Per Oswal v Commissioner of Taxation (No 2)  FCA 1143: although the imposition of taxation may not be made incontestable, that does not mean that a court in tax proceedings under Part IVA of the Taxation Administration Act 1953 does not have the power to order security for costs at the behest of the Commissioner against the taxpayer, including the power to order dismissal on default. Nevertheless there was a strong predilection against awarding security for costs against a natural person at least in taxation proceedings at first instance that involved a bona fide claim.
Nicholas J explained that once the judicial process is engaged, it is for the Court to exercise its powers in the ordinary way, including the power to provide particulars, give discovery or file written evidence and, similarly, the Court has power to order that a taxpayer provide security for costs and to stay or dismiss the taxpayer’s proceeding if security was not provided. His Honour added: “Of course, the Court’s discretionary powers in relation to these and all other matters must be exercised judicially and according to law.”
His Honour referred to Fletcher v Commissioner of Taxation (1992) 37 FCR 288 (a s 44 AAT Act appeal by taxpayers/natural persons) saying: “It is clear from a reading of Hill J’s reasons that he did not doubt that the Court had power under s 56 of the Act (FCA) … , but that discretionary considerations weighed heavily in favour of not doing so against a natural person in a proceeding brought by him or her under Part IVC of the Administration Act.”
Nicholson J agreed that such taxpayer proceedings were proceedings having a significant defensive element. Further, even if the proceedings were not to be regarded as defensive, the relief sought by the taxpayers, and the constitutional and statutory context in which that relief was being sought, would still be a highly relevant consideration not favouring a security for costs order, when it came to exercising the discretion.
Nevertheless, there were some situations where security should be ordered – one of which being where the applicant is a person who does not ordinarily reside in Australia, and who has no assets in the jurisdiction – as here, where any relevant Australian assets were the subject of mortgages or assignments — and it was clear that that fact can constitute a circumstance of great weight. That was particularly so where any costs order obtained by the Commissioner could not be enforced against the taxpayers without considerable difficulty, as here. The taxpayers, Mr and Mrs Oswal, were resident in the United Arab Emirates which was not a country with which Australia had any reciprocal arrangements for the enforcement of judgments. His Honour was also satisfied that an order for security for costs in an appropriate amount would not stultify the proceedings and in light of all relevant factors, such an order was to be made.