The Federal Court has refused the Commissioner’s application for dismissal of a taxpayer’s taxation appeal proceedings for a want of prosecution.

The taxpayer has appealed against the Commissioner’s disallowance of his objections against amended assessments for the 2005 to 2007 years inclusive. Tax and penalties total around $17 million.

  • The substantive issue concerns whether, in respect of each income year, the taxpayer was an Australian resident for Australian tax law purposes. The Court noted that in separate proceedings, the taxpayer sought the judicial review of the assessment decisions on the basis they were invalid. The Full Federal Court dismissed his appeal (FCT v Donoghue [2015] FCAFC 183) and the High Court subsequently refused his application for special leave to appeal. This was the case where the assessments were issued based on information obtained in breach of legal professional privilege.
  • Another part of the litigation between the taxpayer and the Commissioner concerns proceedings for the recovery of the debt to the Commonwealth created by the amended assessments.  The Federal Court noted that these recovery proceedings are presently adjourned pending the hearing and determination of the taxation appeal.

The Court heard details of serious medical issues affecting the taxpayer. Logan J of the Federal Court said that, “as a matter of general impression, [the taxpayer] appears to me to be gravely ill”. It was unclear when the taxpayer might be sufficiently well either to give evidence by video link, or travel to Australia. The Court said the Commissioner “quite properly conceded that if the facts were ultimately to be found in the way that Mr Donoghue sets out in his affidavit dealing with residence and occupation, he would not be a resident of Australia and the assessments would necessarily be shown to be wholly excessive”.

The Court considered some of the principles applicable to dismissing a proceeding for want of prosecution, which are set out below. Broadly, they were that the party had to be contemptuous of the Court or wholly lack merit, but now s37M & s37N of the Federal Court of Australia Act 1976, intrude timeliness and cost reduction as part of the overarching principles of civil litigation in the Federal Court (but still, also, ‘just resolution of disputes according to law’).

But the Court found for the taxpayer, in the following terms.

47. I do not see that Mr Donoghue is contemptuous of this Court’s orders; rather, his attention to them is belated. His medical condition may very well intrude on this, in itself, as inferentially may his treatment, particularly the chemotherapy.

48. Of course, case management considerations are pertinent. There is a week of court time invested and which would be thrown away if I just adjourn the hearing, as opposed to dismissing the appeal for want of prosecution. But it is a very strong thing to dismiss for want of prosecution a reasonably arguable case brought by a man who is presently gravely ill, in respect of a large revenue debt, the existence of which would be completely negated in the event that that arguable case succeeds. So I am not persuaded that the case is one, notwithstanding the non-compliance mentioned and what I accept to be the importance of case management, for dismissal. I do not consider that would do justice between the parties.

49.  Instead, I consider that Mr Donoghue has had sufficient time to file such evidence as he is able in respect of the merits of the taxation appeal. It is now for the Commissioner to file such material as he proposes and then to bring the case back for further case management. I propose in that regard to make a particular requirement in respect of the filing of evidence by Mr Donoghue in relation to his medical condition.

(Donoghue v FCT (No 2) [2017] FCA 1241, Federal Court, Logan J, 9 October 2017.)

[FJM; LTN 233, 5/12/17; Tax Month Dec 2017]

Federal Court of Australia Act 1976 – Part VB – Case Management in Civil Proceedings

37M   The overarching purpose of civil practice and procedure provisions

             (1)  The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

                     (a)  according to law; and

                     (b)  as quickly, inexpensively and efficiently as possible.

37N   Parties to act consistently with the overarching purpose

(1)  The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose.

Principles for dismissing a case for want of prosecution from the Donoghue decision

  1. There was once a time when case management considerations did not loom as compellingly in relation to the making of interlocutory decisions with respect to practice and procedure, including with respect to dismissal of want of prosecution. The philosophy of earlier times is notably found in Birkett v James [1978] AC 297. One finds there at p 318, Lord Diplock expressing the view that:

The power should be exercised only where the court is satisfied either (1) that the default has been international and contumelious, e.g., disobedience to a peremptory order of the court or conduct amounting to an abuse of the process of the court; or (2) (a) that there has been inordinate and inexcusable delay on the part of the plaintiff or his lawyers, and (b) that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or to have caused serious prejudice to the defendants …

Views to like effect in that case are to be found in the speeches of Lords Salmon and Edmund Davies at p 331.

    1. Also exemplifying considerations regarded as relevant in earlier times, in relation to the exercise of a discretion to dismiss an action for want of prosecution, is a summary offered in Ulowski v Miller (1968) SASR 277. In that case, the following considerations were identified as intruding on the exercise of a discretion:
        (1) length of the delay;

(2) explanation for the delay;

(3) hardship to the plaintiff from dismissal of the action, especially if that leaves the action statute barred;

(4) prejudice to the defendant in allowing the action to continue after a long delay; and

(5) conduct of the defendant.

It is plain enough from the judgment of Bray CJ, at p 280, in that case that there was no intention, at all, that these considerations be regarded as exhaustive. Rather, and at that time, there was no rule for dealing with dismissal applications other than that they fell for the exercise of a judicial discretion, to be exercised according to the particular circumstances of a given case, with prescription of criteria, at least in an exhaustive way, being undesirable.

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