Chemical Trustee Limited v Deputy Commissioner of Taxation [2014] HCATrans 169 (15 August 2014)

Last Updated: 20 August 2014

[2014] HCATrans 169

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S82 of 2014

B e t w e e n -

CHEMICAL TRUSTEE LIMITED

Applicant

and

DEPUTY COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

FRENCH CJ
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 AUGUST 2014, AT 10.53 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR T.H.J. HYDE PAGE, for the applicant. (instructed by Henry Davis York)

MR J.O. HMELNITSKY, SC: It the Court pleases, I appear with my learned friend, MR M.S. SYMON, for the respondent. (instructed by Australian Government Solicitor)

FRENCH CJ: Mr Jackson, I thought you might have had something to say about judgment at first instance being delivered in The Hague.

MR JACKSON: Well, your Honour, if I had been able to make something more out of it, I would have, but apart from the need for judicial refreshments and refreshment of mind, I have nothing further to say.

Your Honours, this application concerns a narrow but important point, namely, whether when the Commission of Taxation has sued to judgment a taxpayer in respect of income tax for a year of income, the Commissioner may later sue again for further income tax in respect of the same year. At the heart of the case is whether the Court’s decision in Chamberlain v Deputy Commissioner of Taxation – I will come to it in a moment, your Honours – is to be treated as confined to its own facts or is to be treated as an application of broader principle. We submit the latter.

May I go firstly, your Honours, and very briefly to the basic circumstances? The issue arises in the present case in respect of four years – 2002, 2003, 2004 and 2006. May I take your Honours to our summary of argument at page 64?

FRENCH CJ: So they are not all the years covered by the judgment, the 28.6? It is only part of that?

MR JACKSON: No, it is four years, your Honours, and your Honours will see at page 65 of the application book, last sentence of paragraph 8, that:

No issue arises . . . in respect of years other than –

those four that I mention. Now, your Honours, if one looks at our submissions at page 64, paragraphs 2 through to 6, the position was that the Commissioner in proceedings in 2010 assessed tax, sued in the Federal Court for the amounts so assessed and obtained judgment. In doing so, the Commissioner utilised section 177(1) of the Income Tax Assessment Act. May I take your Honours to that?

FRENCH CJ: The default assessments.

MR JACKSON: Well, they were default assessments, but in the proceedings what was done was to utilise section 177 which is the conclusive proof provision.

FRENCH CJ: Yes.

MR JACKSON: Your Honours will see it at page 94 of the authorities book, section 177(1), which says that:

The production of a notice of assessment . . . shall be conclusive evidence of the due making of the assessment –

or of a number of matters. One is the “due making of the assessment”; secondly, “that the amount”; and thirdly, that “all the particulars of the assessment are correct”. Now, your Honours, the essential parts of the notices of assessment in the 2010 proceedings in which the judgment was obtained are in the form which is set out in the primary judge’s reasons - page 18, paragraph 34. You will see, your Honours, the third line of paragraph 34, the documents in the four years were the same. You will see the relevant portions set out at the bottom of page 18. It is a notice of assessment for a particular period. It refers to the concept of taxable income and gross tax.

Now, your Honours, those are not terms which exist in the abstract. They are reflections of the underlying concepts which appear in the taxing legislation. Your Honours, we have set out the contentions which we advance and the relevant statutory provisions at page 67 in paragraphs 20 and 21, and set them out in short form. I will take your Honours to any of them if your Honours wish me to. But your Honours will see, if I go to paragraph 21(i), income tax is payable:

In accordance with s.3-5 of the Income Tax Assessment Act 1997 . . . for each year by each individual and company -

Your Honours will see (ii) at the top of the next page, the reference to section 4-10:

‘Your income tax is worked out by reference to your taxable income –

Paragraph (iii), a familiar provision:

‘taxable income’ is the assessable income . . . for the income year, minus deductions –

Your Honours will see the remainder of the provisions there set out. In short, we would say, as we say in paragraph 20 at page 67, that:

In a proceeding for the recovery of a statutory debt –

of this kind, the cause of action was the applicant’s liability for income taxation in respect of the four years. Tender of the notices of assessment was proof of those matters, but the cause of action – and I will come to this in a moment – in our submission - - -

FRENCH CJ: It is the critical question, is it not - characterisation of cause of action and what is said at paragraph 16, I think, of the respondent’s submissions.

MR JACKSON: Yes, your Honour, that is the matter I am about to come to. Could I illustrate the way in which it was put in the two courts below? If one goes to page 13, paragraph 17 in the primary judge’s reasons, you will see in the last four lines on page 13 his Honour said the:

liability to tax is generated by the ITA 1986 and not the notice of assessment itself but the liability vindicated in debt recovery proceedings is not the liability to tax generated by the ITA 1986 but the statutory debt created by the TAA 1953 upon the issue and service of a notice of assessment.

To similar effect, a little more fully, in that part of paragraph 20 on page 15, from the third line to the end of the paragraph, and in particular the way in which the judge said towards the end of that paragraph:

So too, in the proceedings before me the elements of the claim consist only of the new notices of assessment which have been issued subsequent to the judgment –

Now, your Honours, the Full Court was of a rather similar view. May I take your Honours to the core passages in that? You will see at page 50, paragraph 15, about line 35, their Honours said:

The notice is conclusive evidence that the amount in and particulars of the notice are correct and nothing more.

Then page 52, paragraph 18 - - -

FRENCH CJ: Well, effectively a statutory scheme diverts you to IVC if you want to argue about it.

MR JACKSON: Yes, your Honour, that is what it says. May I come then to what we say about Chamberlain? The decision of the Court in Chamberlain v Deputy Commissioner of Taxation is in the authorities book at page 144. The basic facts are set out in the joint reasons of Justices Deane, Toohey and Gaudron at the commencement of their reasons going to the bottom of that page. In essence, your Honours, the comma was put in the wrong place in the judgment that was actually obtained.

FRENCH CJ: There is a factor of 10 down.

MR JACKSON: Yes, your Honour. One would think that a ticket to Paraguay would be taken with the remainder of it. Then after judgment the Commissioner sued again. Now, the respondent places emphasis upon the last paragraph on page 147, that is, that the claim was:

in respect of the same assessments of income tax and the same amounts of additional tax for late payment as were identified in the earlier proceeding.

But, however, your Honours, the point we would seek to make is that the reasoning in favour of the taxpayer in that case does go considerably further than that. Could I take your Honours to page - - -

FRENCH CJ: So if the Commissioner issued an assessment for $25,000 and then, on the basis of further information and according to the statute, issued an amended assessment for $250,000, if the Commissioner had sued upon and recovered judgment on the first assessment he would be precluded from - - -

MR JACKSON: That is the submission that we make, your Honour.

FRENCH CJ: That is what you are saying?

MR JACKSON: Yes, we are, and we are saying that that is what the principles in Chamberlain say and Chamberlain, one might have thought, would have been perhaps a very sensible case for an amendment of the legislation. It might be that the Court in the end would say Chamberlain was wrong or should not be applied, but it - - -

FRENCH CJ: Or confined to its facts.

MR JACKSON: Well, that is what I am about to say, your Honour, yes, what we have to deal with, your Honour, because what happened in Chamberlain was that the reasoning underlying it, in our submission, goes beyond just being a very fact-related case.

KEANE J: But is there anything in the reasoning in Chamberlain which suggests that the entry of a judgment somehow defeats or sterilises the power to make an amended assessment?

MR JACKSON: Well, your Honour, may I come to that now? I was going to refer your Honours to three passages in the reasons. The first was at page 151, about point 6 on the page. Your Honours will see that, referring to Henderson v Henderson in estoppel, it said:

It did so, rightly we think, because the sections of the Income Tax Assessment Act . . . giving rise to a liability to pay tax and empowering the Commissioner to sue for that tax are spent once judgment is entered in favour of the Commissioner.

That is an introductory paragraph, as it were. Then one sees at the bottom of that page on the last line:

Before us the respondent’s answer to the argument based on res judicata was that s. 209 of the Act empowered the Commissioner . . . to sue for and recover any tax unpaid. Thus, in bringing the second action, the respondent was exercising a statutory right in respect of which res judicata could have no application.

Very similar to the arguments in this case, with respect, your Honours. That argument you will see was not accepted, and if one goes then to page 510, about point – I am sorry, page 152 in the authorities book, and goes to about point 6 on the page, it said, your Honours, in the second line:

This is not a situation in which all that is involved is the conduct of the respondent or indeed the operation of an Act which imposes liability for income tax and provides the means by which that tax may be assessed and recovered. The point of the present appeal is that the respondent brought an action against the appellant and recovered judgment against him. He obtained a judgment of the Court in which the cause of action upon which he relied merged, thereby destroying its independent existence so long as that judgment stood. And, so long as that judgment stands, it is not competent for the respondent to bring further proceedings in respect of the same cause of action.

There is a recognition that it may be an abuse of process and the passage goes on to the end of that paragraph on page 153.

KEANE J: But, Mr Jackson, none of this is saying anything about the power to issue an amended assessment. This is all about the cause of action based upon the liability reflected in the assessment.

MR JACKSON: Well, your Honour, that is true so far as it goes. The point we would seek to make, however, is that one does have to look at what is the cause of action. If one is looking at the cause of action, the cause of action is, we would submit, to recover the tax which is assessed in respect of that year. That is what the notices indicate, and the concept of income tax and assessment of income tax is a concept that involves the question of the amount payable in respect of that year. It is not just the amount that happens to be set out as the calculation because the calculation involves the application of the Act to it.

Your Honours, could I just say this, that we would submit the reasoning in Chamberlain does not suggest a particular fact-related approach to the issue. The case, as we have said in our reply, if I could just take your Honours to that for a moment at page 91 of the application book, has not been overruled legislatively or judicially and, your Honours, if I could go to paragraphs 8 and 9 of our reply, to use the judicial system for recovery carries with it a range of attendant principles such as res judicata, issue and Anshun estoppel and abuse of process, and to exclude them involves clear legislation.

Could I add one further thing, your Honours? At page 53, paragraph 23 you will see that the Full Court endorsed the observation of the primary judge concerning the effect of our contentions on Part IVC appeals against assessments. We would submit, if I could put it very shortly, as a matter of construction that just cannot be right. The legislation overall gives remedies to the Commissioner, notwithstanding there might be an appeal pending, there is a right to appeal, and section 177(1) reflects the two concepts, and could we refer also – and I do not think I need to take your Honours back to it – to Chamberlain at page 153, point 8, which dealt with a rather similar argument.

Your Honours, we would submit this is an appropriate case for the grant of special leave. Could I take your Honours to page 72 of the application book and to paragraphs 37 to 39 where we set out the reasons in support of that? Your Honours will see that that refers particularly to abuse of process. Chamberlain at page 152, about point 9, recognised the availability of that concept in this context. Our contentions on that issue are set out more fully at page 66, paragraphs 11 to 17. Your Honours, those are our submissions.

FRENCH CJ: Thank you, Mr Jackson. Yes, Mr Hmelnitsky.

MR HMELNITSKY: Thank you, your Honour. Your Honours, in the earlier proceedings, referred to as the 2010 proceedings, the Deputy Commissioner sued to recover debts owing as a result of the issue of original assessments, and the amounts that were due and payable as a result of the issue of those original assessments were due and payable because of the effect of section 204, as it then was, of the 1936 Act. That provision has now been replaced by section 5-5 of the 1997 Act, and I will come to the effect of that provision in a moment.

But because there was thereby created a pecuniary liability to the Commonwealth which was a tax-related liability within the meaning of the Administration Act, there was by force of section 255 of the Administration Act a debt due and payable to the Commonwealth that could be sued for. So the actions in the 2010 proceedings were actions in debt brought in the manner described by this Court in Futuris and in Broadbeach Properties to recover the amounts of those tax-related liabilities and what we emphasise, your Honours, is that the causes of action in those proceedings are best identified as those pecuniary liabilities, those debts made due and payable by force of the Administration Act.

These proceedings, your Honours, insofar as this application is concerned, are of a different character. They are brought to recover the amount of additional tax, that is to say, tax in addition to what was the subject of the earlier judgment, and those additional amounts are due and payable by reason of a different part of section 204 - - -

FRENCH CJ: How does that appear from the assessments, by the way, the amended assessments that – the amended assessments cover – are they expressed in terms of the total tax that should have been payable in respect of the various years which they deal with, according to the Commissioner’s view of it, or do they identify a difference?

MR HMELNITSKY: They do identify a difference, your Honours. The form of the - - -

FRENCH CJ: How do they do that?

MR HMELNITSKY: Your Honour, they are in fact not before the Court, we realise, but - - -

FRENCH CJ: Because pages 18 and 19, I could not quite work it out from that.

MR HMELNITSKY: Yes, pages 18 and 19 of the application book, your Honour, only identify the calculation of tax. They do not identify the amount that is thereby due and payable. The amount that is thereby due and payable is the additional amount. Your Honours may not see that in that part of the primary judge’s reasons because his Honour has only extracted those parts that identify the total amount of tax. But what your Honours see - - -

FRENCH CJ: It is not in dispute that what was sued for was additional tax?

MR HMELNITSKY: It is not, your Honour. The primary judge made a finding to that effect and your Honours would see that, for example, at page - your Honours would see that at paragraph 37, for example, of the primary judge’s reasons which appears at page - - -

FRENCH CJ: Page 19.

MR HMELNITSKY: - - - 19 of the application book. Your Honours will also see reference to the fact that it is only additional amounts that are the subject - - -

FRENCH CJ: That is under 5-5(7), I see.

MR HMELNITSKY: Yes, your Honours, and it is also recited as one of the background facts in paragraph 8 of the applicant’s summary of the facts that it is only the additional amounts that are sought in these proceedings. That reflects, your Honours, the statutory scheme which in the case of an amended assessment makes the extra tax or the additional tax a pecuniary liability that is due and payable to the Commonwealth. Your Honours see that best in the current section 5-5 of the 1997 Act which your Honours see set out at pages 108 and 109 of the book of authorities. Your Honours see first in subsection (2) on page 108 at about line 20 of the page that:

The income tax is only due and payable if the Commissioner makes an assessment of your income tax for the year.

In the case of a self-assessment entity, the dates on which your tax is due and payable are specified depending on your circumstances in the subsections that your Honours see on page 108. But, your Honours, in the case of amended assessments such as are the subject of these 2012 proceedings, subsection (7) provides that:

any extra income tax resulting from the amendment is due and payable 21 days after the day on which the Commissioner gives you notice of the amended assessment.

So the amount that is due and payable and is thereby made a pecuniary liability to the Commonwealth, treated as a tax-related liability and is picked up as a debt due and payable to the Commonwealth, is that extra amount, and it was only those additional extra amounts that were the subject of these proceedings and that relevantly were swept up in the $28 million judgment that is challenged.

KEANE J: There does not seem to be a suggestion against you that the fact of the earlier judgment is some inhibition on the exercise of the power to make the amended assessment, so there not being any such inhibition the amended assessment is made and can be sued upon?

MR HMELNITSKY: Yes, that is as we would see it, your Honour. There is real difficulty in the way of the applicant’s construction in that regard, not least for the fact that the construction of those provisions for which they do contend is never really quite articulated in the written summary.

FRENCH CJ: What do you say to the proposition that the assessment first issued is the assessment of your tax liability for the whole of that year? In other words, this is the submission that you look through the assessment to the underlying liability which then defines, as it were, the cause of action or the scope of the cause of action?

MR HMELNITSKY: Your Honour, we would say one looks through to what - our answer is that one looks through to the provisions of the Assessment Act that make - assess liabilities - - -

FRENCH CJ: You say they generate the causes of action?

MR HMELNITSKY: Yes, your Honour, they do, because there is no liability to the Commonwealth until such time as the process of assessment has been completed, at which point the amount that is due and payable to the Commonwealth is the amount so ascertained - it is due and payable in the manner that I have shown your Honours - and so the cause of action depends upon the amount in the assessment.

That was at the heart of the reasoning in Chamberlain’s Case. It was suggested to your Honours that Chamberlain perhaps applies some broader principle and that their Honours in Chamberlain were perhaps proceeding on the basis that the cause of action that gave rise to the res judicata in that case is properly to be understood as something that is independent of the assessment that had been the subject of the first judgment and is to be found in some broader notion of underlying tax liability. Your Honours, in our submission, it is quite clearly not authority for that proposition and that is not the basis of the Court’s reasoning in Chamberlain. Your Honours see that perhaps best at page 150 of the authorities book.

FRENCH CJ: What page of the report is that?

MR HMELNITSKY: It is page 508.

FRENCH CJ: Thank you.

MR HMELNITSKY: Your Honours have already been taken to that part of the report where Justices Deane, Toohey and Gaudron identified the fact that the Commissioner was there suing on the same assessment, but we emphasise, your Honours, what appears at about the middle of that page with the paragraphs beginning “To determine whether or not the appellant’s argument should succeed” et cetera. Their Honours are there stressing the necessity to identify the cause of action and what they identify as being relevant - the only matter that they identify as being relevant to the identification of that cause of action is the assessment which, as they point out, was the same assessment.

Your Honours see that particularly at about point 6 of the page. It is really that circumstance, your Honours, that the Commissioner was suing on the very same assessment, therefore was seeking to recover the very same liability, that gave rise to the res judicata. That carries with it, necessarily, we say, the proposition that the cause of action there was the liability that was made payable to the Commonwealth by reason of that assessment. Your Honours also saw, when your Honours were taken through other parts of the judgment, what was said at the top of page 511 of the report on page 153 of the authorities book, that their Honours pointed out that:

There is nothing in the Act or arising from the position of the respondent as a public officer that precludes the operation of that doctrine.

Your Honours, here there is quite a bit in the Act that has something to say about the Commissioner’s entitlement to sue in these proceedings, that being the power to amend, the consequent creation of a pecuniary liability and the recognition of a debt due to the Commonwealth that can be sued for. In our submission, Chamberlain does not stand for any broader proposition than what we have identified in our summary.

Your Honours, in our submission, the provisions of the Assessment Act and the Administration Act really supply a complete answer to all of the arguments that are put against the decision of the Full Federal Court. The cause of action is separate. The issue is different. That really leaves the argument in relation to Anshun estoppel where it is put against us that the Commissioner did not establish that he had a basis to sue in separate proceedings. But, as we have submitted in our written summary, it was not for us to demonstrate anything so far as that was concerned. We were not setting up an estoppel - the applicant was - and they relied on nothing in

support of the estoppel other than the assertion that the causes of action were the same. Once that is seen not to be the case, there is nothing more in the Anshun point. If the Court pleases.

FRENCH CJ: Thank you. Yes, Mr Jackson.

MR JACKSON: Your Honours, may I just say these things. Our learned friend used various expressions such as the second action was in respect of a different tax or additional amounts and so on, but in every case the – and also that the amount due and payable was in respect of an additional amount. Well, of course, that was true, but if one is looking at the number of dollars, the reason why the number of dollars was different was (a) the additional assessment, but (b) we had already paid the first tax. The fact we had paid it is an uncontested fact. It is at page 65, paragraph 7 of our submissions.

FRENCH CJ: It was after you paid it that you tried to get the freezing order lifted and they say, wait, there is more.

MR JACKSON: Yes, well it is a fair bit of money actually. Your Honours, the second thing I wanted to say, the tax was, in all respects, in respect of the same years of income and your Honour Justice Keane asked my learned friend what is the position in relation to the ability to assess again, assess a second time. We would submit, your Honours, that whilst we have not particularly attacked the provisions, what we would say in relation to them is that while the judgment stands the provisions are not effective to allow the alteration of the amount of tax that is payable.

My learned friend referred also to Chamberlain. May I take your Honours back to the authorities book page 151, page 509 in the original report. You will see that halfway down the page, in a passage I referred to briefly, it said:

It did so, rightly we think, because the sections of the Income Tax Assessment Act 1936 . . . giving rise to a liability to pay tax and empowering the Commissioner to sue for that tax are spent once judgment is entered in favour of the Commissioner.

Now, your Honour, the idea that the Court was there leaving out of account the Commissioner’s powers is dispelled, in our submission, by what appears at the bottom of that page going over to the next page where there is a clear recognition of the ability of the powers of the Commissioner, although it is perfectly right to say the word “additional” is not used but the powers of the Commissioner are referred to and it would seem unlikely that the Court left that out of account. Your Honours, those are our submissions.

FRENCH CJ: Thank you, Mr Jackson.

The applicant seeks special leave to appeal from a decision of the Full Court of the Federal Court of Australia dismissing an appeal from a judgment against the applicant in favour of the Deputy Commissioner of Taxation in an amount of approximately $28.6 million in respect of the income years 2002 to 2007 inclusive and 2008 to 2011. The judgment was based upon amended assessments issued by the Deputy Commissioner of Taxation in July and September 2012. Prior to the proceedings giving rise to the judgment in question, the Deputy Commissioner had obtained a judgment for approximately $4.8 million based upon earlier default assessments for the income years 2001 to 2004, 2006 and 2007.

The primary judge and the Full Court rejected an argument by the applicant that the Deputy Commissioner’s rights in respect of the years 2002, 2003, 2004, 2006 and 2007 had merged in the first judgment supporting a plea of res judicata or that the Deputy Commissioner was otherwise precluded by doctrines of issue estoppel and abuse of process from recovery in respect of those income years.

In our opinion, the primary judge and the Full Court were right to reject that argument. The case is not covered by what was said in Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1998) 164 CLR 502. The action before Justice Perram was based upon additional income tax payable pursuant to amended assessments by the operation of the Income Tax Assessment Act 1936 (Cth) and Income Tax Assessment Act 1997 (Cth) which gave rise to the cause of action invoked in the proceedings. Also antithetical to the applicant’s contention was the very existence of the statutory scheme for amended assessments. There was no basis, in our opinion, for the application of res judicata, issue estoppel or abuse of process arguments. Special leave is refused with costs.

AT 11.26 AM THE MATTER WAS CONCLUDED