Konebada Pty Ltd ATF William Lewski Family Trust v FC of T

Judges:
Perram J
Abraham J
Button J

Court:
Federal Court of Australia, Full Court

MEDIA NEUTRAL CITATION: [2024] FCAFC 42

Judgment date: 20 March 2024

Perram, Abraham and Button JJ

INTRODUCTION

1. The appellant ( Konebada ) is the trustee of the William Lewski Family Trust (the Trust ). The respondent (the Commissioner ) issued amended assessments to Konebada denying it input tax credits ( ITCs ) with respect to invoices that Konebada paid for services provided by lawyers and other professionals in relation to issues that concerned members of the Lewski family and related entities (referred to as the Lewski Family Group ).

2. Konebada brought an application under Pt IVC of the Taxation Administration Act 1953 (Cth) appealing against the Commissioner's objection decisions disallowing Konebada's objection against the amended assessments of net amounts for each of the quarterly periods between 1 January 2015 and 31 December 2017 (the relevant periods ). The primary judge dismissed that application:
Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257 ( J ).

3.

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In order to succeed at trial on the issues that were in contention, Konebada needed to establish both:

4. Before the primary judge, Konebada succeeded on the first issue, but failed on the second issue. Konebada appealed. The Commissioner put on a Notice of Contention suggesting error in the primary judge's conclusion on the first issue.

5. For the reasons which follow, the appeal must be dismissed. In the circumstances, it is not necessary to address the Notice of Contention.

LEGISLATION

6. The parties jointly put forward a compilation of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act ) in force as at 1 July 2015, as the applicable version of the GST Act. It is that compilation to which we refer.

7. Section 11-20 of the GST Act provides that "You are entitled to the input tax credit for any *creditable acquisition that you make". Whether or not an acquisition is a "creditable acquisition" is determined by s 11-5. That section provides as follows:

You make a creditable acquisition if:

  • (a) you acquire anything solely or partly for a *creditable purpose; and
  • (b) the supply of the thing to you is a *taxable supply; and
  • (c) you provide, or are liable to provide, *consideration for the supply; and
  • (d) you are *registered, or *required to be registered.

8. As may be seen, in order for an acquisition to be a "creditable acquisition", all four criteria must be satisfied.

9. The term "acquisition" is broadly defined by s 11-10. In this case, the issue was not whether the receipt of legal services involved an "acquisition", but who made the acquisitions - was it Konebada? - and, if so, whether Konebada made the acquisitions for a "creditable purpose".

10. Whether or not an acquisition is made for a "creditable purpose" is determined by s 11-15. In this proceeding, the key sub-paragraph was s 11-15(1), which provides that "You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise". The balance of s 11-15 provides for various exceptions, which need not be addressed on this appeal.

11. The term "enterprise" - by reference to which s 11-15(1) operates - is defined in s 9-20. That section sets out a number of different bases on which an activity or series of activities will constitute an "enterprise". The relevant component part of the definition in this appeal was as follows:

12. The Dictionary (s 195-1) provides that " carrying on an *enterprise includes doing anything in the course of the commencement or termination of the enterprise".

BACKGROUND FACTS

13. The background facts were set out by the primary judge (J [7]-[16]). As no complaint was made about the accuracy of her Honour's statement of the facts in this appeal, it is convenient to set out that summary (emphasis in the primary judge's reasons, but omitting lists of certain proceeding numbers recorded by the primary judge):

THE PRIMARY JUDGE'S REASONS

14. After setting out the factual background and issues, the primary judge set out the lay evidence given at trial. The lay witnesses included Mr William Lewski and his son, Mr Ari Lewski. When we refer simply to "Mr Lewski", we are referring to Mr William Lewski. The other witnesses were lawyers of firms who issued the tax invoices that were paid by Konebada (Andrew Joseph, a retired partner of Strongman and Crouch ( S&C ), Samuel Bond and Steven Casper, both principals of SBA Law, and John Young, a tax consulting lawyer carrying on his own practice).

15. In setting out the evidence of the lay witnesses, the primary judge referred to the consultancy services provided by Konebada in respect of retirement villages, and residential aged care and home care businesses conducted by members of the Lewski Family Group. In respect of those services, the primary judge accepted that Mr Lewski "was the individual engaged by [Konebada] to provide the consulting and advisory services" (J [19]).

16. The central thrust of Mr Lewski's evidence on the issues presently of concern was summarised by the primary judge as follows (J [20], emphasis added):

Mr Lewski's evidence was that the Applicant paid the invoices rendered by solicitors, barristers and accountants, including those relating to the litigation to which members of the Lewski Family Group were parties. Mr Lewski's evidence was that the Applicant was authorised to 'conduct' the litigation on behalf of those persons who were the parties to that litigation. Although he had no specific recollection of any particular conversations with other members of the Lewski Family Group, his recollection was that each member 'approved of the [A]pplicant managing [the] litigation'. All instructions to the lawyers were provided by Mr Lewski. He considered that he was providing those instructions 'as a representative of the [A]pplicant '.

17. Her Honour then set out extended passages of Mr Lewski's oral evidence in chief and cross-examination. Through those passages of evidence Mr Lewski gave evidence that arrangements were made informally in the Lewski family, that he received advice from lawyers and disseminated the advice, and decisions that had been made, to family members, who acquiesced, and who only got involved when required as witnesses. Mr Lewski stated that Konebada did more than simply act as a conduit for advice, but, in effect, took charge of the litigation. Mr Lewski put the point as follows in a passage of cross-examination (J [24], emphasis in original):

It was providing services to the members of the Lewski Family Group which may have, in part, included legal advice that [the Applicant] received in its direct form or in a modified form, depending on what [the Applicant] made of the advice.

18. Mr Lewski went on to explain in cross-examination (as set out in J [26]) that Konebada's coordination of the litigation involving members of the Lewski Family Group, and entry into the funding agreements, was a form of asset protection. That function was said to be served by ensuring that any proceeds of litigation would be received by Konebada, thus insulating assets and proceeds from the reach of liquidators or trustees in bankruptcy.

19. The primary judge concluded (J [112]) that Konebada acquired services from the law firms concerned. The services received were constituted by the provision of legal advice or legal services to beneficiaries of the Trust. Consequently, the primary judge concluded (J [113]) that there was an acquisition by Konebada for the purposes of s 11-5(a) of the GST Act and that the supply to Konebada was a taxable supply within the meaning of s 11-5(b).

20. The primary judge accepted key parts of Mr Lewski's evidence. Her Honour stated as follows (J [28]):

I accept that Mr Lewski was the directing mind of the Applicant, irrespective of whether he held the office of director or not. As the directing mind of the Applicant,

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evidence of his state of mind is relevant:
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 5 (Hunt J). I accept that Mr Lewski sought to co-ordinate the direction of complex interrelated litigation and that he directed the strategy for the conduct of that litigation. I also accept Mr Lewski's evidence that he believed that having litigation proceeds paid to the Applicant rather than individuals might insulate the proceeds from the claims of future creditors against those individuals. I accept that Mr Lewski instructed the lawyers acting for members of the Lewski Family Group. I accept that Mr Lewski was the party to whom the lawyers conveyed their advice and that he made strategic decisions concerning whether to accept advice given by the lawyers. I also accept that the Applicant paid the invoices rendered by the professional service providers.

21. The primary judge went on, however, to set out the aspects of Mr Lewski's evidence to which she attached little weight, and made some observations concerning his evidence. As these passages of the primary judge's reasons are central to the principal issues on the appeal, they are set out in full (J [29]-[36], emphasis added):

29 However, I attach little weight to the evidence of Mr Lewski's ex post facto understanding of the capacity in which he gave instructions and received advice, or to his characterisation of the operations of the Applicant in so far as they related to the issues in this case. There are a number of difficulties with Mr Lewski's evidence. First, much of his evidence was conclusionary or argumentative in form . The evidence approached that described by Dixon J (as he then was) in
Williams v Lloyd (1934) 50 CLR 341 at 371: '[e]x post facto statements of a narrative order are not admissible upon the state of mind at a past date of the person who makes them'.

30 Second, Mr Lewski's evidence was also self-serving and uncorroborated by contemporaneous documentary evidence . The evidence of witnesses who have interests that turn on whether their evidence is accepted needs to be approached critically and will necessarily be the subject of careful scrutiny. Although evidence that may be described as 'self-serving' should not necessarily be disbelieved (
Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation (1991) 91 ATC 4546 at 4552 per Hill J) or be regarded as 'prima facie unacceptable' (
McCormack v Commissioner of Taxation (1979) 143 CLR 284 at 302 per Gibbs J), statements of purpose, object or state of mind must be 'tested most closely, and received with the greatest caution' (
Pascoe v Commissioner of Taxation (1956) 30 ALJR 402 at 403 per Fullagar J, citing
Cox v Smail [1912] VLR 274 at 283 per Cussen J).

31 Mr Lewski's evidence must be weighed in light of the objective facts. Those objective facts include the fact that Mr Lewski was a registered tax agent with knowledge of GST. Not only was Mr Lewski a party with an interest in the outcome of the proceedings, he had an educated and technical understanding of the nature of the issues in these proceedings .

32 Mr Lewski's evidence that the Applicant received advice and then disseminated the advice, or used the advice to formulate its own advice, was not supported by contemporaneous evidence . There was no contemporaneous evidence that the Applicant conducted, or was legally able to conduct, a practice entailing the provision of legal advice. There were no trustee resolutions or board papers or other documents to support a conclusion that the Applicant provided legal advisory services to the members of the Lewski Family Group. There was no evidence that the Applicant received fees or remuneration for the provision of such services. The revenues recorded in the Applicant's BASs were limited to revenues referable to advisory and consulting services provided by the Applicant relating to the retirement villages, and residential aged care and home care businesses conducted by companies and trusts controlled by, or affiliated with, the Lewski Family Group.

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33 The arrangements as described by Mr Lewski have an air of artificiality . By his description, the Applicant, a trustee of a family trust, received legal advice relating to proceedings or matters to which it was not a party and then formulated recommendations and advised family group entities, and provided instructions to the professional advisors advising in relation to those proceedings or matters and the legal representatives for the parties to those proceedings.

34 For these reasons, I do not accept that Mr Lewski instructed lawyers and received the Litigation Services and Other Services on behalf of the Applicant as trustee of the William Lewski Family Trust. Rather, I conclude that he did so for and on behalf of the Lewski Family Group individual or entity that was party to the proceedings or the transaction or dealing in issue.

35 Further, I do not accept Mr Lewski's evidence that the Litigation Funding Agreements were really agreements for the provision of services. That description is not supported by the terms of the Agreements, which, as set out above, do not require the Applicant to provide any services to the named Beneficiary, other than to pay invoices. The Agreements did not require the Applicant to provide some form of service to the Beneficiary which would have created a need for the Applicant to acquire legal services for its own account. The Agreements required the Applicant to fund the provision of services by others. Furthermore, the Agreements do not cover all of the proceedings to which members of the Lewski Family Group were parties. Mr Lewski testified that any such oversights were "omissions" or "mistakes". As explained further below, I do not accept that evidence.

36 I also attach no weight to Mr Lewski's evidence that the Litigation Funding Agreements 'memorialised' arrangements that had been in place for decades. There is no objective contemporaneous evidence of an arrangement by which the Applicant provided legal advice and litigation support services to the members of the Lewski Family Group prior to the execution of the Litigation Funding Agreements. The contemporaneous evidence discloses that the Applicant received the proceeds of a costs order and paid invoices, but the basis and reasons for the payment, other than to benefit the beneficiaries of the William Lewski Family Trust of which the Applicant was trustee, were not determined prior to 2017 when the GST audit commenced. As Mr Lewski himself said, he 'realised that, because of the audit, there may be a need to have something formally in place recording what the practicalities of what going on in the family business was about with respect to [the] litigations' and the Litigation Funding Agreements were 'a formal record of some sort to point to so that the situation of proceeds being received and returned to [the Applicant] could be explained'. Prior to that time, everything was said by Mr Lewski to have been done 'informally'. I infer that this informality extended not just to the initial form of the arrangement (not being formally recorded in writing) but also to the terms of the arrangement, which had not been fully thought-through or developed prior to the drafting of the Litigation Funding Agreements. Even then, Mr Lewski's evidence was that the Litigation Funding Agreements did not accurately record what he described as an engagement for services arrangement.

22. The evidence of the other lay witnesses may be referred to more briefly. Mr Ari Lewski was a director of Konebada. He understood his father dealt with lawyers and accountants and that it was Konebada that co-ordinated and effectively managed the litigation (J [37]) even though there was no "explicit decision" that Konebada "represented other entities that were part of the Lewski Family Group" (J [39]). Mr Ari Lewski accepted that there was no formal conferral of authority on Konebada and that the arrangement he was aware of, and approved of, was simply that Konebada "was paying the fees and acting as a central point of contact in the litigation and the legal services" (J [40]). The primary judge regarded much of Mr Ari Lewski's evidence as conclusory and noted that no basis for his understanding of the role ascribed

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to Konebada was apparent, other than what his father told him (J [41]).

23. The primary judge then referred to the evidence of the four lawyers.

24. Mr Jospeh and Mr Bond took instructions from Mr Lewski, who was their point of contact. Mr Jospeh did not see the instructions coming from Mr Lewski as coming from him in any particular capacity (J [47]). Mr Joseph never saw Konebada, as distinct from the parties to the litigation in which his firm acted, as his client (J [50]). Konebada was "merely paying the bills" (J [51]).

25. Mr Bond gave evidence that most of the litigation was defensive and was not likely to result in any recoveries in favour of members of the Lewski Family Group, with the exception of one piece of litigation, referred to as the Daytree proceeding (J [59]). Mr Bond understood the parties named in the litigation to be his firm's clients and did not turn his mind to the capacity in which Mr Lewski was receiving advice and providing instructions (J [64]). Mr Bond's colleague, Mr Casper, also had interactions with Mr Joshua Lewski on day-to-day matters, but dealt with Mr Lewski on strategic matters (J [67]). He was not aware of the capacity in which either of those individuals gave instructions or received advice (J [67]).

26. Mr Young also dealt with Mr Lewski (other than when he obtained instructions from Mrs Lewski on one occasion). To his mind, Konebada was "involved" in the matters because Mr Lewski had told him to bill Konebada (J [75]-[77]). The primary judge attached no weight to Mr Young's evidence of his understanding that he dealt with Mr Lewski in his capacity as a director of Konebada or that Konebada was his client (J [81]). Noting the involvement of Mr Young in these proceedings and in dealings with the ATO during its audit, the primary judge regarded Mr Young as not being a disinterested party, but considered his evidence to be in the nature of self-serving advocacy (J [82]).

27. After addressing the legislative scheme, the primary judge turned to consider the issues. Her Honour identified the two key issues as follows (J [95]):

28. As mentioned above, the primary judge reached a favourable outcome on the first issue. Her Honour reasoned (J [106]) that, although Konebada had not instructed, substantively engaged with, or received advice from the legal service providers for its own account, Konebada:

had a contractual right to request that the lawyers provide legal services to the Lewski Family Group member who was the party to the relevant transaction or court proceeding. The provision of legal services (whether they be Litigation Services or Other Services) to the relevant Beneficiary also discharged the obligation of the service provider to the Applicant.

29. Her Honour then characterised the acquisitions made by Konebada as acquisitions involving the provision of legal advice or services to the beneficiaries of the Trust and concluded (J [112]) that there was an acquisition by Konebada each time legal services were provided to the beneficiaries. Her Honour concluded that that was an acquisition by Konebada for the purposes of s 11-5(a) of the GST Act.

30. On the second issue - whether the acquisitions were made in carrying on an enterprise - the primary judge observed that Konebada's description of its relevant enterprise was "somewhat fluid and amorphous" (J [115]). According to its written submissions, Konebada carried on "an enterprise which involved it managing litigation, tax, legal, regulatory compliance and commercial matters for the Lewski Family Group and/or involved the procurement of legal services for members of the Lewski Family Group", and received distributions, fees and dividends.

31. The primary judge identified that the phrase "in carrying on" an enterprise requires more than a temporal nexus (ie acquiring services at the same time as carrying on an enterprise). It requires that the goods or services acquired be used (or acquired for use) for the purposes of the enterprise: (J [118], referring to Gordon J in
Secretary, Department of Transport (Vic) v Federal Commissioner of Taxation (2009) 261 ALR 39; [2009] FCA 1209 at [58]).

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32. Her Honour referred to a number of authorities -
Professional Admin Service Centres Pty Ltd v Federal Commissioner of Taxation (2013) 94 ATR 445; [2013] FCA 1123 (Edmonds J) ( Professional Admin Service Centres );
Watson v Federal Commissioner of Taxation (2020) 277 FCR 253 (Kenny, Davies and Thawley JJ) ( Watson ); and
Federal Commissioner of Taxation v Stone (2005) 222 CLR 289 (Gleeson CJ, Gummow, Hayne and Heydon JJ) ( Stone ) - to the effect that, while a profit-making purpose is ordinarily observed where activities are found to constitute a business, a profit-making purpose is not always necessary in order for activities to qualify as a business (eg, the idealistic motives referred to in Stone at [55], which passage was cited by the Full Court in Watson at [36]). The primary judge went on:

122 It does not follow that the conduct of activities which are not inherently capable of generating income constitute the carrying on of a business.

123 For the reasons discussed below, there is an insufficient connection between the Applicant's acquisition and the achievement of some commercial purpose of the Applicant to stamp the acquisition by the Applicant as being made in carrying on an enterprise.

…

125 The Court finds that the Applicant did not carry on a business of providing litigation consulting services or a business of receiving and disseminating advice or formulating and making recommendations based on advice it received to members the Lewski Family Group in respect of litigation proceedings … There was no acquisition of services by the Applicant in carrying on an enterprise of providing services and information to the members of the Lewski Family Group.

33. The primary judge found (J [126]) that there was no "evidence to support a conclusion that the engagement of service providers or the funding of the provision of the Litigation Services or Other Services was made in the course of an enterprise involving the Applicant providing procurement services for the members of the Lewski Family Group".

34. Her Honour did not regard the Litigation Funding Agreements as supporting a finding that Konebada carried on an enterprise of the kind asserted, as its only obligation under those agreements was to pay invoices (J [127]). The primary judge further observed that the Litigation Funding Agreements did not "evidence a concern in the nature of trade", noting that, given the very limited prospect of the Trust's beneficiaries receiving any funds in respect of the litigation the subject of the agreements, the prospect of Konebada ultimately making a return on any of those agreements "was so remote that it had no meaningful nexus to the services that were supplied" (J [128]). Still addressing the Litigation Funding Agreements, the primary judge did not accept that, prior to entry into those agreements, the payment of lawyers' invoices had been done in any systematic fashion and did not accept that the agreements were entered into in a systematic and organised fashion (J [129]). In this regard, her Honour noted the complete absence of any trustee resolutions, accounts, financial statements or board papers.

35. While the primary judge accepted that it is not unusual for intra-family group dealings to be conducted informally, her Honour observed that "if a taxpayer chooses to conduct its affairs informally, there may be practical consequences for its ability to prove its case:
Stone v Federal Commissioner of Taxation (1918) 25 CLR 389 at 393 (Isaacs J). Such may be said to be the case here" (J [131]).

THE NOTICE OF APPEAL AND NOTICE OF CONTENTION

36. Konebada's Notice of Appeal set out the following 13 grounds of appeal:

37. It is a regrettable practice, observed all too often, that appellants load up Notices of Appeal with multiple, overlapping grounds, many of which receive little attention in written and oral submissions. Konebada's Notice of Appeal and conduct in this appeal is a case in point.

38. While we have not found it necessary to determine the Commissioner's Notice of Contention, we record the grounds relied on in the Notice as follows:

CONSIDERATION

39. Konebada addressed its written submissions by reference to grounds 1 to 7

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(collectively), grounds 8 to 12 (collectively) and ground 13.

40. Konebada's submissions on grounds 1 to 7 were directed to the primary judge's finding of fact that Mr Lewski instructed lawyers and received the litigation and other services on behalf of the Lewski Family Group individual or entity that was party to the proceeding, transaction or dealing in issue, and not on behalf of Konebada. The focus of Konebada's argument was on the primary judge's rejection of Mr Lewski's evidence of the capacity in which he acted.

41. Konebada's submissions on grounds 8 to 12 were directed to a contention that the primary judge erred in finding that Konebada did not make the acquisitions in carrying on its enterprise.

42. Ground 13 concerned the costs consequences of a Notice to Admit filed by Konebada in the proceeding below. Konebada submitted that the primary judge erred in dismissing the proceeding with costs without having regard to r 22.03 of the Federal Court Rules 2011 (Cth) (the Rules ).

43. We will address the issues arising on appeal according to the same groupings.

Grounds 1 to 7: the capacity in which Mr Lewski instructed lawyers and received services

Mr Lewski's status as a tax agent

44. Konebada's main complaint on the appeal, and virtually the only point advanced by its oral submissions, was that Konebada was denied procedural fairness because Mr Lewski's status as a tax agent was relied on by the primary judge as a reason for rejecting his evidence when this was never put to him in the witness box, and was not a matter that was raised in submissions below. Konebada contended that, by reason of the failure to put this matter to Mr Lewski, adverse findings against him and other findings affected by them, must be set aside (citing
Brown v Dato Pty Ltd [2006] WASCA 170 at [25] (McLure JA) and [156]-[157] (Buss JA)), and the appeal allowed.

45. Konebada further contended that the primary judge had not identified any path of reasoning by which Mr Lewski's status as a tax agent was a reason to reject his evidence. Konebada contended that the primary judge's reasons exhibit an "implicit suspicion of tax agents", which was unwarranted when tax agents were, if anything, more likely to give truthful evidence in tax cases given their professional standards and obligations.

46. It was accepted by the Commissioner that Mr Lewski's evidence of his understanding as to the capacity in which he acted was admissible. However, and as the Commissioner submitted, the question of the capacity in which Mr Lewski was acting "depended on more than just Mr Lewski's state of mind". A conclusion that a natural person who undertakes certain acts - here, receiving and disseminating advice to Lewski Family Group litigants, and giving instructions to lawyers - does so as the agent of a company is a question, the determination of which involves mixed considerations of fact and law. Even confining the analysis to the factual dimension of the enquiry, the natural person's understanding and belief can only ever be one piece of evidence, to be weighed alongside others.

47. In seeking to establish the significance of Mr Lewski's evidence as to the capacity in which he acted, Konebada relied heavily on the treatment of the evidence of directors as to their state of mind in
Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1 ( Allied Pastoral ) at 5-6 (Hunt J). That reliance was misplaced. The issue in Allied Pastoral was whether the dominant purpose of a company acquiring property was to sell it at a profit. The evidence of natural persons whose intention is to be ascribed to a company (which has no mind of its own) is an entirely different enquiry from one concerning the capacity in which a natural person undertook particular actions.

48. We perceive no error, or procedural unfairness, in the way in which the primary judge approached the evidence of Mr Lewski. As the primary judge observed, Mr Lewski's evidence was of his ex post facto understanding and was conclusionary or argumentative (J [29]). It was open to the primary judge, in assessing the weight to be given to such evidence, to take into account the extent to which the person giving evidence of his understanding as to capacity does so from a

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tutored, or untutored, vantage point. It was open to the primary judge to take into account, in assessing the weight to be ascribed to Mr Lewski's ex post facto, conclusionary evidence, that his was not the evidence of a person with no knowledge or capacity to understand the implications (from a GST point of view) of his or her understanding. Taking this matter into account did not involve any implicit, but unarticulated, view on the part of the primary judge that tax agents are unreliable. Nor did it involve any outright rejection of Mr Lewski's evidence.

49. Nor do we consider that Konebada's procedural fairness complaint has any substance. There was no factual dispute at trial concerning whether or not Mr Lewski was a tax agent; there was no contrary fact that was required, in fairness, to be put to Mr Lewski to contest on oath, or notified to Konebada so that it could meet the point by additional evidence. It was clear that Mr Lewski's evidence was contested by the Commissioner. Konebada could not have supposed that the trial was being conducted on the footing that Mr Lewski's evidence was accepted at face value. Contrary to Konebada's submissions, evidence of Mr Lewski's understanding of the capacity in which he acted was not a "critical issue" in the case, or a fact on which the decision was likely to turn. On the contrary, it was merely one piece of evidence.

50. The rule in Browne v Dunn, and matters of fairness advanced as offshoots from the rule, should not be approached as absolutes. As the cases collected and discussed in
Clark v Trenerry [1999] NTSC 17 at [30]-[40] (Riley J) illustrate, even where there is a failure to adhere to the rule, the specific consequences must be considered in light of the nature and course of the case at issue. On that point, it should be noted that the primary judge concluded (in Konebada's favour) (J [112]-[113]) that there was an acquisition by Konebada for the purposes of s 11-5(a) of the GST Act. Her Honour reached that view notwithstanding that she was not satisfied that Mr Lewski acted on behalf of Konebada in giving instructions and receiving legal advice. It may be observed that the adverse outcome on this issue did not result in an unfavourable outcome on the first of the two substantive sub-issues that the primary judge identified (J [95]).

51. The absence of procedural unfairness may also be illustrated by considering what, at most, Konebada could have done had matters been put below as it now contends should have occurred. While it may be expected that Mr Lewski would have insisted his understanding was unaffected by his knowledge as a tax agent, it was not suggested by Konebada that any further, or different evidence would have been adduced.

Lack of documentation

52. Another complaint advanced by Konebada concerned the primary judge's description of Mr Lewski's evidence as being uncorroborated by contemporaneous documentary evidence (J [30]). Konebada contended that the primary judge erred in finding that Mr Lewski's evidence was uncorroborated in that respect. It relied on third party invoices addressed to Konebada, the BAS returns of Konebada, bank records showing that payments were made by Konebada, and GST reports maintained by Konebada. We do not accept that the primary judge erred, as contended. At most, the documents on which Konebada relied were consistent with Konebada being the recipient of the relevant services. But they did not positively establish that Konebada was the recipient of the services, or that Mr Lewski acted on behalf of Konebada when he acted as the conduit for the receipt of advice and the provision of instructions.

53. Similarly, there was no error in the primary judge both accepting that family groups may operate informally, and taking into account the lack of documentation in the form of trustee resolutions or board papers in assessing the issue of the capacity in which Mr Lewski acted. As the Commissioner noted in his submissions, Mr Lewski's evidence was that the communications were "oral" and "informal" and that there was no documentation conferring authority on him by the litigant members of the Lewski Family Group. The absence of any documentation of the kind described by the primary judge (at J [32]) was a matter that logically bore on, and the primary judge was entitled to have regard to in addressing, the question of the capacity in which Mr Lewski

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acted. The primary judge did not (as Konebada submitted) equate the absence of such documentation with positive evidence in support of the conclusion her Honour reached. We also note that there was no evidence of the tax returns of the trust. Had the activities in question been undertaken on behalf of Konebada, and had they been undertaken in pursuit of a litigation services enterprise operated by Konebada, one would have expected to see tax returns reflecting the conduct of the asserted enterprise (even if loss-making), accounts of the trust and trust statements recording any distributions to beneficiaries.

The "air of artificiality"

54. In the course of setting out and assessing Mr Lewski's evidence, the primary judge observed that the arrangements, as he described them, had "an air of artificiality" (J [33]). Konebada criticised the primary judge's reference to this matter on the basis that her Honour gave no reasons explaining how this "was probative of her decision to reject Mr Lewski's evidence" and noted that the anti-avoidance provisions found in Div 165 of the GST Act had not been invoked by the Commissioner.

55. There was nothing remarkable in the primary judge's observations. It was open to the primary judge to regard the arrangements, as described by Mr Lewski, as having an "air of artificiality". Describing the supposed arrangements in those terms does not depend on whether or not the Commissioner pursued any claim under the anti-avoidance provisions. Reading the passage of her Honour's reasons in context, the primary judge was drawing attention to a number of matters that she took into account in determining to attach little weight to Mr Lewski's ex post facto and subjective understanding of the capacity in which he acted. Mr Lewski described an arrangement that struck the primary judge as artificial. We see no error in that artificiality being taken into account in determining the weight to be given to evidence of the witness's understanding. Addressing the same point from a different perspective, where a witness describes a course of events, understanding or other matter that accords with what would, in the circumstances, be regarded as expected, natural or unremarkable, that may support the acceptance of the witness's evidence on the matter in question.

Impact on the finding that Mr Lewski did not act on behalf of Konebada

56. As we have set out, we consider Konebada's contentions of error to be devoid of merit. It follows that we do not consider its submissions to have established any basis to impugn the primary judge's finding (at J [34]) - that Mr Lewski acted for and on behalf of the members of the Lewski Family Group who were party to the litigation or transaction at issue - as the product of error.

57. We also note, for completeness, that, while the primary judge's reference (at J [29]) to the observations of Dixon J in
Williams v Lloyd (1934) 50 CLR 341 at 371, was not entirely apt in the circumstances, that had no bearing on her Honour's analysis. The primary judge admitted Mr Lewski's evidence but went on to assess its weight. Accordingly, there can be no suggestion that the primary judge's analysis suffered from appealable error by reason of her Honour's reference to Dixon J having stated that ex post facto statements of a narrative order are not admissible upon the state of mind at a past date. Senior counsel for Konebada recognised as much when he observed, in oral submissions that, despite having raised the matter in its written submissions, "we can probably live with" paragraph 29 of her Honour's reasons.

Grounds 8 to 12: the scope of Konebada's enterprise

58. Section 9-20 defines "enterprise" relevantly as follows:

59. Konebada asserted two kinds of error on the part of the primary judge. First, it asserted factual errors concerning payments received by Konebada, and its prospects of making a profit from its activities.

60. Secondly, it contended that the primary judge failed to construe and apply the definition

ATC 28210

of "enterprise" correctly, but equated it with carrying on a business. Konebada further submitted that, considered against the correct test, Konebada's activities did have the indicia of being carried on "in the form of a business".

Factual errors

61. Konebada submitted that the primary judge erred in stating (J [126]) that there was no evidence that Konebada was paid for providing a procurement service. It pointed to the evidence concerning the receipt by Konebada of $155,000 (being payment of a costs order), to which the primary judge had earlier referred (J [36]). Konebada also suggested that, in light of the evidence of proofs of debt admitted in the liquidation of Daytree Pty Ltd (of more than $10 million), the primary judge erred in concluding that the prospect of Konebada making a return was so remote as to have no nexus with its acquisitions.

62. The primary judge referred to Konebada having received $155,000, but did so in the context of addressing Mr Lewski's evidence that the Litigation Funding Agreements "memorialised" pre-existing arrangements that had been in place for decades (J [36]). Konebada's written submissions on the appeal did nothing more than refer to this finding; they did not seek to explain the basis of receipt of this sum. Konebada's submissions in reply criticised the Commissioner's submissions for linking this payment to the Litigation Funding Agreements.

63. It is clear from the primary judge's reasons (J [76]) and the evidence that the sum related to a cost order made in favour of Mrs Lewski in litigation in which Mr Young acted. The sum was paid into Konebada's account, but that did not occur until February 2018, which post-dates the end of the relevant periods.

64. Whatever the details concerning the payment of $155,000 were (much of the correspondence between the two sides' solicitors was redacted for some reason), the isolated receipt of one payment after the conclusion of the relevant periods does not, in our assessment, constitute any evidence that Konebada was "paid" for its services in the sense of being in receipt of remuneration for the provision of a service to the Lewski Family Group members whose interests were at stake in the various pieces of litigation.

65. Konebada's reliance on the acceptance of proofs of debt in the Daytree liquidation was also misplaced insofar as it held out the mere prospect of recovery of a sum over the floor of $5 million (necessary for Konebada to receive anything under the terms of the relevant Litigation Funding Agreement) as establishing that Konebada did have a prospect of making a return. Mr Bond of SBA was the lawyer whose evidence was relevant to that matter. His evidence was that, while the liquidators had not yet completed their work his understanding was that there was a significant deficit and liabilities greatly exceeded assets. Accordingly, there was no evidence that Konebada enjoyed a realistic prospect of receiving funds pursuant to its Litigation Funding Agreement with Daytree, let alone sufficient funds to support a contention that Konebada had a prospect of making returns on its alleged services that had a nexus with the acquisitions.

66. While the fact that a venture may ultimately prove less profitable than anticipated will not ordinarily rob the enterprise of its character as a venture directed to making a profit, in this case there was no evidence that any return over the floor of $5 million was ever regarded as a serious prospect. Moreover, even if Konebada's argument had merit so far as the Daytree litigation was concerned, that would not be sufficient to establish the conduct of an enterprise with the necessary nexus with all the services received, for which ITCs were claimed.

The "form of a business"

67. On appeal, Konebada put its case on the basis of the first limb of s 9-20(1), accepting that, if it were not successful on the "form of a business" limb, it would not be successful on the second "nature of trade" limb.

68. It was common ground that Konebada was carrying on an enterprise which involved the provision of management-related services to certain Lewski family entities which included property syndication (J [116]). The issue concerned the scope of its enterprise. Konebada contended that, had the primary judge accepted that Mr Lewski was acting on behalf of Konebada, it would have followed that the scope of Konebada's enterprise included the

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ongoing, regular and repeated acquisition of the service of providing legal and other professional services to beneficiaries, and that the acquisitions were made by Konebada in carrying on its enterprise.

69. Konebada contended that the primary judge interpreted the requirement that an acquisition be made in carrying on an enterprise on the basis that it required a commercial purpose, or a purpose of profit or return. Konebada relied on decisions supporting the proposition that not for profit bodies may carry on a trade, or conduct a business. Examples included the Council of Law Reporting being characterised as an organisation "established for…trade or business" in
Re Duty on Estate of Incorporated Council of Law Reporting for England and Wales (1889) 22 QB 229 at 239 (Lord Coleridge CJ), the receipt of gifts by an evangelist being treated in
Graham v Commissioner of Inland Revenue (NZ) [1961] NZLR 994;
(1961) 8 AITR 309 (McCarthy J) as profits or gains from a business notwithstanding that the evangelist was not motivated by gain, and the recognition by the High Court in Stone at [55], that a taxpayer whose motivations are "idealistic rather than mercenary" may still be engaged in a business.

70. In oral submissions, Konebada sought to bring its activities within the scope of Stone on the basis that Konebada's motive (according to Mr Lewski's evidence) was to protect members of the Lewski Family Group by having proceeds of litigation paid to it and thereby put beyond the reach of group members' creditors or trustees in bankruptcy. We do not accept that seeking to thwart creditors or stymie a trustee in bankruptcy renders Konebada's activities "idealistic rather than mercenary" in the sense described in Stone. Konebada's fallback position was that, if not an idealistic purpose, such asset protection was still a proper thing for Konebada to do in its trustee capacity. We reject this contention. There is also no apparent anchor in the trust deed or the status of Konebada as trustee that required it to protect the interests of beneficiaries of the Trust in this way. Any potential receipts by beneficiaries were not assets of the Trust in respect of which Konebada had duties.

71. Section 9-20(1)(a) of the GST Act defines "enterprise" as an activity, or a series of activities, done (inter alia) "in the form of a business". Konebada submitted that the apparent legislative intention was to include, within the definition "activities in the form of a business but not carried on as a business".

72. The Commissioner did not cavil with Konebada's contention (advanced relying on the High Court in
Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1 at 20 (French CJ, Gummow, Heydon, Crennan, Kiefel and Bell JJ)) that it is necessary to identify the scope of the enterprise carried on by a taxpayer. The primary judge did just that.

73. Her Honour was clearly mindful that activities that are conducted without a view to making a profit may nonetheless constitute the conduct of a business: see, eg, J [120] where the primary judge referred to the observations of Edmonds J in Professional Admin Service Centres at [60]. The primary judge nevertheless considered that the capacity of the enterprise to generate a positive return was a relevant enquiry in determining whether a series of activities constitutes the carrying on of a business. There was no error in that approach where, as here, the activities are said to constitute an enterprise within s 9-20(1)(a) of the GST Act.

74. As long as it is borne in mind that the absence of a profit-making prospect is not inevitably and always fatal to a positive conclusion on the question of whether a taxpayer is carrying on an enterprise, an examination of whether the activities of the taxpayer have business-like qualities - including whether they are capable of generating a positive financial return - is a natural and logical enquiry to conduct. As we have set out, the primary judge conducted such an enquiry and did not err in her factual findings.

75. Konebada stressed that the first limb of s 9-20(1) refers to activities "in the form of" a business. While it may be accepted that parliament's intention, by the inclusion of those words, was that the definition of "enterprise" not be limited to circumstances where the activities constitute the carrying on of a business, the words of extension do not

ATC 28212

have the necessary reach to bring the activities of Konebada within the definition of "enterprise".

76. In submitting that its activities had the indicia of being carried on "in the form of a business", Konebada relied on the period of time over which Konebada had paid the invoices for provision of legal services to members of the Lewski Family Group, and the scale of its activities (paying invoices totalling over $3.5 million). It also submitted that the activities were carried out in an organised and systematic manner, as evidenced by the scale of the undertaking, and that, to the extent that there was a degree of informality in the documentation, the arrangements could be inferred from conduct.

77. We do not accept that these matters establish that Konebada carried on an enterprise of the kind asserted. All the regularity, repetition and funds expended establish is that members of the Lewski Family Group were involved in a wide, and expensive, array of litigation over an extended period of time. Those matters do not, in the context of this case, establish that the activities in question were carried out by Konebada "in the form of a business". The submission that Konebada's activities were carried out in an organised and systematic manner was advanced in Konebada's written submissions without any substantiation, and was not addressed orally. It is a contention that is difficult to reconcile with the evidence concerning the informal basis upon which Mr Lewski dealt with the various lawyers on behalf of members of the Lewski Family Group. The only respect in which the operations involving the lawyers were formalised was by entry into the Litigation Funding Agreements. But, as the primary judge found, those agreements were not "entered into in a systematic and organised manner so as to stamp them with a commercial character" (J [129]).

Ground 13: the Notice to Admit and determination of costs

78. On 9 February 2022, Konebada served a Notice to Admit on the Commissioner. The Notice to Admit sought admissions as to the truth of the following facts:

79. The Notice to Admit also sought admissions as to the authenticity of a number of bank statements. The covering email noted that the bank statements contained hand-written annotations denoting the service provider for each cheque cashed. The covering email stated that the writer was instructed that the annotations were added contemporaneously by the tax agent of Konebada.

80. The Commissioner's response was dated 21 February 2022, and enclosed a Notice of Dispute. The Commissioner's covering letter noted as follows:

Facts

  • 3. The Commissioner is of the view that the facts required to be admitted in the Notice to admit concern the very issue that is in dispute between the parties in these proceedings - i.e., whether your client made any acquisitions of relevant supplies.
  • 4. This is made clear in your email in which you state:

    In order to minimise evidentiary issues between the parties at trial and to best assist the Court, the Notice deals with the fact that each service supplied to the Applicant was in fact paid for by the Applicant.

  • 5. This assumes that the services were in fact supplied to your client, which you are well aware is disputed by the Commissioner.

Documents

  • 6. The Commissioner ordinarily has no issue admitting authenticity of bank statements.
  • 7. However, the Westpac Business Cheque Account statements enclosed in your email dated 9 February 2022 contain handwritten annotations that you contend were added contemporaneously by the tax agent of the Applicant.

    ATC 28213

  • 8. The Commissioner is not able to reconcile all of those handwritten annotations with the invoices provided by your client during the audit and is otherwise unable to verify all of the annotated withdrawals.
  • 9. Accordingly, he is not prepared to admit the authenticity of the annotated bank statements provided with the Notice to admit.

81. By ground 13, Konebada contended that the primary judge erred in concluding that the application was to be dismissed with costs when no reasons were given for dispensing with compliance with r 22.03 of the Rules.

82. In
Harvard Nominees Pty Ltd v Dimension Agriculture Pty Ltd (in liq) (2023) 299 FCR 224, the Full Court (Colvin, Stewart and Feutrill JJ) considered the authorities and confirmed (at [13]) that costs orders are interlocutory and leave to appeal is required to challenge a costs order, except where the making of a different costs order is a necessary consequence of success on the appeal.

83. On the hearing of the appeal, counsel for Konebada orally sought leave to appeal on this point (no leave having previously been sought).

84. Rule 22.03 provides for specific cost consequences to follow the service of a Notice of Dispute, where the truth of any fact, or the authenticity of any document disputed in that notice is subsequently proved. While the Court retains an overarching discretion over costs, if r 22.03 applies, any exercise of that discretion in order to depart from the cost consequences specified by r 22.03 would need to be considered and justified.

85. Konebada accepted that it had not, in closing, asked the Court to deal with costs separately from the outcome of the substantive dispute on the basis that, even if it were unsuccessful, it wished to rely on r 22.03 in relation to the Commissioner's Notice of Dispute. Nor were any submissions made to the primary judge regarding how the Notice to Admit, and the Notice of Dispute, should affect the disposition of costs if the Court were to dismiss the application. That was explained by Konebada on the basis that the primary judge issued her reasons and orders by email (cf convening a hearing to hand down judgment and inviting submissions on costs).

86. Be that as it may, it is incumbent on a party who seeks to be heard on costs - so as to preserve its capacity to contend for an outcome other than that costs follow the event - to raise that with the Court before the Court delivers judgment: see, in the context of appeals,
Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (No 2) [2018] FCAFC 147 at [4]-[5] (Allsop CJ, Perram and Markovic JJ) and the cases referred to therein including
Kable v State of New South Wales (No 2) [2012] NSWCA 361 at [14] (Basten JA) and
Thomas v Commissioner of Taxation (No 2) [2017] FCAFC 144 at [5]-[6] (Dowsett, Perram and Pagone JJ). While the cases we have referred to were decided in the context of appeals, we see no reason why a different position should prevail at first instance.

87. Here, the primary judge was not asked to refrain from deciding costs (and doing so on the ordinary basis that costs follow the event) when delivering judgment on the substantive issues. Moreover, if dissatisfied with the primary judge's decision to dispose of costs at the same time as delivering judgment, Konebada could have and, in our view, should have, immediately taken steps to raise the matter of costs with the primary judge. Had it done so, and had her Honour been persuaded of the merits of Konebada's position on costs pursuant to r 22.03, it would have been a straightforward matter for the interlocutory costs order to be revoked and replaced, or amended. Where a party considers that a costs issue has been overlooked by the primary judge (cf considered and disposed of in a manner involving House v The King error), it should not do nothing and assume that the matter will necessarily be considered suitable to be addressed on appeal.

88. We decline to grant leave to appeal the interlocutory costs order made below. In the circumstances we have set out, the decision does not occasion substantial injustice and was not attended with sufficient doubt to warrant the grant of leave:
Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398 (Sheppard, Burchett and Heerey JJ).

THE COURT ORDERS THAT:

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

 

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