Vernon Merchant v Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 168 (14 March 1997)

CATCHWORDS

PROCEDURE - "taxation appeal" - motion to amend respondent's reply - whether leave should be granted

Federal Court Rules, O52B

Income Tax Assessment Act 1993 (Cth), s51(1)

Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd [1994] HCA 58; (1994) 181 CLR 466

Federal Commissioner of Taxation v Brambles Holdings Ltd [1991] FCA 122; (1991) 91 ATC 4285

Saffron v Federal Commissioner of Taxation [1991] FCA 234; (1991) 91 ATC 4501

VERNON MERCHANT v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

NO WAG 121 OF 1995

R D NICHOLSON J

PERTH

14 MARCH 1997

IN THE FEDERAL COURT OF AUSTRALIA )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION ) NO WAG 121 OF 1995

B E T W E E N: VERNON MERCHANT

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER: R D NICHOLSON J

DATE OF ORDER: 14 MARCH 1997

WHERE MADE: PERTH

THE COURT ORDERS THAT:

1. The respondent have leave to amend his Reply to the applicant's Statement of Claim in accordance with the terms of the respondent's amended Reply to the applicant's Statement of Claim filed herein on 22 January 1997.

2. The costs in this motion be costs in the cause.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION ) NO WAG 121 OF 1995

B E T W E E N: VERNON MERCHANT

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

CORAM: R D NICHOLSON J

DATE: 14 MARCH 1997

PLACE: PERTH

REASONS FOR JUDGMENT

The respondent seeks leave to amend his Reply to the applicant's Statement of Claim.

The application is a taxation "appeal" filed pursuant to O52B of the Federal Court Rules. At the first directions hearing held in the application on 15 December 1995, an order was made directing the respondent to give discovery, following which:

(a) the applicant was to file and serve a statement of facts, issues and contentions, the statement to follow as near as practicable the form of a statement of claim and set out the grounds for appealing against the assessment in question; and

(b) after service of the applicant's statement, the respondent was to file and serve a reply to the applicant's statement of facts, issues and contentions, the reply to follow as near as practicable the form of a defence.

The applicant filed his Statement of Claim on 6 March 1996, following a 3 week delay by the respondent in providing discovery.

A further directions hearing was held on 26 April 1996 when the time was extended for the respondent to file his reply to the applicant's Statement of Claim to 3 May 1996. It was filed on 3 May 1996.

Between 3 May 1996 and 18 July 1996 the parties filed and served requests for particulars of the Statement of Claim and the Reply and filed and served answers to those requests. Following this the applicant did not provide discovery and affidavits were not filed by the parties as had been directed in the order made on 26 April 1996. Consequently, a case management conference was listed on 4 September 1996.

At the case management conference an order was made that the applicant give discovery by 18 September 1996 and the parties file the affidavits on which they intend to rely at the hearing. The applicant was to file his affidavit by 4 October 1996 and the respondent by 11 October 1996. The case management conference was relisted for 18 October 1996.

On 27 September 1996 officers of the Australian Taxation Office ("the ATO") advised the solicitor for the respondent of the desire to advance additional grounds at hearing. However, instructions to her to amend the Reply were not received until 9 December 1996. A copy of the draft amended Reply was forwarded to the applicant's solicitors on 13 December 1996. The amended reply, as settled by counsel, was delivered to the applicant's solicitors on 24 December 1996.

The applicant has not yet filed his affidavits.

At a case management conference on 4 February 1997 an order was made that the respondent file a Notice of Motion for Leave to amend the Reply and it is this motion which now comes before the Court. The order was made necessary by the failure to obtain consent to the proposed amendments.

Paragraph 10 of the Statement of Claim pleads that certain liabilities to pay rent and management fees were a loss or outgoing within s51(1) of the Income Tax Assessment Act 1993 (Cth) ("the Act").

In the respondent's initial Reply this pleading was dealt with on the basis that the payments had not been incurred; the applicant had not commenced to carry on business; the losses were of capital or a capital nature; and the applicant lacked sufficient control of the operations.

In the respondent's amended Reply it is proposed to add by way of denial to par10 of the Statement of Claim assertions that the amounts were voluntarily paid for the sole or dominant purpose of securing a tax advantage; they were of capital or capital nature due to acquiring an interest in an afforestation business; they were an isolated transaction; they were intended to secure an asset of an enduring nature and so were of a capital or of a capital nature; and wholly or partly they were not properly referrable to the relevant year of income namely that ended 30 June 1987.

The application is supported by three principal contentions. The first is that the respondent should be able to raise all grounds relevant to the proper assessment of the taxpayer: Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd [1994] HCA 58; (1994) 181 CLR 466 at 479.

Secondly, if the respondent delays in bringing forward amendments he may risk refusal of them in the exercise of the Court's discretion: Saffron v Federal Commissioner of Taxation [1991] FCA 234; (1991) 91 ATC 4501 at 4505; and Federal Commissioner of Taxation v Brambles Holdings Ltd [1991] FCA 122; (1991) 91 ATC 4285 at 4288 per Sheppard J.

The third contention is that the applicant suffers no real prejudice as a consequence of the amendments. This is supported by argument that the proposed new grounds overlap the existing grounds and raise matters which the applicant is bound in the discharge of his proper evidentiary burden to investigate in any event.

For the applicant the motion is resisted on four grounds. The first is that additional expense will be occasioned to the applicant. The second is that delay will be caused in the advancement of the case. The third is that no explanation has been given why the additional grounds were not included in the initial draft filed on 3 May 1996. Fourthly, there has been a delay in bringing the motion from 24 December to the present hearing date.

I am not satisfied that the applicant will suffer such additional expense as would raise a prejudice preventing the Commissioner bringing forward grounds which should be properly considered by the Court in the application of the Act. I accept the submission for the respondent that there is a considerable overlap and common ground between the proposed new grounds and the previous grounds.

Any delay which may be caused should not be significant. Furthermore, the applicant has not evidenced compliance with all orders and directions which would have advanced the early hearing of the matter.

The respondent does not have to explain the absence of the grounds from the original Reply. It is sufficient that the matters which he now wishes to raise are matters going to whether the amounts should or should not be assessed as taxable income in accordance with the Act.

The time which has elapsed between 24 December and the present hearing is accounted for by the attempt to obtain consent and the bringing of the matter before a case management conference leading to the direction that a motion be brought.

This is not a case such as Saffron where the application for amendment was brought on the eve of the trial. The applicant will be entitled to such directions and orders as would remove any prejudice to enable it to reply in turn to the case now brought by way of the respondent's Reply. There is therefore no risk of prejudice to the applicant in terms of being able to meet the amended case.

For these reasons I consider the respondent's motion should be granted.

I certify that this and the preceding 4 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.

Associate:

Date: 14 March 1997

APPEARANCES

Counsel for the Applicant: T M Retallack

Solicitors for the Applicant: Wilson & Atkinson

Counsel for the Respondent: Ms L Price

Solicitors for the Respondent: Australian Government Solicitor

Date of Hearing: 11 March 1997

Date of Judgment: 14 March 1997