Re Commissioner of Taxation of the Commonwealth of Australia v Gunter Thiel [1987] FCA 15 (30 January 1987)

FEDERAL COURT OF AUSTRALIA

Re: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
And: GUNTER THIEL
No. WAG 11 of 1987
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA GENERAL DIVISION
French J.

CATCHWORDS

Income Tax - Appeal under Part V of Income Tax Assessment Act 1936 pending in State Supreme Court - dates of hearing allocated - Commissioner's application for discovery refused - appeal and application for leave to appeal to Federal Court - motion to strike out appeal - jurisdiction of Federal Court to entertain appeal from interlocutory order - jurisdiction of single judge to entertain striking out motion - 0.9 r.7 - 0.52 r.118 - decision on similar issue pending in Full Federal Court - application to adjourn motion - considerations of urgency

Federal Court Act 1976

Income Tax International Agreement Act (1983)

Income Tax Assessment Act 1936 s.196A

Hydrocarbon Products Pty. Limited v. Federal Commissioner of Taxation 86 ATC 4694.

Adam P. Brown Male Fashions Pty. Ltd. v. Phillip Morris Inc. 35 ALR 625

HEARING

PERTH
30:1:1987

ORDER

The Respondent's motion be adjourned to a date to be fixed upon application to the Registrar.

Note: Settlement and entry of orders is dealt with in order 36 of the Federal Court Rules. (See also order 37 rule 2(3).)

DECISION

On 27 February 1986 the Commissioner of Taxation issued a notice of assessment to Gunter Thiel, the taxpayer, a resident of Switzerland, notifying assessment of income tax of $346,220.50. It is not necessary for present purposes to recite the background to that assessment. It is sufficient to say that on the materials before me the assessment was based upon an income of $590,307.00 said to have been derived in the year ended 30 June 1985.

2. The income is said to have been derived from the sale by the taxpayer of units in the Energy Research Group Unit Trust in consideration of the acquisition of shares in energy Research Group (Australia) Limited and the later sale of shares so acquired. The taxpayer lodged a notice of objection to the assessment which objection was disallowed on 11 April 1986. The grounds of objection relied upon included the following which is set out as ground 11 in the notice of objection: -

"The taxpayer will contend:-

(a) that the activities conducted by the taxpayer in
relation to his interest in the Private Unit Trust,
his interest in the Public Unit Trust and his
interest in the Company ("the Investment")
constituted, or formed part of, an enterprise
carried on by a resident of Switzerland within the
meaning of the term "enterprise of one of the
Contracting States" in Article 3(1)(f) of the Swiss
Agreement.

.
.
."

3. The Swiss Agreement, I interpose, is a reference to the agreement and protocol set out in Schedule 15 of the Income Tax International Agreement Act (1983):-

(b) that the activities conducted by the taxpayer in
relation to the Investment were not carried on
through a permanent establishment situated in
Australia within the meaning of that term in
Article 5 of the Swiss Agreement;

(c) that $590,307.00 or such other sum as is
appropriate constituted the profits of an
enterprise of one of the Contracting States in
terms of Article 7(1) of the Swiss Agreement and is
taxable only in Switzerland in accordance with that
Article and sub-section 4(2) and Section 11E of the
Agreements Act;

(d) that $590,307.00 or such other sum as is
appropriate constituted income from the alienation
of capital assets of an enterprise of one of the
Contracting States in terms of Article 13(3) of the
Swiss Agreement and is taxable only in Switzerland
in accordance with that Article and sub-section
4(2) and Section 11E of the Agreements Act."

4. On 16 April 1986 the taxpayer requested pursuant to s.187 of the Income Tax Assessment Act that the Commissioner treat his objection as an appeal and forward it to the Supreme Court of Western Australia. The objection was so forwarded on 2 May 1986. The precise history of the matter thereafter until November 1986 does not appear from the materials. However, I was informed by counsel that on 28 November 1986 a summons for directions in the Supreme Court was taken out before a Master of that Court and that at that time the dates of 11 and 12 February 1987 were allocated as hearing dates for the appeal.

5. The question of whether the Commissioner would have an order for discovery against the taxpayer, among other questions, was adjourned to a special appointment before a Master of the Supreme Court on 13 January 1987. On that day, for reasons which are not clear, the application for an order for discovery did not proceed. However, on 14 January 1987 it was dealt with by his Honour Mr Justice Wallace in Chambers. At that time his Honour had before him minutes of proposed directions filed by both the Commissioner and the taxpayer.

6. The minute filed by the Commissioner sought the following orders:-

"1. The hearing date for two days commencing 11
February 1987 be vacated.

2. By 27 January 1987, the Appellant comply with the
Respondent's Notice of Discovery dated 9 January
1987 by answering on affidavit stating what
documents are or have been in the Respondent's
possession or power relating to the matters in
dispute in this action and what the Respondent
knows as to the custody of such as have been but no
longer are in the Respondent's possession or power,
and whether the Respondent's objects and, if so, on
what grounds, to the production of such as are in
the Respondent's possession or power.

3. By 10 February 1987, the Appellant give inspection
to the Respondent of the Appellant's discoverable
documents.

4. The Respondent have leave to file and serve
interrogatories on the Appellant within 21 days of
having been given inspection of the Apellant's
discoverable documents.

5. The Appellant file and serve his answers verified
by affidavit to the interrogatories administered by
the Respondent within 21 days of service of such
interrogatories.

6. The Appellant pay the Respondent's costs of this
Summons for Directions."

7. The minute filed by the taxpayer on the other hand sought the following orders:-

"1. The Appellant do serve on the Respondent by the 2nd
of February 1987:-

(a) A Notice requiring the Respondent, for the purposes
of these proceedings, to admit, and making
available for inspection, those documents upon
which the Appellant (sic) proposes to rely at the
trial and being documents copies of which are not
already in the possession or control of the
Respondent;

(b) Particulars of the facts which will be relied upon
by the Appellant in proving that the activities
conducted by the Appellant in relation to his
interest in the Private Unit Trust, his interest in
the Public Unit Trust and his interest in the
Company formed part of an enterprise carried on by
a resident of Switzerland within the meaning of the
term "enterprise of one of the contracting states"
in Article 3(1)(f) of the Swiss Agreement.
2. There be liberty to apply for further directions.

3. The costs of this Application be costs in the
appeal.

4. The Summons stand adjourned sine die."

8. The Commissioner contended before his Honour that he was entitled to discovery as of right, evidently pursuant to 0.32 r.9 of the Rules of the High Court. These rules apply to the proceedings in the Supreme Court by force of s.196A of the Income Tax Assessment Act 1936.

9. On 14 January Wallace J. gave directions in accordance with the taxpayer's minute and rejected the submissions of the Commissioner that he was entitled to discovery as of right.

10. In doing so, his Honour expressly relied upon the decision of Tadgell J. in Hydrocarbon Products Pty. Limited v. Federal Commissioner of Taxation 86 ATC 4694. That decision does not appear to have dealt with any submission that the Commissioner had a right to discovery, and indeed it is difficult to see how such a right could be extracted from 0.32 r.9 of the High Court Rules as was evidently suggested to Wallace J.

11. Suffice it to say that Tadgell J. proceeded on the basis that a discretion existed in the Supreme Court to order or not to order discovery in such proceedings. That decision, I am informed, went on appeal to the Full Federal Court and was argued before that court on 10 December 1986. The Court reserved its decision and, so I am informed, has not yet given its judgment. The Full Court has evidently heard submissions directed to the decision of Tadgell J. and also to its jurisdiction to entertain an appeal against an interlocutory order of a Supreme Court in proceedings under Part V of the Income Tax Assessment Act.

12. It has also, so I was informed by counsel, heard argument as to whether leave to appeal is required pursuant to s.24(1)(A) of the Federal Court Act 1976 in such a case.

13. In the present case the Commissioner on 23 January 1987 filed in this Court a notice of appeal against the decision of Wallace J. He also filed on 28 January 1987, an application for leave to appeal from the same decision.

14. On 27 January 1987 the taxpayer filed a notice of motion to set aside the notice of appeal.

15. In the meantime the Commissioner has an application pending in the Supreme Court to be heard on Wednesday, 4 February 1987 for an order that the allocated hearing date for the Part V appeal be vacated. He will evidently rely on the pending appeal in this Court in support of that application. The taxpayer brings his motion as a matter of urgency on the basis that it is important for the taxpayer and such of his witnesses who are coming from Switzerland for the hearing of the appeal, to know whether the trial is proceeding. His counsel further says that if the trial dates are vacated, then the taxpayere will be prejudiced although no evidentiary material was put before me in that regard.

16. As to that I make no finding. That will be a matter for the Supreme Court to consider when the Commissioner's application comes before it on Wednesday next.

17. In the meantime and having regard to the urgency of the matter and the present unavailability of any Judge at the Perth Registry, I agreed to hear the motion in Darwin by conference telephone with counsel in Perth.

18. The taxpayer's motion proceeds on the following bases as set out in his outline of submission which contends as follows:-

"1. Section 24(I)(c) of the Federal Court Act ("FCA")
confers jurisdiction on the Federal Court to hear
and determine an appeal from a judgment of a Court
of a State (other than a Full Court of a State
Supreme Court) exercising Federal jurisdiction "in
such cases as are provided by any other Act" i.e.
any other Commonwealth Act - s.38(1) of the Acts
Interpretation Act.

2. The proceeding pending in the Supreme Court of
Western Australia is an appeal pursuant to s.187(b)
of the Income Tax Assessment Act ("ITAA").

3. Under Section 197 of the ITAA, the appeal shall be
heard by a single Judge of the Court.

4. Under section 199 of the ITAA, the Court hearing an
appeal under Section 197 may make such order as it
thinks fit and may . . . . vary the assessment.

5. Under Section 200 of the ITAA, an appeal lies from
an order referred to in Section 199 to the Federal
Court.

6. An appeal under Section 200 of the ITAA may be
brought only from an order made on the hearing of
an appeal; an interlocutory order made by the
Supreme Court dealing with discovery and
interrogatories is not an order made on hearing of
the appeal . . . ."

and authorities were referred to dealing with the proper construction of the terms "hearing" and "interlocutory"-

"7. There is no provision of any Act conferring
jurisdiction on the Federal Court to hear and
determine an appeal from an interlocutory order
made in an appeal under s.197 of the ITAA and,
accordingly, the Court does not have jurisdiction
to hear or determine such an appeal.

8. The Appellant is not without a remedy: it could,
with leave as provided for in Section 60 of the
Supreme Court Act (W.A.) appeal to the Full Court
of that Supreme Court, by reason of Section 79 of
the Judiciary Act. If it did so appeal, it could
not thereafter appeal to the Federal Court by
reason of the exclusion in s.24(1)(c) of the F.C.A.
in respect of judgments of Full Courts of State
Supreme Courts. S.79 applies because both the
application for discovery and any appeal therefrom
are procedural. . ."

and reference is made to Adam Brown v. Phillip Morris 35 ALR 625 at 628-629:-

"Quite apart from section 79 of the Judiciary Act
the conferring of jurisdiction to "hear" confers the
power to deal with interlocutory applications and
appeals therefrom on the basis of the case of re Green
(extracted in Stroud and referred to above),
particularly when Section 15C of the Acts Interpretation
Act is applied."

19. There is prima facie considerable force in the taxpayer's submissions insofar as they relate to the jurisdiction of this court to entertain appeals against interlocutory orders of the State Supreme Courts made in proceedings under part V of the Income Tax Assessment Act. The Commissioner, however, says that I should adjourn the motion pending the decision of the Full Federal Court in the Hydrocarbon case given the similarity of the issues that there fall for decision. In my opinion, that is an appropriate course to take. I should add that I have in any event serious reservations as to my power to give the relief sought on the motion.

20. The Commissioner invokes the appellate jurisdiction of this Court conferred by s.200 of the Income Tax Assessment Act. Section 25 of the Federal Court Act provides:-

"(1) The appellate jurisdiction of the Court shall
subject to this section and to the provisions of any
other Act, be exercised by a Full Court.

(2) Applications for leave or special leave to appeal
to the Court from a judgment of another court may be
heard and determined by a single Judge or by a Full
Court and the Rules of Court may provide for enabling
such applications to be dealt with, subject to
conditions prescribed by the Rules, without an oral
hearing."

21. Objections as to competency are dealt with in O.52 r.18: The taxpayer claims to be entitled to raise the jurisdictional issue under O.9 r.7 of the Federal Court Rules which provide for applications to set aside originating process.

22. I am not satisfied that that rule applies to an objection to the competency of an appeal which is, in substance, the nature of the argument underlying the taxpayer's motion. Given, however, that it is plain that neither party had considered the question of my jurisdiction to entertain the motion, and given that I did not have the benefit of full argument on the point, I will express no concluded view on that as it is unnecessary to do so. I have great difficulty in understanding, on the Commissioner's argument, I must say, how the Court obtains jurisdiction to entertain appeals against interlocutory decisions of the Supreme Court in proceedings of the kind presently pending in that Court. In my view, however, it would be inappropriate for me, given the pending determination, as I am informed by the Commissioner's counsel, of these issues in the Full Federal Court, to proceed to a decision thereon even if I had jurisdiction to do so, which I doubt.

23. I will therefore adjourn the motion to be relisted on application to the Registrar. I expressly refrain from stating any view as to the merits of the Commissioner's application in the Supreme Court to vacate the hearing dates that are presently fixed. That is a matter for the Supreme Court to consider according to its own view of the merits.

24. I should also note that although the Commissioner filed an application for leave to appeal, which came before me today, his counsel expressly refrained from making any submissions on it. As I understand the parties, that application is pending and will require a separate hearing either by a single judge or the Full Court at some date yet to be fixed.

25. So the order that I will make is that the taxpayer's motion shall be adjourned to a date to be fixed upon application to the Registrar.