Beaumont, Bryan --- "Anatomy of a Federal Court Tax Case" [2000] UNSWLawJl 33; (2000) 23(2) UNSW Law Journal 237

ANATOMY OF A FEDERAL COURT TAX CASE

BRYAN BEAUMONT^[*]

A tax case will come to the Federal Court of Australia in one of many forms. It may be an appeal against an assessment or other decision made by the Commissioner; or it may be an application for judicial review of administrative action by the Commissioner in the exercise of one of his special statutory powers. In either instance, the proceedings will be instituted by an application for appropriate relief, which will be supported by an affidavit providing evidence of the claim propounded. Soon after the institution of the proceedings, the matter will be listed for a directions hearing so that the litigation will immediately come under the control of a Judge, to whose docket the case has been allocated. Consistently with the principle of continuity, the docket Judge will thenceforth have the responsibility of managing the litigation – of supervising its progress from institution to ultimate disposition.

The first directions hearing is a significant event in the history of litigation for several reasons. Bearing in mind that a federal statutory jurisdiction is sought to be invoked, the Court will need to be satisfied that the matter can attract the Court’s jurisdiction. This is no mere formality. Further, if the matter has the potential to qualify as a “test” case, the Judge will need to co-ordinate the matter with any other similar cases in the Court’s general list, if necessary liaising with other docket Judges. This ensures the orderly disposition of a series of cases raising the same, or essentially the same, point of law, with perhaps a reference of a question of law to a Full Court for determination. The Judge will also need to consider whether pleadings of some kind are required; and whether discovery or interrogatories are necessary for the fair disposition of the matter. The Court will consider whether it is appropriate to direct mediation, or to endeavour otherwise to promote a settlement. The Judge will, usually with the co-operation of the parties, lay down a critical path for the progress of the litigation, including a timetable for the exchange of evidence in written form before the trial. At this (or a subsequent) directions hearing, the Court will fix, in advance, a time for the trial. The Court aims to dispose of most of its business within 18 months of commencement. This target is usually achieved with the benefit of assistance from experienced practitioners who appear before the Court regularly in revenue proceedings.

Pleadings perform the important function in any litigation of informing the Court, and the opponent, of the formal dimensions or parameters of the matter from the perspective of the party pleading. Tax cases are no exception, but in this connection, they call for special treatment, depending upon the nature of the litigation. If the matter is an appeal against a taxation or other statutory decision, the essential basis of the Commissioner’s decision will be reflected in the adjustment sheet which accompanies the assessment. This is, however, rarely an elaborate statement. On the other side, the taxpayer’s contentions will be stated in the grounds of the notice of objection against the assessment. Because the grounds may only be amended with the leave of the Court, taxpayers tend to err on the side of caution and state their grounds in the widest (“belt and braces”) terms. The upshot is that, on the one hand, the Commissioner’s position can be stated somewhat cryptically; yet, on the other, the taxpayer’s version may be expressed rather diffusively. This unsatisfactory situation needs to be redressed by the Court, if it is to be expected to understand the real issues for determination at a relatively early stage of proceedings. Orthodox pleadings, that is, a statement of claim and defence, are not in their form appropriate for a tax appeal. Instead, the Court’s practice in tax appeals is to order each party to file its own Statement of Facts, Issues and Contentions.

This Statement is the central point of reference in every tax appeal. It differs from the traditional form of pleading in several respects: as a matter of both form and substance, its content is different; moreover, it departs from orthodoxy by requiring both parties to serve their respective versions of the same area of discourse.

The Statement is divided into three distinct parts as follows:

• First, a comprehensive statement of the facts, including background or historical facts, which the particular party, in accordance with its own professional advice, contends ought to be found by the Court. If, as often happens, the facts are not actually within the Commissioner’s direct knowledge, his/her statement of the facts to be found may be brief. Moreover, he/she may be unable to admit some of the facts asserted on behalf of the taxpayer and peculiarly within the taxpayer’s knowledge. Yet the Crown is expected to act, and does act, as a “model” litigant, so that it may be anticipated that the Commissioner’s response to the taxpayer’s statement of facts will not seek to put in issue facts which the Commissioner ought not to place seriously in question. The responsible professional attitude usually adopted for the Commissioner has expedited the flow of tax litigation considerably.

• Secondly, the statement of issues will also depend upon the respective perspectives of the parties, although if the parties are (as they usually are) competently advised, it may be expected that their versions of the issues (of fact and of law) that emerge should not diverge in significant respects. These statements also represent a substantial departure from orthodox pleading practice. It is true that under the traditional system of pleading, the issues can be ascertained by making reference to all of the pleadings, but there is traditionally no requirement that a party plead in a summary manner what, in its view, appear to be the ultimate issues for determination by the Court. The requirement of a statement of issues in tax appeals compels the parties, and their advisers, to concentrate on what are in truth the essential questions. It will usually follow that time at the trial is not consumed in the pursuit of unnecessary collateral inquiries.

• Thirdly, the statement of contentions is also a novel feature (perhaps a reversion to the earlier style of pleading). Under the modern system of pleading, propositions of law need not be pleaded. Rather, what is required of modern pleading is no more than a statement of the facts relied upon to establish the cause of action asserted. However, in a tax appeal the statement of contentions of the party concerned must propound all the necessary ingredients of the claim for which, as a matter of legal substance, that party contends. In my experience, this requirement is a step forward, rather than backward, in tax matters given the high incidence of legal complexity found in this type of litigation.

Although discovery is technically available in taxation appeals, it is usually unnecessary for the Court to order it. Both the Commissioner and the taxpayer will ordinarily hold the material documentation already, unlike the situation in ordinary civil litigation, especially in commercial causes where discovery can be critical. Interrogatories, a branch of discovery, are now rarely ordered in any litigation. If ordered, they will be confined to a few select topics, and permitted only where a particular need is demonstrated.

As mentioned, some tax cases consist of applications for judicial review of the Commissioner’s administrative actions. Litigation of this kind is similar, in its adjectival and procedural dimensions, to other public law litigation in the Federal Court. The case will be initiated by the filing of an application for an order for judicial review, supported by an affidavit; usually the evidence relied upon will be in documentary form and thus readily identified in the affidavit evidence; and there is generally no need for pleadings, or their equivalent, since the particulars provided in the application will ordinarily specify in sufficient detail the grounds for the grant of the relief claimed. If these do not appear in the application with sufficient clarity, or if the Commissioner wishes to raise a special or complicated defence, it may be appropriate for the Court to order here also that each party file a Statement of Facts, Issues and Contentions as in the case of a tax appeal. Public law cases of this kind are again managed pre-trial by the docket Judge through the directions hearing system.

The trial of a tax case is of course the central element in the whole process. But up to that point, the case will have been the subject of appropriate pre-trial management or control by the Court. The higher the professional standard of the parties’ pre-trial input, the less need there will be for intensive Court intervention to keep a matter on track. However, it is common for the Court to direct that the parties in a tax appeal endeavour to agree upon a chronology of events and upon a bundle of the documents proposed to be tendered in evidence. It is also usual for the trial Judge to direct that any party wishing to object to the form of any affidavit evidence must notify the opponent of such objection before the trial. If it is necessary to use electronic facilities (eg, the taking of evidence by videoconferencing, or the use of real-time transcript), arrangements for this must be made with the Court in advance of the trial. Moreover, if the documentation to be tendered by the parties is substantial, and it is proposed that the Court receive and store this material electronically, it will be necessary to ensure that the software used by the parties and by the Court is compatible.

At the commencement of the trial or final hearing, it is common for the moving party to provide a brief written outline of its case, so that the Court can understand how the case is put on a step-by-step basis, and the Judge can quickly grasp the ultimate direction of the argument. There is no need, and in my own experience it is not helpful, for a party to prepare lengthy (and thus expensive) written submissions, especially those which are, in truth, position papers. Nor should we ever underestimate the power of economy of language. This is not to discourage the use of writing as an aide-memoire to record matters that are not contentious; on the contrary. But in any complex area, I have found more illumination in an argument presented orally in a step-by-step method of analysis. The old adage of “try to help the Judge help you” remains as true today as it ever was. The parties and the community are entitled to expect from the Courts judgments which are much more than a telegrammatic or impressionistic version of a process of reasoning to a conclusion. The Courts, in turn, are entitled to expect from counsel an analysis of the issues that is acute enough to reveal just where the respective strengths and weaknesses of the competing arguments lie. In addressing the technical issues that arise in complicated revenue proceedings, the identification of the true subtleties and genuine nuances found in the analytical process is in my experience better understood when Bench and Bar can join in a meaningful dialogue. In the dynamics of complex litigation, the exchange of helpful written material is important; and I am not arguing for the paperless court. But paper, which after all is a monologue, will only take us into the foothills. If we are to assault the citadel, something more, than crucial dialogue, is needed in order to persuade. The real point is, as ever, well made by Sir Maurice Byers:

In [the Federal Court] the advocate’s task has long been facilitated … by the interest with which [the] argument is followed and by the keenness with which it is tested and examined. Such conditions not only bring out the best in every advocate; they encourage also the lucid and speedy resolution of the difficult and often technical legal problems with which this court is daily faced. Both the court’s manner and its quality are essential to its task.^[1]

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[*] Judge, Federal Court of Australia.

[1] Remarks made as Commonwealth Solicitor-General at a sitting of the Full Federal Court of Australia on 3 November 1978 to welcome Justice Lockhart.