The Full Federal Court has unanimously allowed a company taxpayer’s appeal and held that decision of the Court at first instance (Kenny J) in DCT v Hua Wang Bank Berhad (No 2) [2010] FCA 1296 had miss-carried (that decision was to grant summary judgment for $9.7m in tax debts against the company and to deny it a stay of execution pending the hearing of its appeal).
This was because the Full Court found that the Court at first instance had not properly considered the merits of the likely success of the appeal. This was despite the fact that the Court at first instance had interpreted the precedent decision of the High Court in DCT v Broadbeach Properties Pty Ltd (2008) 69 ATR 357 to mean that in considering a stay for execution of a judgment debt, the Court was bound to proceed on the basis that the Pt IVC appeals were not pending.
In an earlier judgment on 15 September 2010 (in DCT v Hua Wang Bank Berhad & Ors (2010) 80 ATR 449 ), the Court (Kenny J) said each of the taxpayers (including the taxpayer in the current matter, Derrin Brothers Properties Limited) was a foreign corporation and each had been involved in transfers of “significant amounts” of money out of Australia following the sale of shares in companies listed on the Australian Stock Exchange. They each chose not to file tax returns in Australia and the Commissioner assessed each as liable to pay substantial amounts in tax and administrative penalties.
In the finding that the Court at first instance had erred and in remitting the matter back to the Court (and same judge) for reconsideration, the Full Federal Court distinguished the decision in Broadbeach on a number of grounds including that it arose in a different statutory and factual context (eg it concerned the winding up of a company in insolvency) and that it did not involve the courts’ powers to stay recovery proceedings in circumstances where a Pt IVC appeal was on foot.
The Full Federal Court then found that while the Court at first instance had identified the issues on appeal (namely, the taxpayer’s residency status and whether the taxpayer beneficially owned the shares in question), it had not given due consideration to the likelihood of the taxpayer’s success in terms of principles extracted from other precedent case law as to whether the Court should have exercised its discretion to stay the execution.
The Full Court also noted that the taxpayer’s argument that it could be prejudiced and “out of pocket” if the Commissioner sold the shares in question at the time of the granting of the judgment to meet the taxpayer’s debt (when the market was at a low point) and that if the taxpayer subsequently won on appeal, it would be disadvantaged in trying to buy back into the share market when it had risen quite dramatically in the interim.
Note that the current proceedings only concerned one of the companies subject to the original dispute (Derrin Brothers Properties Limited) as the other 2 taxpayers had paid their debts in full in the interim.
(Southgate Investment Funds Limited & Ors v DCT [2013] FCAFC 10, Full Federal Court, McKerracher, Jagot and Griffiths JJ, 12 February 2013.)
[LTN 29, 8/2/13]