Deputy Commissioner of Taxation v Finerty [2007] QDC 58

DISTRICT COURT OF QUEENSLAND CITATION: Deputy Commissioner of Taxation v Finerty [2007] QDC 058 PARTIES: DEPUTY COMMISSIONER OF TAXATION Plaintiff V GREGORY WILLIAM FINERTY Defendant FILE NO/S: 265 of 2005 DIVISION: Civil PROCEEDING: Application to set aside default judgment and for stay of execution ORIGINATING COURT: District Court Southport DELIVERED ON: 4 April 2007 DELIVERED AT: District Court Rockhampton HEARING DATE: 19 March 2007 JUDGE: Kingham DCJ ORDER: 1. The applications are refused. 2. The applicant must pay the costs of the respondent of and incidental to this application, as assessed, if not agreed. CATCHWORDS: TAXES AND DUTIES – Income tax and related legislation – collection and recovery of tax – proceedings for recovery – where objection to assessments lodged after default judgment obtained JUDGMENT – DEFAULT JUDGMENT – APPLICATION TO SET ASIDE – whether delay in defence and in application adequately explained – whether reasonable prospects of success – whether objection to assessments sufficient to establishes reasonable prospects of defence JUDGMENT – DEFAULT JUDGMENT – STAY OF EXECUTION – principles for staying execution of judgment for taxation liability – whether discretion should be exercised Taxation Administration Act 1953 (Cth), Part IVC, -- 1 of 6 -- 2 ss14ZZM, 14ZZR Uniform Civil Procedure Rules 1999(Qld), rr 290, 800 FJ Bloeman Pty Ltd v FCT (1981) 147 CLR 360 – applied Croney v Nand [1992] 2 Qd R 432 – applied Deputy Commissioner of Taxation v Warrick (No 2) [2004] FCA 918 – cited Deputy Commissioner of Taxation v Gafford Pty Ltd (2001 No.S445; de Jersey C.J., 27 August 2001, unreported) – cited Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302 – followed National Mutual Life Assn of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441 – applied Snow v Deputy Commissioner of Taxation (1987) 14 F.C.R. 119 – followed REPRESENTATIVES: Mr K J Bell of the Australian Taxation Office for the plaintiff Mr J Yianoulatos of Yianoulatos Lawyers for the defendant [1] Until early March this year, Mr Finerty did not lodge his income tax returns for the financial years 99/00 to 02/03. The Deputy Commissioner of Taxation issued assessments for those years and commenced these proceedings to recover the taxation liability. When Mr Finerty did not defend the proceedings, the Deputy Commissioner obtained judgment in default of defence and commenced bankruptcy proceedings against Mr Finerty. Mr Finerty unsuccessfully applied to set aside the bankruptcy notice and now applies to set aside the default judgment. [2] That application was first heard by Newton DCJ who noted that Mr Finerty’s material did not adequately explain his delay in defending the matter or his basis for defending the claim. His Honour adjourned the application to enable further material to be filed. Mr Finerty did file further material. He also lodged income tax returns for the relevant years and an objection to the assessments on which the default judgment is based. At the request of the parties, I heard the application despite there already having been some argument before Newton DCJ. During the hearing, in response to a matter I raised, Mr Finerty’s respresentative asked that, if the application to set aside the summary judgment was refused, I order the execution of the judgment is stayed pending the outcome of his objections to the taxation assessments. [3] The Deputy Commissioner opposed either order being made. He submitted the default judgment was regularly entered and that Mr Finerty has not satisfied the test for setting it aside. His delay in defending the proceedings has not been adequately explained and he has not established a prima facie defence on the merits. He relies upon provisions in the Taxation Administration Act 1953 (Cth) (TAA) to support his submission that, other than in exceptional circumstances, a stay should not be granted merely because the assessment is disputed. -- 2 of 6 -- 3 Should the judgment be set aside? [4] There was no contest that the judgment was regularly entered. This Court has the power to set aside a judgment entered in default of defence (r290). Factors generally taken into account are: • whether or not the defendant has given a satisfactory explanation of his failure to appear; • whether or not there has been any delay in making the application; • whether or not the defendant has a prima facie defence on the merits to the claim on which the judgment is founded. (National Mutual Life Assn of Australasia Ltd v Oasis Developments Pty Ltd) [5] Mr Finerty’s explanation of his failure to appear is that during the period 2004 to August 2006 he lived in Brisbane with his partner, who is suffering from a terminal illness. He says a significant amount of his time was spent caring for her and also for his elderly mother, who lives in North Queensland and who is in fragile health. In July 2006, he assisted his mother to relocate to his office at Main Beach which is now both her residence and his office. In August 2006, his mother was admitted to a Gold Coast hospital for some three weeks. Around the same time, his partner was diagnosed with her illness and was hospitalised for 2 weeks in a Brisbane hospital. It is not surprising that during August 2006, Mr Finerty was distracted from attending to his own affairs. [6] What is not explained, however, is why he took no steps prior to or after that period to attend to his taxation matters. The assessments in relation to the relevant years were issued in November 2004 and served on Mr Finerty by prepaid ordinary post to his business address. The claim to recover the assessed amounts commenced in May 2005. In May 2006, Rackemann DCJ was persuaded that he should make an order for substituted service and pursuant to his order, these proceedings were deemed to be served on Mr Finerty on 25 June 2006, by prepaid ordinary post. [7] Judgment in default of defence was given on 8 August 2006 and bankruptcy proceedings were thereafter instituted. I note that Mr Finerty was personally served with the bankruptcy notice and a copy of the judgment at his office address on 9 September 2006. [8] Mr Finerty used his business address as his address for service in the bankruptcy proceedings. While he says that sometimes he did not collect his mail for three to four weeks at a time, he relocated his mother to that address in July 2006, after the claim was sent to him and before judgment was entered. He was also there served personally with the bankruptcy documents in early September. [9] The further material Mr Finerty filed to endeavour to explain his delay in defending did not take the matter any further. He provided bank statements showing cash withdrawals from ATMs in various locations. The entries from 25 June to 8 August 2006 show no withdrawals outside the Gold Coast region and are consistent with him being at the Gold Coast not elsewhere. On the best complexion of the evidence, if Mr Finerty did not become aware of these proceedings it was because of his own inattention to his affairs. He took no steps to collect his mail if, indeed, he was away from his office for lengthy periods and he did not keep his mobile -- 3 of 6 -- 4 phone with him because, he says, he was not expecting any calls. Mr Finerty has not satisfactorily explained his delay in defending this matter. [10] Nor has he satisfactorily explained his delay in bringing this application. Whilst I do not consider that alone should determine the matter, it does weigh against exercising discretion in his favour. On 9 September 2006 he was aware judgment had been entered against him but it was not until 19 December 2006 that he brought this application. Until 2 March 2007 he had taken no steps to challenge the assessments and he still has not provided a proposed defence. Had it not been for the indulgence granted to him by Newton DCJ when this matter was first listed for hearing, there would have been no material at all before the Court to indicate any potential defence to the action. [11] That brings me to the question of his prospects of successfully defending the claim. Mr Finerty relies on an affidavit from Mr Nichols, a registered tax agent who has assessed his taxation liability for the relevant years at nil and has now lodged both returns for those years and an objection to the assessments for them. Merely challenging the accuracy of the assessments is insufficient to establish Mr Finerty has reasonable prospects of defending the claim in this Court. [12] The scheme of the TAA provides challenges to the merits of taxation assessments are dealt with by the mechanisms set out in Part IVC of the TAA: review by the Administrative Appeals Tribunal and appeals to the Federal Court. The issue and service of a notice of assessment itself creates a debt immediately due and payable (Hoare Bros Pty Ltd v Commissioner of Taxation). Unless that assessment is successfully challenged, the debt arising from the notice of assessment exists. Any dispute concerning the assessment must be made pursuant to Part IVC of the TAA (FJ Bloeman Pty Ltd v FCT). [13] Mr Finerty has raised no other defence. Given the legislative scheme created by the TAA, the objection to the assessments does not establish that Mr Finerty has reasonable prospects of success. [14] Mr Finerty has not satisfactorily explained his delay in defending this matter or in bringing this application and he has not established that he has reasonable prospects of defending the claim. It flows from this that his application to set aside the judgment is unsuccessful. Should a stay be granted? [15] In the alternative, Mr Finerty asks this Court to stay execution of the judgment pending the outcome of the determination of his objection to the assessments for the relevant years. This Court has power to stay the enforcement of a judgment (r800 UCPR). The Court’s discretion is unfettered and the applicant bears the onus of showing it is an appropriate case for the Court’s discretion to be exercised (Croney v Nand at p.348). This does not necessarily require Mr Finerty to establish exceptional or special circumstances. However, factors such as the personal and financial circumstances of the applicant will be relevant to whether the discretion should be exercised. [16] An applicant to stay a judgment for a taxation liability faces an additional hurdle. The TAA reveals a clear policy intention that the collection of taxation revenue is -- 4 of 6 -- 5 not delayed by review processes afforded by the Act. The fact that there is a pending review by the Administrative Appeals Tribunal (s14ZZM) or an appeal to the Federal Court (s14ZZR) does not affect the taxation decision or the recovery of any amount owing thereby. [17] Those provisions are not directly applicable as, in this case there is neither a review nor an appeal, although that may follow depending on the outcome of the objection recently lodged. Nevertheless, regard should be paid by the Court to the policy intention. More so where, as here, the applicant has not yet invoked external review of the taxation decision. [18] That is not to say that the weight given to the underlying policy intent should overwhelm the Court’s discretion. Stays involving judgments for the recovery of taxation liability have been granted in both the Federal and State Courts (eg Deputy Commissioner of Taxation v Warrick (No 2); Deputy Commissioner of Taxation v Gafford Pty Ltd). However, each case must turn on its own facts. [19] The following propositions helpfully extracted from the authorities by French J in Snow v Deputy Commissioner of Taxation (at p.139) provide guidance on how the discretion should be exercised: “1. The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer’s appeal against his assessment. 2. The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it. 3. The merits of the taxpayer’s appeal constitute a factor to be taken into account in the exercise of the discretion (although some judges have expressed different views on this point). 4. Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is a party to a contrivance to avoid his liability to payment of the tax. 5. A stay may be granted in a case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay. 6. The mere imposition of the obligation to pay does not constitute hardship. 7. The existence of a request for reference of an objection for review where appeal is a factor relevant to the exercise of the discretion.” [20] I am not in a position to assess the merits of Mr Finerty’s objection to the taxation assessments. I have not been provided with the objections themselves or any material which supports them. I was provided with an affidavit given by Mr Nichols, a registered tax agent, who deposed that, on the basis of statements relating to Mr Finerty’s bank and brokerage accounts and evidence of transfers of funds to trading beneficiaries, he prepared and lodged income tax returns for the relevant years. He said, while the material was not complete, he had sufficient information to form his conclusions and competently discharge his professional responsibilities. He assessed Mr Finerty’s taxation liability as nil because, he said, the funds with which Mr Finerty was trading cannot be construed as income under the Income Tax Assessment Act 1936 (Cth) (ITAA). In effect, Mr Nichols’ affidavit swears to the issue and does not assist me to decide whether I should exercise discretion in Mr Finerty’s favour. -- 5 of 6 -- 6 [21] It was not suggested that Mr Finerty contrived to avoid his liability. Nor is there any suggestion of abuse of office by the Commissioner in this case. The proceedings both for judgment and bankruptcy appear to have followed the usual course in the absence of the taxpayer’s returns. Not all court material in relation to these proceedings was able to be served personally upon Mr Finerty. His absences from his residence and office and his failure to collect his mail regularly can not reflect adversely on the Deputy Commissioner. Appropriate steps were taken to try to bring this matter to Mr Finerty’s attention and service was effected in accordance with Court orders for substituted service. It appears that the tax returns and an objection to the assessments were lodged only in early March this year, and the Deputy Commissioner has not yet had the opportunity to consider them. [22] Further, Mr Finerty has not persuaded me that, other than the imposition of the obligation to pay the taxation liability, he will suffer extreme personal hardship if a stay is not granted. In his affidavit he deposed to his mother’s poor health, his partner’s terminal illness and the time that he has spent providing each with care and support. This was proffered to explain his delay in defending these proceedings. Whilst the unfortunate ill health of loved ones is a matter I may heed, I am not satisfied that Mr Finerty will suffer extreme personal hardship if the execution of this judgment is not stayed. [23] Mr Finerty bears the onus of establishing that this is an appropriate case for a stay to be granted and he has failed to persuade me, on the material before me, that it is appropriate in the circumstances of this case. [24] My orders are: 1. The applications are refused. 2. The applicant must pay the costs of the respondent of and incidental to this application, as assessed, if not agreed. -- 6 of 6 --