Scone Race Club Limited v Commissioner of Taxation [2020] HCATrans 95 (3 July 2020)

Last Updated: 6 July 2020

[2020] HCATrans 095

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S2 of 2020

B e t w e e n -

SCONE RACE CLUB LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

FROM SYDNEY BY VIDEO CONNECTION TO CANBERRA

ON FRIDAY, 3 JULY 2020, AT 12.59 PM

Copyright in the High Court of Australia
MR N.J. WILLIAMS, SC: May it please the Court, I appear with MR D.P. HUME for the applicant. (instructed by Balazs Lazanas & Welch LLP)

MR P.A. LOONEY, QC: May it please the Court, I appear with MS C.M. PIERCE, for the Commissioner of Taxation. (instructed by the Australian Government Solicitor)

BELL J: Thank you, Mr Williams.

MR WILLIAMS: Yes, thank you, your Honour. It is a fundamental principle of fairness that civil trials are conducted on issues identified in pleadings and where a party bears the onus of proving a negative, its obligation is to disprove those matters identified by the opposing party, a point made clear in the Court’s reasoning in Commissioner of the Australian Federal Police v Hart [2018] HCA 1; (2018) 262 CLR 76.

Page 176 of the application book contains the relevant passage and the Commissioner’s submission in relation to it. At page 176 in the book, a bit below line 30, in the quote from the key passage in Hart:

The primary judge and the Court of Appeal were correct in taking the view that, where an application for orders under s 102 –

that is, of the Proceeds of Crime Act:

proceeds on pleadings, an applicant need not negative possibilities which the Commonwealth does not raise in its defence.

Now, the Commissioner disputes that that reasoning has any application to a tax appeal, and your Honours will see that in the following paragraph, because the Commissioner submits the Proceeds of Crime Act at the time of Hart had:

no provision equivalent to s 14ZZO –

That is simply not correct. Page 208 of the book contains the provision of the Proceeds of Crime Act as it stood at the relevant time – and that is section 317. That is a provision which is relevantly indistinguishable from 14ZZO, to which the Court was taken in the previous matter.

The relevant procedural rules and the basis of the Commissioner’s objection in the present case are summarised at the top of page 75 of the book. The contention at the top - the local rules:

have contractual force and are binding on the Race Club.

There is an:

obligation . . . to pay riding fees . . . the Race Club does have a legal obligation -

and then we set out the key provisions of the procedural rules. Page 197, the Commissioner did not put any different case in his appeal statement. From page 197 is the beginning of the statement, and the key passages are really on page 199. There were references in paragraph 16 to agreement, paragraph 22 to jockeys agreeing to be bound and the critical paragraph:

By reason of the matters in paragraphs 8 to 22 . . . jockeys riding at races held by the Scone Race Club were bound by –

the two sets of rules. The pleading then goes on to deal with the formation of agreements between jockeys and owners and trainers to ride. Then, at 200 in paragraph 27, there is a recitation of local rule 72. So the Commissioner’s case as best as it could be discerned from this document was that Scone and the jockeys were parties to the local rules, and under the rules Scone was obliged to pay riding fees to the jockeys.

The difficulty that later arose for the Commissioner was that he conceded that it was no part of his case that Scone and the jockeys were in a contractual relationship. Page 39 of the book is the most convenient place to see that. Page 39 - this is in the judgment of Justice Griffiths dissenting on the key point but writing for the court on this point, the point from 39 through to 41 of the book. At about line 28 - this is quoting the primary judge:

the Commissioner expressly conceded that, it was “no part of [his] case that the [Club] and jockeys should have, or should be found to have, entered into a contractual arrangement which accords with and gives effect to particular provisions of the [LR]”.

Then, at 56 from the primary judge, about line 38:

What is pellucid on the evidence is that no race club, especially the Club, engaged a jockey to ride in a race . . . So the Commissioner’s concession as to no contract which included LR 72 was the foundation for the Club’s liability to pay was well made.

Now, the Commissioner challenged that that was indeed a concession on appeal, and Justice Griffiths for the court dealt with that in the following paragraphs. Towards the end of page 39, about line 2:

The Commissioner contends that this error by the primary judge then provided the basis for a related error . . . where the primary judge reasoned that, in the absence of any contractual relationship, the Commissioner had to fall back on an estoppel case. The Commissioner contends that, by requiring him to prove that an estoppel would preclude the Club from reneging . . . this involved an impermissible reversal of the onus of proof.

GAGELER J: Mr Williams, can I just ask this, just standing back from all of this, this case was conceived as a test case of the underlying issue of liability. The problem with these procedural arguments is, even if they were ultimately resolved in your client’s favour, you would not be getting a result that resolves that underlying issue. The test case has completely miscued on your submission for procedural reasons and sort of, if I may say it, low‑level procedural reasons.

MR WILLIAMS: Well, your Honour, we would say that these are procedural points of principle of the highest importance. The question is can the Commissioner, as he sought to do in this case, open up generally with an assertion that the Club was liable to pay, then abandon, we say, the contractual basis which was the only one that was really apparent in the document itself, suggest in passing, well, if it was not contract, it may well have been equitable estoppel, then when we dispatched that point the Commissioner fell back on, well, you have not discharged your onus.

If this is the way in which tax cases are to be run, the burden on a party in the position of my client is almost limitless. We were required, in effect, to grab its spoke, to pick any particular issue that might be said to suggest a basis and to disprove it without it being directly raised in the way that the rules require by the identification of a contention in the pleadings. So we accept ‑ ‑ ‑

GAGELER J: Well, I mean, realistically, you had to prove that Scone Race Club was not the employer of the jockeys. On any view that was the outer limits of the issue for evidence, was it not?

MR WILLIAMS: No, your Honour, because the case did not turn on the question of employer, it turned on the deemed extension.

GAGELER J: Yes, but by reference to the deemed extension, of course – yes, the liability for payment.

MR WILLIAMS: Yes, the deemed extension may or may not have had any operation in the present case. There may have been no one who was liable to pay. There were many people who are paid - buskers are an example - without there being any liability to pay. It was necessary to have a trial on defined issues to determine whether there was a liability to pay.

It was really only one that was apparent from a fair reading of the pleading and that was an allegation of contract - well, we met that. There was a misunderstanding. The case was adjourned. We put on evidence and we met that case. We showed that by reason of the way in which things were done in the industry and had been done since time immemorial there was no possibility of an agreement being reached between the Club and jockeys because the Club had nothing to do with them other than to provide premises for them to be sequestered.

Then there was a suggestion of estoppel. We dispatched that. What else did we have to prove? On a fair reading of the majority’s judgment, we had to find someone who was liable and prove that that person was liable. Now, to begin with it is not necessarily binary anyway but there is nothing in this - it is not like a parking infringement where the only way out of it is to identify the person who did commit the offence.

This was a case in which there was a question whether we were liable and that is what we went along to address. We addressed it on the pleadings as we read them. When further points were suggested at trial we met those points and dispatched them and at the end of the day there was, on the evidence, nothing left and that is effectively what the trial judge found.

So we say that rather than being low level, it is a point of principle of the highest general significance in relation to tax cases and we accept, your Honour, that from time to time and perhaps more often than not test cases miscue as to their general significance, but that does not mean that a question of general importance is not raised here.

What we do not see, in going to page 62 of the book, in the framing of the question by Justice Steward, at about line 18 on page 62, we see eight factors there against the drawing of the particular inference. But what you do not see in that framing of the question or the list of factors is any identification whatsoever of the source and nature of the liability which Scone is said to have been under and not disproved.

Was it a contract of some identified kind? Was it estoppel? Well, it was certainly not the equitable estoppel because we dealt with that. Was it restitution? Was it statute? LR72 had no statutory force. Was it something else? In terms of the general principle that this case was set up to litigate, those that follow will derive no guidance, with respect, from the Full Court’s reasons. So that, we say, is the first point.

The second fundamental issue arises in this way. Our contention is that an appeal court should always start by giving weight to the findings of the primary judge and that is all the greater in circumstances where, as here, the primary judge did have an advantage over the appeal court. At page 11 of the book, from line 25, the primary judge saw both witnesses cross‑examined and was well satisfied as to their honesty and reliability but, moreover, as to their lengthy experience. Then, at page 15 of the book, from about line 25, the primary judge made evaluative findings from that evidence:

What I infer from Mr Kennedy’s evidence as to the historic practice is that ARR91 was regarded within the industry as being satisfied by the payment by the trainer on behalf of the owner of the ride fee to the Club before the ride, which received and held it on behalf of the jockey, with the Club paying the fee out at the end –

Likewise, over on page 17, at about line 22, in paragraph 42:

In other words, from 1999 and prior to 1 July 2000, the practice of the New South Wales thoroughbred industry, inferentially mutually understood at the time when a jockey was engaged as described above, was that a race club paid riding fees on behalf of owners (who engaged jockeys via their trainers). Thus, this feature of the implementation of the returns to owners’ maximisation policy did not affect the industry practice as to who engaged and was responsible for the payment of jockeys. To the contrary, by providing that a race club paid “on behalf of connections”, it was predicated upon the historic practice of the thoroughbred industry.

That, indeed, fed into his Honour’s ultimate finding, page 22 of the book, in paragraph 62, that:

once the regulation of the industry and its customs and practices are understood, that view is not sustainable.

In other words ‑ ‑ ‑

BELL J: Mr Williams, accepting that findings were made by the primary judge on his assessment of the witnesses who gave evidence respecting the practice, none of that was in issue in the approach that the majority took at application book 66, paragraphs 106 and following, leading to the conclusion that the evidence in favour of the inference that the primary judge drew was overwhelmed by evidence denying the existence of it, and all of that, in the context of Justice Steward pointing out that it did not turn on matters of impression or evaluative judgment, but an inference drawn respecting a question of fact and law relating to the locus of the liability.

Now, on the face of it that does not seem a promising basis for inviting the Court to consider whether in Lee v Lee we have departed from Warren v Coombes or anything of that character.

MR WILLIAMS: Well, your Honour, in respect of that paragraph, Justice Steward, with respect, misfired at about line 30 on the page. His Honour’s focus was upon paragraph 41 of the primary judge’s reasons, in which his Honour set out matters which the majority in the Full Court appear to have accepted, but his Honour did not address the two key passages that I have gone to, paragraph 42 and in paragraph 36, which were truly evaluative findings, and they were indeed the critical findings that informed his Honour’s conclusions about the factual matrix and the matrix of industry practice, about which his Honour had made evaluative findings based on seeing the witnesses, the context within which LR72 came into being and in which it was to be read.

So, in our submission, those paragraphs miss the point, with respect. They do not go to the key evaluative findings that the primary judge made, and when those key findings are taken into account, nothing that is said by the majority undermines those findings. So the special leave point, in our submission, is whether an appeal court should always give weight to the findings of the primary judge as a starting point, and here, when those passages are read in context, the majority did not. Those are our submissions.

BELL J: Thank you, Mr Williams. The Court will adjourn briefly to consider the further conduct of the application.

AT 1.17 PM SHORT ADJOURNMENT

UPON RESUMING AT 1.20 PM:

BELL J: Mr Looney, we would be assisted by hearing from you on the first of the grounds that Mr Williams outlined but we need not hear you on the second.

MR LOONEY: Thank you. Your Honours, the approach taken by the applicant on this application in effect seeks to reverse the onus because it is said to be a negative case and it seeks to reverse that statutory onus by pointing to matters of procedure and equating the appeal statement to pleadings.

The complaint is that the various aspects upon which liability might have been said to arise were said to have been batted down as they were put up and, with respect, the onus under the statute is clear and does not require any further consideration by this Court in that narrow scope that this case raises – namely, where there is a need for a taxpayer to show that they are not liable and thereby show what their true position is.

The argument seeks to set up a question as to how far the Commissioner should go and in the practice the Commissioner is required to put on his appeal statement first and should set out what he identifies to be his contentions. But as was already identified by reference to those requirements, there is a level of abstraction and a level of summary that is required in an appeal statement, as opposed to what might be seen in pleadings where there is onus on an applicant. That is not the position here.

This is not a case that we say lends itself to any determination by this Court about that narrow question of principle as to how far the Commissioner should have to go in relation to contentions when there is a negative case. It is not a suitable vehicle because those very issues were not expanded on and dealt with below. They were the matters that were the subject of argument raised now on the proposed appeal and in this application and your Honours do not have the benefit of the analysis of the authorities in relation to onus in its attempt to drill down to that particular question.

GAGELER J: Are you saying that no procedural objection of this nature was raised in argument before the Full Court?

MR LOONEY: That is my recollection, your Honour Justice Gageler, yes.

BELL J: So in the way the proceedings were conducted, the evidence and issues on which the parties were joined extended beyond the appeal statement?

MR LOONEY: That is so.

BELL J: The issue identified in the appeal statement.

MR LOONEY: That is so. The difficulty – and it may be partly in answer to Justice Gageler’s question – is that because this was a case in which the Commissioner lost at first instance and then succeeded on appeal - had it been the other way around – and had the Commissioner succeeded for the reasons that were found in the Full Court there might have been then an appeal by a taxpayer raising these procedural questions and requiring the Full Court to properly explore the scope and role of an appeal statement in the circumstance where the Commissioner has to go first with the difficulties associated with the Commissioner not having full knowledge of all the facts.

But, your Honours will recall the significant authority that deals with the question of onus in the broad sense and none that we have identified that deal with it in that most limited sense of negativing and it has not then been set up below to assist your Honours on any appeal. It would be, in effect, starting afresh and traversing all that occurred at first instance and then on appeal to seek to tease out those procedural steps.

Yes, we say that the concession that is alleged about local rule 72 as a matter of particularity was a false concession raised in the application book at page 79 and, in particular, in paragraph 31, at about lines 31 and 32.

GAGELER J: What is a “false concession”?

MR LOONEY: Namely that we did not make any relevant concession as contended. We say that the approach of seeking to assert the burden of proof and suggesting that there is some change in this particular case is driven from a forensic decision about the extent of the evidence that was led and does not come truly from a position of needing to meet a particular case or not meet a particular case.

The trial judge was – I am sorry – the position was clear and not in dispute that it was a question of not being liable. What the applicant seeks to do here is to suggest that what the Commissioner had to do was to say, on all the bases, set up all of the bases that the Commissioner would say – and various alternatives – that this applicant was liable and then it was for this applicant to negate those limited bases which the Commissioner had asserted.

We say that would be reversing the onus that is the statutory onus and the use of an appeal statement and a reference to the procedural aspects associated with that – and that encompasses the concept of the role of pleadings where you have this statutory onus - it is not for, in a negative case, the case where the applicant has to negate a position, that the Commissioner has to lead a positive case to identify that which then limits the ground on which the applicant is able to conduct his application for review.

GAGELER J: You can have a legal onus which, in its practical outworking, is confined by the way in which issues are being joined between parties. Sometimes that is called an evidentiary onus.

MR LOONEY: Yes.

GAGELER J: As I understand your earlier submission, what you are saying is it is not so clear‑cut how the evidentiary onus was playing out in these proceedings and as you put it, as I understand, nothing in the appeal statement was taken by the parties in the conduct of the trial to confine the issues beyond the need for Scone to prove that it was not liable.

MR LOONEY: To be fair, there was an attempt by the reference to the contract concession, the concession that at trial it was suggested that the Commissioner had made a concession that there was no contract and the matter was adjourned and then it came back and proceeded on the basis that there was no concession.

It was just that the Commissioner said he was not making a positive case and if there was any time for the applicant on this application to have dealt with this question as a matter of broad statement of ascertaining what the role of the applicant was, was at that time at trial to identify and have argued then what the onus and the scope of the onus was so that forensic choices could be made then and then the matter might have been determined on that basis at first instance but it was not. Then we might have had a situation where it was determined on that basis on appeal but it was not.

So that is the more fulsome answer to the question of why this would not be an appropriate vehicle for that question even if it was thought to be of significance.

GAGELER J: Thank you.

BELL J: Thank you, Mr Looney.

MR LOONEY: Thank you. Unless I can assist your Honours further?

BELL J: Thank you, Mr Looney. Yes, Mr Williams.

MR WILLIAMS: At page 29 of the transcript of the Full Court, I said, this is about line 20 for our friend’s assistance: “We are here today grasping at what the Commissioner’s case is” - essentially grasping at smoke. I apologise for my lack of originality today. I went on: “We have heard the suggestion put today that the contract was between the Club and Racing New South Wales”.

I do not think your Honours will find that anywhere in the Commissioner’s written submissions or anywhere in the grounds of appeal. Whenever a point is disproved against the Commissioner, his response in this case is to say, well, look over there, it might be something else. That was exactly what he had done at first instance when, first of all, having made what was clearly a concession and then disavowed it.

We then obtained an adjournment and put on evidence to disprove, which we did successfully, the contract case based on the alleged contract between the jockey and the Club and we also disproved, dispatched, as the primary judge did in terms that cannot be criticised, the equitable estoppel case.

So, I do not frankly understand how it can be said that this was not in issue below. We complained and we complained bitterly in the Full Court about the Commissioner waving his arm and saying, well, it might be something else. So, in our submission, the point was taken clearly in the Full Court. Of course, we were the respondent in the Full Court so there was no procedural duty on us to be taking any point of that kind.

The issues were, as we have put, defined to a limited degree in the pleadings but then defined with greater precision by the concession that the Commissioner did make, true it is, not a concession that is as wide as it appeared on its face but nonetheless a concession that he put no positive contention about a contract between jockeys and the Club, one which we dealt with; a contention about issue estoppel which was not – sorry, equitable estoppel which was not pleaded but, nonetheless, we dealt with that too, and that, as far as we were concerned, was all that we had to deal with at trial and we dispatched every other point suggested at trial and that was an end of it.

BELL J: Mr Williams, at the point at which the matter was adjourned and you returned and made the submissions that you did respecting the contractual aspect, then an issue was raised concerning estoppel. I mean, at any point in the context of that argument, your contention was that it was not open to go outside the issues limited by the appeal statement? Would that ‑ ‑ ‑

MR WILLIAMS: We did not put that, your Honour, because by that point it was clear what the Commissioner was saying about contract. But we dispatched the estoppel point on its merits.

BELL J: Yes. Thank you, Mr Williams. The Court will adjourn to consider the application.

AT 1.34 PM SHORT ADJOURNMENT

UPON RESUMING AT 1.37 PM:

BELL J: We are not persuaded that the application is a suitable vehicle in which to consider the procedural issues that were debated on the application. Nor are we satisfied that the Full Court failed to properly exercise its appellate function. The application is dismissed with costs.

The Court will adjourn briefly before entertaining the next application.

AT 1.38 PM THE MATTER WAS CONCLUDED