DCT V Neutral Bay Pty Ltd; Broadbeach Properties; MA Howard Racing Pty Ltd [2008] HCATrans 75 (8 February 2008)

Last Updated: 11 February 2008

[2008] HCATrans 075

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B56 of 2007

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

Applicant

and

NEUTRAL BAY PTY LTD

Respondent

Office of the Registry
Brisbane No B57 of 2007

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

Applicant

and

BROADBEACH PROPERTIES PTY LTD

Respondent

Office of the Registry
Brisbane No B58 of 2007

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

Applicant

and

MA HOWARD RACING PTY LTD

Respondent

Applications for special leave to appeal

KIRBY J
HAYNE J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 8 FEBRUARY 2008, AT 10.35 AM

Copyright in the High Court of Australia

__________________

MR N.J. WILLIAMS, SC: May it please the Court, in each of these matters I appear with MR G.R. KENNETT and MR P.A. LOONEY for the applicants. (instructed by the Australian Government Solicitor)

MR F.L. HARRISON, QC: May it please the Court, I appear with MR M.L. ROBERTSON for the respondents. (instructed by Deacon and Milani)

KIRBY J: Mr Harrison, we think we might be helped by hearing from you first. I do not think this will have come to you as a surprise given that the Court of Appeal has declined to follow the decision of the Full Federal Court.

MR HARRISON: I am happy to proceed in any event, your Honour.

KIRBY J: If you are happy or not, we want you to.

MR HARRISON: Yes. Deputy President Hack in the Administrative Appeals Tribunal is to hear the GST matters in less than a month’s time. That raises the likelihood, in our submission, that by the time this Court hears the matter, if it were to grant special leave, the ultimate liability for GST will have been determined. Should I say in relation to the income tax matter, that is Broadbeach Properties - - -

KIRBY J: Perhaps one ingredient to the concoction and that is that I am informed by the Chief Justice that if we were to grant special leave in this matter it would probably be listed on or about 8 May. So that is not very far away. We give very speedy service in this Court.

MR HARRISON: Deputy President Hack is also noted for his speed, so I think the courts will be – or the tribunals - - -

KIRBY J: It will be a race to the finish.

MR HARRISON: We will be racing to the finish, yes, your Honour. The point of that is let us assume, because, with respect, it is the most likely outcome, that there will be a decision on the GST issue, then the effect of a decision of this Court, if the AAT decision is favourable to my client, will be of no advantage at all to the Commissioner. On the other hand, if my client fails before the AAT, the effect of this Court’s order will be simply that time starts to run again in seven days.

The result will be really that without the benefit of this Court’s order, the Commissioner, on Deputy President Hack’s giving judgment, could serve another notice. In 21 days time the Deputy Commissioner would know whether or not an application to wind up could be made. The best that a favourable judgment in this Court can give to the Deputy Commissioner is 14 days, approximately, advantage in the time for presentation of the application to wind up and it is not shown that there is any likelihood of any advantage or disadvantage, depending on the outcome.

With the income tax matter, your Honours will see that it has not been set down. I am instructed that that was on the request of the Commissioner, so it is unlikely that the Commissioner would be likely to proceed promptly to a winding up there. Now, if that were all, perhaps, that might not be enough, but despite what your Honour Mr Justice Kirby said at the beginning, the decision, although it goes against Hoare Bros, has not in fact caused any difficulty, at least so far, in the only case in which the same issue has come before the courts.

HAYNE J: Mr Harrison, is the position that if application is made in the Federal Court of Australia, the single judge or registrar dealing with the matter must determine the case one way, but if application is made in the Supreme Court of Queensland, the single judge dealing with the matter must determine the matter the opposite way?

MR HARRISON: No, your Honour, because the decision in Hoare Bros is concerned with a different provision relating to the fixing of liability for income tax. If I could take your Honours to my - - -

HAYNE J: Before you do that, did you invite the court below not to follow Hoare Bros?

MR HARRISON: Yes, your Honour.

HAYNE J: Does that not squarely raise the disparate outcomes that I earlier indicated to you?

MR HARRISON: No, your Honour, because if the matter were argued before the High Court, the High Court would not be considering whether Hoare Bros was correct. The High Court would be interpreting for the first time section - - -

HAYNE J: The disparate outcomes I was referring to were disparate outcomes in courts of trial around the country.

MR HARRISON: Yes, your Honour, but the issue in Hoare Bros cannot arise again because there is a different regime for the fixing of liability for companies now than there was in Hoare Bros. The subsection that was considered by Hoare Bros, which led the court in that case to decide that it affect the fons et origo of a taxation liability was the assessment, does not apply with respect to any companies at all in their own right and if it applies to any companies that are trustees, that would be a very limited class of companies.

We now have two regimes, one for individuals, which was the one that applied under Hoare Bros, and we have a different regime for liability under section 204(1A) to be found at page 19 of the applicant’s book of authorities dealing with the liability of companies. Subsection (1) which was considered in Hoare Bros altered to provide for the existence of subsection (1A) provided that, in effect, in the ordinary case on assessment – subsection (1A) provides that:

the tax payable by a full self-assessment taxpayer for a year of income becomes due and payable as follows:

(a) if the taxpayer’s year of income ends on 30 June –

which is the usual case –

on 1 December –

So it arises completely independently of any assessment and it was the assessments being the source of the liability that was the basis of the reasoning in Hoare Bros. So Hoare Bros is simply irrelevant to companies. A court would not be considering the correctness of it and, with respect, it would be a wrong approach to say, should we extend the operation of Hoare Bros to cover subsection (1A)? Rather, a court would be considering the effect of subsection (1A) from the beginning.

So, in my submission, interesting as Hoare Bros is and interesting as the history of the matter is, it simply will not be a matter for the court to decide whether it was correct or not. It could choose to but it is unnecessary for the court to do that.

KIRBY J: Yes, but the problem is that for the moment paragraph [75] of Justice Keane’s reasons stand, and he says:

In my respectful opinion, the reasoning in Hoare Bros should not be followed insofar as it adds a gloss to the [section] –

MR HARRISON: There will be no occasion to consider whether to follow it not, your Honour.

KIRBY J: Think of the difficulty then that intermediate courts throughout the country, apart from the Federal Court, have in resolving the clash between the Full Court of the Federal Court and the Court of Appeal of Queensland which you yourself invited by the submission that you made in the Court of Appeal of Queensland. I mean, I have sat in intermediate courts, and so have we all, and you do not want to be put into that position and the only place where it can be sorted out is here or in the Parliament.

MR HARRISON: With respect, your Honour, no intermediate court or court of first instance will, in fact, if their attention is drawn to the actual
basis of reasoning of Hoare Bros, have to consider whether it is right or wrong. That court’s function will be to decide whether or not the assessment under subsection (1A) is the source of the liability - - -

KIRBY J: A valiant try, Mr Harrison, but I think we will have to hear what Mr Williams says about the possibility that the problem will go away because if that happens, we would not want to get involved in it. I think that is a matter that will have to be answered but, save for that, this is the very sort of matter where the High Court would normally wish to resolve the issue.

MR HARRISON: Certainly, your Honour. If the legislation had not been changed, it would be quintessentially a matter for the Court. As I have said, in my submission, these simply will not arise in the future. The other matter, your Honours, is that even if your Honours decide the matter – the ultimate result in this case will turn on whether your Honours decide that it is appropriate to interfere with the discretion of the judge at first instance under section 459J and, in my submission, the judge at first instance and the Court of Appeal approached the matter of discretion in an entirely unexceptionable way. In fact, their approach was the same as that formulated in Hoare Bros and so there was simply - - -

KIRBY J: Is this a notice of contention point, is it?

MR HARRISON: It is dealt with in our submissions, your Honour.

KIRBY J: I realise that, but would you be foreshadowing that you would be seeking to support the decision of the Court of Appeal in a more limited basis for 459J?

MR HARRISON: No, your Honour, we would simply be revisiting the arguments that we made before the judge at first instance and the Court of Appeal and which they considered at length. So my learned friend would be appealing against the section 459J determination. It would not be a matter of a notice of contention from us, in my respectful submission.

KIRBY J: It has been raised for your consideration. Anything else?

MR HARRISON: Thank you, your Honour, yes.

KIRBY J: What do you say, Mr Williams, about the suggestion that the Administrative Appeals Tribunal might get to this more quickly than we would decide it?

MR WILLIAMS: First, it is not, of course, in any legal sense moot, it would not become in any legal sense moot because the appeal to this Court is stricto sensu, so there would not be any evidence before the court on appeal. But in a practical sense, as Mr Harrison acknowledges, the problem is not going away in Broadbeach, in any event, so there will be at least one case on any view that raises - - -

HAYNE J: But Broadbeach is an income tax, whereas the other two are GST, is that right?

MR WILLIAMS: Yes. So it very squarely raises the application of Hoare Bros and we do not accept, of course, that there has been any relevant legislative change. So as far as the continuing application of Hoare Bros in respect of income tax is concerned, that will be an issue in May and beyond, but in respect of the other matters, whether or not it will become moot in a practical sense is at this point entirely speculative and it depends upon foreseeing a number of events: first, the completion of the AAT hearing within the days listed; secondly, judgment within a particular time; and, thirdly, in particular, no appeal to the Federal Court under section 44. Of course, the Federal Courts are replete with appeals from the AAT and tax matters.

HAYNE J: Mr Harrison suggested that the ultimate issue before the Court might turn upon questions of exercise of discretion under 459J of the Corporations Act. What do you say about that proposition?

MR WILLIAMS: That will be an issue before the Court, but we say for the reasons that we have put in our written submissions that essentially for the same reasons as given in respect of 459H, saying that the legislative scheme in relation to the enforcement of tax debts precludes the existence of a genuine dispute arising merely from the fact that there are arguable Part IVC proceedings, for essentially the same reason there could not be a sufficient basis, merely in the existence of a Part IVC proceeding that is conceded to be arguable, for setting aside the statutory demand.

HAYNE J: I understand the Commissioner’s position to be, in effect, that the debt is due and payable regardless of the pendency of Part IVC proceedings?

MR WILLIAMS: Yes, and that is, we say, established clearly by the scheme of the provisions but, as declared by decision since McAndrew through Brown and Batagol and, most recently, Richard Walter, the notice of assessment crystallises a statutory debt. The clear policy of the scheme, no doubt reflecting the fact that the Commissioner will be the creditor who is most often at risk when a company defaults, but the clear policy of the legislative scheme is that tax debts are payable and should be paid even if the underlying assessment is being disputed in the Part IVC proceeding and
we say that the existence of an arguable dispute of that kind could not of itself be sufficient to justify the setting aside of the demand.

KIRBY J: We do not need your assistance on the other substantive matters.

MR WILLIAMS: Yes, thank you, your Honour.

KIRBY J: Anything in reply, Mr Harrison?

MR HARRISON: Your Honour, my learned friend submitted that the court had decided to exercise its discretion in favour of my client solely on the basis of the existence of the Part IVC proceedings. With respect, that is not the issue that will arise here. If your Honours would go to page 56 of the Neutral Bay appeal book which, in effect, summarises the lengthy consideration before that. If one starts at about line 5, there is a reference to the existence of such a dispute and then the court adds other factors that led to the exercise of the discretion favourably. I am reading from the judgment:

And if one were to add to that factor consideration of the disruption to the taxpayer and its creditors and contributors involved in a winding up and the absence of any suggestion that the creditor would suffer actual prejudice if left to remedies other than winding up, it would, in my view, be open to a court to conclude that there was a reason to set aside the statutory demand without pausing to consider whether the circumstances involved unconscionable conduct or unfairness on the part of the Commissioner.

The court is not saying in every case in which there was an arguable case in Part IVC proceedings the discretion will be exercised in favour of the taxpayer. It is simply saying in this particular case it is appropriate to do so and that is what the High Court will have to do also.

KIRBY J: You have signalled that you are going to be arguing that if we grant special leave so that everyone is on notice of that. I notice that this took two days in the Court of Appeal. If the matter comes here, given the refinement of the issues by the Court of Appeal, is it a matter that would take more than a day, in your estimate? Perhaps I should hear Mr Williams first.

MR HARRISON: Yes, your Honour, I was fairly short in the Court of Appeal.

KIRBY J: Yes, you are always short, yes. What do you say, Mr Williams? The Commissioner is usually long.

MR WILLIAMS: Your Honour, I anticipate being sufficiently short that the matter would, in my estimate, conclude within the day.

KIRBY J: You say it would finish in a day?

MR WILLIAMS: Yes, your Honour.

KIRBY J: There you have it. That is the estimate. Are you prepared - - -

MR HARRISON: It depends on the Commissioner, your Honour. If he allows me a couple of hours I will be right.

KIRBY J: Did I see some dissent in you in the Commissioner’s camp?

MR WILLIAMS: Your Honour, the only matter to which my junior has called attention was the matter raised in a sense in terrorem that the respondent may seek to agitate issues that were not found in its favour below and - - -

KIRBY J: They do seem to have been debated and considered by the Court of Appeal in the last part of the reasons of the Court of Appeal. So I think Mr Harrison is right. It is not strictly a notice of contention issue, is it?

MR WILLIAMS: No, there are other issues, your Honour, that I apprehend Mr Harrison foreshadows the possibility of raising.

KIRBY J: All right. You think it might dribble over to more than a day?

MR WILLIAMS: I cannot rule out that possibility, your Honour. My current estimate is a day but I have not really gone into the complexities of those other issues.

KIRBY J: I will report all these matters to the Chief Justice.

MR WILLIAMS: May it please the Court.

KIRBY J: Special leave is granted in these three applications. The matter will be listed on a date to be notified by the Registry but it will be probably in the week of 8 May. It has just been drawn to my notice that this matter may not come on in May but might come on a little later and, indeed, might be listed in the Brisbane sittings, so just receive what I said about May with a pinch of salt.

MR HARRISON: I am sorry, I did not hear what your Honour said in substitution.

KIRBY J: The pepper will be added later. It may not be 8 May. The Chief Justice sent a memo round, but it has been pointed out that it may actually be listed in Brisbane which of course is in June.

MR HARRISON: That would be very convenient, your Honour.

KIRBY J: The Court has been going there every year since 1903 in June.

AT 10.55 AM THE MATTER WAS CONCLUDED