxpayer. I find that the reasons given for not instituting proceedings for an order of review within 28 days after receipt of the letter of 8 July most unsatisfactory. The conduct of Mowbray was consistent with its previous conduct; an apparent policy of adopting delaying tactics.

Under the Tax Act, the obligation on the taxpayer to pay the tax to the Commissioner is clearly stated. That obligation remains even when an objection to the assessment has been referred to a Board of Review. The facts of this case differ from the facts of many of the authorities referred to in Cohen's case. In many of those cases, on event involving one decision formed the basis for the application for an extension of time. Here, the facts disclose a continuing saga of delay. Mowbray, by the reference to sec. 13 of the Judicial Review Act, knew or ought to have known of the time constraints imposed by sec. 11 of that Act. They ignored those constraints and pursued a course of conduct which, in my opinion, was directed to delaying payment of tax. No amount of the tax has been paid. The Commissioner had made clear his intention to commence legal proceedings for the recovery of tax without further warning to the taxpayer. Even after the service of the writ upon the taxpayer, Mowbray took no action to seek a review of the decision of the Commissioner. The Supreme Court proceedings should not be disrupted by an order of this Court except in clear circumstances. The facts of this case do not justify that course. The taxpayer should be left to take whatever steps in the Supreme Court proceedings he considers appropriate.

In the present case, the taxpayer attempted, to some extent, to raise the substantive merits of his claim for a review of the decision under sec. 206 of the Tax Act. Apart from the material directed to the effect upon himself and persons employed by him, he drew attention to what was described as the existence of inconsistent assessments for the same income which prevented application of sec. 177 of the Tax Act; see Winter's case. In the present case, the Commissioner, by notice of assessment dated 3 June 1985, assessed a company Oarebros Nominees Pty. Ltd., to tax in the sum of $2,415,000. That assessment was based on income alleged to have been earned for the tax year ending 30 June 1981 and which passed through the hands of the taxpayer and formed the basis of the assessment of the taxpayer. It was that company which had been stripped of its assets as part of the scheme in

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which, it is alleged, the taxpayer participated. Counsel contended that this fact was sufficient to justify the granting of an extension of time under sec. 206 of the Tax Act and that the taxpayer should be able to raise this matter for the consideration of the Commissioner.

That contention is rejected. The substantive issue raised in Winter's case was determined by Fox J. when the application for an order of review in that matter came on for hearing; see Winter v. D.F.C. of T. 87 ATC 4655. For present purposes, the facts of the present case and the facts of Winter's case are similar. The issue was stated by Fox J. at pp. 4657-4658:

``The present case was put simply and solely on the basis that there were mutually inconsistent assessments, the inconsistency being between the assessment of Mr Winter on the one hand, and the assessments, taken together, of the companies to which I have referred, on the other.''

His Honour then dealt with the facts in some detail and the submission on behalf of Winter and then said at pp. 4659-4660:

``In my opinion this submission fails. There is a clear distinction between assessment on alternative bases and failure to properly assess at all, as Barwick C.J. recognised later in his judgment in Bailey (see at ATC p. 4098; C.L.R. p. 218). The Commissioner may assess different taxpayers in respect of the same income on alternative bases, although he can only collect tax on one basis: See
Richardson v. F.C. of T. (1931-1932) 48 C.L.R. 192 at pp. 205-207 and 212. In
Booth v. F.C. of T. 86 ATC 4049; (1986) 81 F.L.R. 346, McGarvie J., sitting at first instance, said at ATC p. 4077; F.L.R. p. 359:

• `I do not think an implication arises from the Act that the Commissioner may not issue inconsistent assessments to two taxpayers in respect of the same income.'

and he cited Richardson's case. The case went on appeal (see 86 ATC 4612), but this point was not dealt with. See also
D.F.C. of T. v. Jonrich Pty. Ltd. & Ors 86 ATC 4560 at p. 4575. It follows that the existence of two assessments in respect of the same income does not deprive either assessment of its protection under sec. 177(1): See
D.F.C. of T. v. Crowl 87 ATC 4001 at p. 4004; and
Tupicoff v. F.C. of T. 84 ATC 4851; (1984) 4 F.C.R. 505 at ATC p. 4863; F.C.R. p. 523.''

I accept the judgment of Fox J. and find there is no substance in the taxpayer's contention based on mutually inconsistent assessments. There is no suggestion that the Commissioner is seeking to enforce the assessment against the company. None of the other matters of a substantive issue with respect to the proposed application for an order of review are sufficient to justify the granting of an extension of time.

Accordingly, the application is dismissed with costs.