Commissioner of Taxation v Vasiliades
Document type: Decision Impact Statement
Venue: Federal Court of Australia (VID 426-428 of 2016)
Judgment date: 8 December 2016
Date published: 7 June 2017

Summary of decision:
The Full Court of the Federal Court, by majority, found that the Commissioner was entitled to security for costs in respect of the taxpayer's Part IVC appeal, confirming that the Court's power to award security under section 56 of the Federal Court Act was a broad judicial discretion and not confined by any rule or strong predilection in respect of any particular factor.

Overview of facts:
In February 2015, the taxpayer brought proceedings under Part IVC of the Taxation Administration Act 1953 against the Commissioner in respect of amended assessments issued to him for the 2007, 2008 and 2009 years. | In November 2015, the Commissioner applied for, and was granted, security for costs, by Registrar Ryan. The application was granted on the basis that the taxpayer was a non-resident and there was no evidence that he had assets in Australia. | The taxpayer applied to the Federal Court for a review of the registrar's orders (de novo). In April 2016, Davies J set aside the Registrar's decision ([2016] FCA 420), relying primarily on the "essentially defensive nature" of the taxpayer's proceedings to refuse security. | The Commissioner sought leave to appeal the decision. It was common ground that the Commissioner, in accordance with House v The King [1936] HCA 40, would need to show an error of law in the exercise of discretion by her Honour. Arguments regarding the grant of leave and whether to allow the appeal were heard concurrently. | Issues decided by the court | Kenny and Edelman JJ, in a joint judgment, granted leave to appeal, allowed the appeal and re-exercised the discretion, restoring the orders of Registrar Ryan. | Their Honours held, at [95], that: ... the primary judge erred in refusing security for costs on the basis there was a rule, or a very strong predilection, against ordering security for costs against a party bringing a proceeding that was essentially defensive in nature. | Kenny and Edelman JJ did not agree with the proposition Davies J drew from the High Court decision of Willey v Synan [1935] HCA 76 and applied in reaching her conclusion. At [86], their Honours said: [In Willey v Synan, t]he High Court did not say, however, that an exercise of discretion to award security for costs was cut down or necessarily limited by the fact that a person bringing the proceedings was in substance a defendant. Nor did it say that this factor necessarily prevailed over all other factors in every case....It seems to us that Willey v Synan stands for the proposition that the justice of the case must be kept in mind in any exercise of the discretion and this will depend on the particular circumstances of the case.... [T]he purpose of an order for security is to ensure that there is a fund available for the benefit of a successful respondent, to mitigate the injustice that would arise if a successful respondent, who has not chosen to incur the expense of the litigation, cannot recover costs from the party who chose to bring the proceedings in the first place. | At [91], their Honours endorsed the "multifactorial approach" to the discretion approved by Allsop CJ and Middleton J in Madgwick v Kelly [2013] FCAFC 61; an approach consistent with comments of McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36. | Their Honours said that the "wide discretion that [section 56] clearly confers does not lend itself to an overly "mechanical" approach...and precludes limitation by the application of judge-made rules in its exercise" (at [90]). The majority observed that fairness lies at the heart of the exercise of the discretion and that much will depend on the facts of the individual case. | In re-exercising the discretion in favour of the Commissioner, the majority noted: • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. | • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. | Dowsett J dissented, endorsing the decision of Davies J. | The taxpayer was refused Special Leave to appeal to the High Court on 12 May 2017 by Kiefel CJ and Keane J.

Issues decided:
Kenny and Edelman JJ, in a joint judgment, granted leave to appeal, allowed the appeal and re-exercised the discretion, restoring the orders of Registrar Ryan. Their Honours held, at [95], that: ... the primary judge erred in refusing security for costs on the basis there was a rule, or a very strong predilection, against ordering security for costs against a party bringing a proceeding that was essentially defensive in nature. Kenny and Edelman JJ did not agree with the proposition Davies J drew from the High Court decision of Willey v Synan [1935] HCA 76 and applied in reaching her conclusion. At [86], their Honours said: [In Willey v Synan, t]he High Court did not say, however, that an exercise of discretion to award security for costs was cut down or necessarily limited by the fact that a person bringing the proceedings was in substance a defendant. Nor did it say that this factor necessarily prevailed over all other factors in every case....It seems to us that Willey v Synan stands for the proposition that the justice of the case must be kept in mind in any exercise of the discretion and this will depend on the particular circumstances of the case.... [T]he purpose of an order for security is to ensure that there is a fund available for the benefit of a successful respondent, to mitigate the injustice that would arise if a successful respondent, who has not chosen to incur the expense of the litigation, cannot recover costs from the party who chose to bring the proceedings in the first place. At [91], their Honours endorsed the "multifactorial approach" to the discretion approved by Allsop CJ and Middleton J in Madgwick v Kelly [2013] FCAFC 61; an approach consistent with comments of McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36. Their Honours said that the "wide discretion that [section 56] clearly confers does not lend itself to an overly "mechanical" approach...and precludes limitation by the application of judge-made rules in its exercise" (at [90]). The majority observed that fairness lies at the heart of the exercise of the discretion and that much will depend on the facts of the individual case. In re-exercising the discretion in favour of the Commissioner, the majority noted: • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. Dowsett J dissented, endorsing the decision of Davies J. The taxpayer was refused Special Leave to appeal to the High Court on 12 May 2017 by Kiefel CJ and Keane J.

ATO view of decision:
The Commissioner agrees with the majority's view that the decision to grant security for costs under section 56 of the Federal Court of Australia Act 1976 is, in any proceeding (including a Part IVC proceeding) at the discretion of the Court, and that the presence or absence of certain facts does not dictate an outcome one way or the other. | The decision is consistent with the recent Federal Court decisions of Hii v Commissioner of Taxation (No. 3) [2016] FCA 58 and Oswal v Commissioner of Taxation (No. 2) [2015] FCA 1143, where non-resident taxpayers without assets in the jurisdiction were required to give security for costs in bringing proceedings under Part IVC.

Administrative treatment:
Nil

Legislative references: Federal Court of Australia Act 1976 s 56 Federal Court Rules 2011 r 19.01
Case references: Hii v Commissioner of Taxation (No 3) [2016] FCA 58 House v The King [1936] HCA 40 Madgwick v Kelly [2013] FCAFC 61 Oswal v Commissioner of Taxation (No 2) [2015] FCA 1143 (2015) 102 ATR 220 PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36 Vasiliades v Commissioner of Taxation [2016] FCA 420 Willey v Synan [1935] HCA 76