Bonnell v Deputy Commissioner of Taxation (No 3) [2008] FCA 989 (27 June 2008)

Last Updated: 3 July 2008

FEDERAL COURT OF AUSTRALIA

Bonnell v Deputy Commissioner of Taxation (No 3) [2008] FCA 989

DAVID NEIL BONNELL v DEPUTY COMMISSIONER OF TAXATION
NSD 1963 OF 2006

GRAHAM J
27 JUNE 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1963 OF 2006

BETWEEN:	DAVID NEIL BONNELL Applicant
AND:	DEPUTY COMMISSIONER OF TAXATION Respondent

JUDGE:	GRAHAM J
DATE OF ORDER:	27 JUNE 2008
WHERE MADE:	SYDNEY

THE COURT:

1. Orders that the application by the applicant/respondent on the motion to limit the use to be made of the evidence contained in exhibit NMB be dismissed.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1963 OF 2006

BETWEEN:	DAVID NEIL BONNELL Applicant
AND:	DEPUTY COMMISSIONER OF TAXATION Respondent

JUDGE:	GRAHAM J
DATE:	27 JUNE 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 An application has been made by senior counsel for the applicant to limit the use to be made of a bundle of documents which were tendered at the commencement of the hearing of the respondent’s Notice of Motion filed 6 June 2008 and admitted into evidence without objection as exhibit NMB.

2 The evidence led on the hearing of the motion on 26 June 2008 was documentary. One affidavit was read for the respondent who is the applicant on the motion and one affidavit was read for the applicant who was the respondent to the motion.

3 The application under s 136 of the Evidence Act 1995 (Cth) (‘Evidence Act’) to limit the use to which the documents in exhibit NMB may be put was made at the commencement of the second day of the hearing after senior counsel for the respondent in the proceedings, the applicant in the motion, had completed his submissions in chief and in the course of the submissions of senior counsel for the applicant, being the respondent to the motion.

4 On 29 July 2004 the respondent issued a Notice of Amended Assessment in respect of the applicant’s taxable income and the tax payable thereon and other matters in respect of the year of income ended 30 June 1999. A claimed deduction of $5 million was disallowed. The Amended Assessment assessed the amended taxable income of the applicant at $5,936,606 and the tax payable thereon at $2,780,806.82. The Notice of Amended Assessment identified a Medicare Levy of $89,049.09 and that an amount of $2,106,915.40 was payable by way of Understatement Penalty and Interest. The balance of the assessment covered by the Notice of Amended Assessment, after allowance of a Credit for 1999 Provisional Tax of $76,756.00 and Tax Offsets and Other Credits of $225.00, was $4,899,790.31. The balance of the applicant’s previous 1999 Assessment was noted at $367,874.91 which produced a difference between the Amended Assessment and the previous Assessment of $4,531,915.40. The net amount payable was accordingly shown as $4,531,915.40 and was payable under the Notice of Amended Assessment by 2 September 2004. By way of additional information the Notice of Amended Assessment recorded that the amount at label D [$2,106,915.40] consisted of $606,250.00 penalty and $1,500,665.40 interest.

5 On 29 September 2004 the applicant lodged an objection against the Notice of Amended Assessment. In that Notice of Objection the applicant claimed that the Amended Assessment was invalid by reason that it was issued for an improper purpose and/or that the Amended Assessment was invalid in that it was issued in bad faith.

6 The Commissioner disallowed the applicant’s objection whereupon the applicant instituted proceedings in this Court against the Commissioner of Taxation of the Commonwealth of Australia on 31 January 2005 by way of an appeal under s 14ZZN of the Taxation Administration Act 1953 (Cth) (the ‘Administration Act’).

7 On or about 15 July 2005 recovery proceedings were instituted by the respondent against the applicant therein referred to as ‘David Bonnell’ in respect of the applicant’s failure to pay income tax for the year ended 30 June 1999 on or before the due date. On 2 March 2006 default judgment was entered for the Deputy Commissioner of Taxation against the applicant in the recovery proceedings for $5,411,557.65 together with costs in the sum of $684.00.

8 On 14 March 2006 the applicant sent an email to the solicitor having the conduct of the s 14ZZN appeal under the Administration Act stating:

‘I have decided to discontinue my appeal against the objection decision by the Commissioner. I will file a Notice of Discontinuance tomorrow.’

9 As it transpires the applicant did not file any notice of discontinuance in respect of the appeal against the objection decision. However, when the matter was in the list before Stone J on 16 March 2006 the applicant did not appear. On 21 March 2006 orders were entered dismissing the application by which the applicant brought his s 14ZZN appeal.

10 On 23 June 2006 a Bankruptcy Notice, requiring the applicant to pay $5,543,008.60, was served on the applicant. On 10 October 2006 the applicant was served with a creditor’s petition under which a sequestration order against the estate of the applicant was sought. That creditor’s petition is currently before the Federal Magistrates Court of Australia.

11 On 10 October 2006, following the service of the creditor’s petition, the applicant instituted the current proceedings in this Court seeking relief under s 39B of the Judiciary Act 1903 (Cth). On 5 March 2007 the applicant filed a Notice of Motion in the current proceedings which was superseded by an Amended Notice of Motion filed on 11 April 2007. That motion sought leave to file and serve an Amended Application and an Amended Statement of Claim in forms which were identified in the Amended Notice of Motion.

12 On 9 March 2007 the respondent filed a Notice of Motion seeking summary dismissal of the current proceedings pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (‘Federal Court Act’) and Order 20 of the Federal Court Rules. Further and in the alternative, an order was sought that the Statement of Claim be struck out pursuant to Order 11 rule 16 of the Federal Court Rules and that the application be dismissed. The two motions were heard together and judgment was delivered on 8 February 2008.

13 Self-executing orders for the Application filed 10 October 2006 to be dismissed and for the Statement of Claim filed 10 October 2006 to be struck out were made but they were conditioned upon the non-filing on or before 18 April 2008 of an Amended Application and an Amended Statement of Claim, leave to file such amended documents being granted by other orders made on 8 February 2008. The date 18 April 2008 was later extended to become 26 May 2008.

14 One of the orders made on 8 February 2008 permitted the applicant to file and serve a Notice for Discovery on the respondent, requiring the respondent to give discovery with verification of documents relating to the exercise or possible exercise by the Commissioner, whether before or after 29 July 2004, of the discretion conferred upon him by s 227(3) of the Income Tax Assessment Act 1936 (Cth) (‘the Assessment Act’) to remit the whole or any part of the additional tax payable by the applicant under s 226K of the Assessment Act and referred to in the Notice of Amended Assessment issued on 29 July 2004.

15 A Notice for Discovery was served on the respondent on 28 February 2008 but there was a dispute as to whether or not the notice as served complied with the limitations imposed by the terms of the Court’s order permitting same of 8 February 2008. Following the hearing of another motion, certain parts of the Notice for Discovery of 28 February 2008 were set aside and one paragraph was modified. Time for compliance with the Notice for Discovery was extended until 21 April 2008.

16 On 21 April 2008 discovery with verification was provided by the respondent as required by the Notice for Discovery as varied by the orders of the Court made on 16 April 2008. The list of documents occupied some nine pages. What became exhibit NMB on the hearing of the current motion is the bundle of documents so discovered, which are contained in one large Lever Arch file. It is in relation to the documents in that bundle that the order limiting their use is presently sought.

17 On 6 June 2008 the respondent filed a Notice of Motion seeking, amongst other things, summary dismissal of the proceedings as presently constituted. The substantive orders sought in the Notice of Motion were as follows:

‘(2) That the following words from the first substantive paragraph of the Amended Application (filed 26 May 2008) be struck out:

... to contest the validity of a Notice of Amended Assessment for the year of income ended 30 June 1999, which was communicated to the Applicant in a purported Notice of Amended Assessment issued on 29 July 2004.

(3) That proposed order 2 in the Amended Application be struck out, or alternatively summarily dismissed pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth).

(4) That proposed order 2 in the Amended Statement of Claim (filed 26 May 2008) be struck out pursuant to rule 16 of Order 11 of the Federal Court Rules.

(5) That the paragraphs 36 and 37 of the Amended Statement of Claim be struck out and that in consequence the balance of the Statement of Claim be struck out.

(6) That the Amended Application be summarily dismissed pursuant to s 31A of the Federal Court of Australia Act 1975 (Cth).’

18 The Notice of Motion was made returnable before the Court at 9.30 am on 16 June 2008. On 16 June 2008 the motion was stood over for hearing at 10.15 am on Thursday, 26 June 2008. Directions were given as follows:

‘THE COURT:

1. Directs that the respondent/applicant on the Motion filed 6 June 2008 serve on the applicant/respondent to the Motion a list of evidence to be adduced on the hearing of the Motion by 4.30pm on Friday, 20 June 2008.

2. Directs that the respondent/applicant on the Motion file and serve an outline of his submissions in support of the Motion by 4.30pm on Friday, 20 June 2008.

3. Directs that the applicant serve on the respondent a list of any objections to affidavit material or other evidence to be adduced by the respondent by 4.30pm on 24 June 2008.

4. Directs that the applicant file and serve any affidavits on which he wishes to rely on the hearing of the Motion by 4.30pm on 24 June 2008.

5. Directs that the applicant file and serve an outline of submissions in respect of the Motion by 4.30pm on 24 June 2008.

...’

19 On 6 June 2008 an affidavit of Caroline Malcolm affirmed 6 June 2008 was filed, which provided the affidavit evidence on which the respondent relied on the hearing of the respondent’s Notice of Motion of 6 June 2008. Amongst other things, paragraph 28 of that affidavit said:

‘28 The respondent applies for the orders in his notice of motion dated 6 June 2008 on the grounds that

...

28.2 in respect of orders 2, 3 and 4 – those parts of the Amended Application and Amended Statement of Claim quoted in paragraphs 15 and 16 of this affidavit are inconsistent with the judgment of his Honour Graham J given on 8 February 2008 and an abuse of process. Moreover, the applicant has no reasonable prospect of successfully prosecuting the relevant part of the proceeding; and

28.3 in respect of orders 5 and 6 – the Amended Statement of Claim discloses no reasonable cause of action and the applicant has no reasonable prospect of successfully prosecuting the proceeding.’

20 As I would understand it, it is common ground between the parties that in an application for summary dismissal under s 31A(2) of the Federal Court Act, evidence is admissible. Certainly in relation to applications for dismissal founded upon a proceeding or a claim being an abuse of the process of the Court, the Court may receive evidence on the hearing of an application for such an order (see Order 20 rule 5(3) of the Federal Court Rules).

21 As required by the first direction made on 16 June 2008, the respondent served a list of evidence to be relied upon by the respondent on the hearing of the respondent’s motion on 20 June 2008. That list of evidence indicated that reliance would be placed upon the affidavit of Caroline Malcolm together with the exhibits to that affidavit and, in addition:

‘2 Copies of the document enumerated in Part I of Schedule I and Part I of Schedule II of the List of Documents filed by the respondent on 22 April 2008.’

22 As required by direction 3 made on 16 June 2008, the applicant served a Notice of Objection to Evidence to be adduced by the respondent on the respondent on 24 June 2008. That ‘Notice of Objection to Evidence’ provided:

‘(1) The Applicant takes no objection to the evidence filed by the Respondent and particularised in the Respondent’s List of Evidence dated 20 June 2008.’

23 Notwithstanding this response, the history of the matter and the admission of the bundle of documents into evidence as exhibit NMB without objection on 26 June 2008, the application is now made by senior counsel for the applicant to limit the use to be made of the evidence contained in exhibit NMB. It would seem to me that an application at this stage ought not to be acceded to. Even if it had been made in a timely fashion I would not have been disposed to make an order limiting the use to be made of the evidence contained in exhibit NMB. Plainly, the previous representations made or recorded in the documents would answer the description of business records which would be admissible under s 69 of the Evidence Act.

24 Section 136 of the Evidence Act under the heading ‘General discretion to limit use of evidence’ provides:

‘136. The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might:

(a) be unfairly prejudicial to a party; or

(b) be misleading or confusing.’

25 Even if I was constrained to consider the terms of s 136 and its application to the evidence in question I could not possibly conclude that it would be unfairly prejudicial to the applicant to allow unlimited use of the evidence to the extent to which it was admitted on the hearing of the present Notice of Motion, nor could I possibly form the view that to allow the unlimited use of the evidence would be misleading or confusing. In the circumstances I reject the application made by senior counsel for the applicant to limit the use of the evidence contained in exhibit NMB.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

Associate:

Dated: 2 July 2008

Counsel for the Applicant:	M Cashion SC and C W Robinson
Solicitor for the Applicant:	BHS Legal Pty Limited
Counsel for the Respondent:	K M Connor SC and B D O'Donnell
Solicitor for the Respondent:	Australian Government Solicitor

Date of Hearing:	26 and 27 June 2008
Date of Judgment:	27 June 2008