Commissioner of State Revenue v ACN 005 057 349 Pty Ltd [2016] HCATrans 146 (17 June 2016)

Last Updated: 17 June 2016

[2016] HCATrans 146

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M3 of 2016
No M4 of 2016

B e t w e e n -

COMMISSIONER OF STATE REVENUE

Applicant

and

ACN 005 057 349 PTY LTD

Respondent

Application for special leave to appeal

BELL J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO MELBOURNE

ON FRIDAY, 17 JUNE 2016, AT 10.10 AM

Copyright in the High Court of Australia

MR P.H. SOLOMON, QC: If your Honours please, I appear with MS C.G. BUTTON and MR N.A. KOTROS for the Commissioner. (instructed by Solicitor for the Commissioner of State Revenue)

MS H.M. SYMON, QC: I appear with MS C. VAN PROCTOR for the taxpayer respondent. (instructed by Daniel Allison & Associates)

BELL J: Yes, Mr Solomon.

MR SOLOMON: If your Honours please. Your Honours, in Australia at the federal level and at the level of every State and Territory taxation administration legislation possesses four common features. First, for many taxes the relevant taxing authority issues an assessment. Second, in respect of that assessment, there is an obligation on the part of the taxpayer to pay, whether or not all provisions of the underlying tax law have been complied with. The unpaid tax is a debt due respectively to the State, Territory or Commonwealth.

Third, taxpayers are granted objection rights or otherwise appeal processes if they consider the amount assessed exceeds the accurate or true tax liability. Lastly, distinctly, in respect of the assessments, the tax authorities have on occasion the benefit of conclusive evidence provisions, and as Justice Brennan observed in Richard Walter, those provisions aid enforcement of other provisions.

In that context, the Commissioner contends for four principal errors in the judgment of the Court of Appeal. Let me identify them. First, and critically, the Court of Appeal erred in concluding that the issuing of an assessment did not create a statutory tax debt. That is the critical error. I will return to it shortly. Second, the Court of Appeal compounded that error by concluding that the payments made by the taxpayers of the amounts as assessed were made under an operative and enduring mistaken belief founding a right to restitution. That is the second critical error.

Third, those errors identified, the Court of Appeal erred in concluding that section 19 of the Land Tax Act imposed in this case a duty on the Commissioner and as a subset of that misapplied the doctrine of the majority of the High Court in Royal Insurance. Fourth, and finally, the Court of Appeal erred in its construction of section 90AA of the Land Tax Act. Let me develop those four errors further.

If your Honours please, the first error involves the tax debt question. In the relevant tax years it is common ground that all payments made were made upon the issuing of tax assessments. Would your Honours kindly go to page 209 in the application book, paragraph 196? In the middle of the paragraph, as your Honours will see, the Court of Appeal concluded that:

it is not the issuing of assessments (under s 17) which gives rise to a statutory debt; it is s 39, which –

their Honours respectfully considered “not to apply”. If your Honours turn the page, in paragraph 197, near the end, their Honours repeat:

Furthermore, as mentioned, the Act does not generate a statutory debt from the issuing of an assessment –

That conclusion is plainly wrong. It would emasculate 80 years of tax learning on assessments and it ignores the fundamental distinction in tax law between the taxpayer’s underlying substantive liability for tax which is a matter for the objection process, and the tax debt immediately created when the assessment is issued.

That dichotomy, that distinction, is recognised, as your Honours will be aware, in Broadbeach at paragraph 55, in Batagol in a well-known judgment of Justice Kitto, in Trautwein, in Hoffnung and in the Court of Appeal in Victoria in a judgment in which Justice Nettle participated, in Gas Ban where at [48] the Court of Appeal said:

Assessment is a process with the consequence that a specified amount will become due and payable as the proper tax.

This error infects everything. It infects the accurate characterisation of the payments by the taxpayer, as I will turn to next. It infects the proper application of Royal Insurance and it certainly affects the correct application, section 90AA(1) of the Land Tax Act, and it is the first error on which we rely.

Let me turn to the second error, if I may. Would your Honours kindly go to page 207 of the application book, paragraph 190? The Court of Appeal concluded that there was an operative mistake by the taxpayer when it made payments on assessments. If your Honours go backwards to paragraph 187, page 206, the mistake is described near the top of the paragraph:

The duplication error rendered the assessments inaccurate; it thus rendered the belief under which [the taxpayer] made the payments it did a mistaken belief.

In consequence, as your Honours will see at page 208, paragraph 195, the Court of Appeal concluded that there was:

a prima facie obligation on the Commissioner to make restitution on a claim for money had and received –

From a restitution perspective, however, there was no operative mistake. That point may be framed in two ways. First - it might be the more natural way to frame the point - the payment by the taxpayer discharged a lawful obligation, a legal obligation. That doctrine commencing when his Honour was Robert Goff J in Barclays Bank was adopted by the whole court in David Securities. At 393, illustratively Justice Brennan concluded:

To the extent that a payment satisfies a defendant’s right to receive it, the defendant gives good consideration and is not unjustly enriched.

We have made reference in our paperwork to the important English decision of Deutsche Morgan Grenfell. One way of framing the restitution point is to say this. Restitution does not respond to a payment made in discharge of a lawful obligation. The coherence of restitution law intersecting with the law of contract demands that when a payment is made in discharge of an obligation, restitution not respond.

Alternatively, as a matter of framing, perhaps less preferably but were your Honours to grant special leave your Honours will sort it out, it might be said that there was no operative mistake involved in making payment because it was a payment made on an assessment discharging a lawful obligation. That is, there was an extant legal liability discharged by the payment. It is a straightforward application of doctrine, however framed, for it to be so and inevitably that a payment on an assessment could not be made under what restitution would characterise as an operative mistake.

The source of this second error is, of course, the first error. It is the misapprehension of the role of the assessment process causing there to be an amount due and payable. In this case, in the 13 years in issue, each payment discharged the obligation. Had the Court of Appeal, with respect, correctly identified the consequence of the process of making an assessment the creation of the debt, it may be presumed that they would not then have concluded there to have been an operative mistake.

The error in relation to the restitution case is undeniably strong. It is put against us, recorded in the judgment, that the true case was the mandamus case. That involves what I have called the third error and the fourth error. Let me turn to those.

The third error concerns the proper construction of section 19. As an initial submission, if objection and refund provisions are exhaustive, the Court of Appeal is obviously wrong. We have collected the 11 authorities that may tend in that direction. It is not an uninteresting issue but for the purposes of submission this morning I propose to evaluate section 19, assuming for the moment those provisions are not exhaustive.

The issues caused by the section 19 conclusion involve the following five matters – propositions: first, whether a repository of power involves as well a duty depends, of course, on legislative intent. That being so, it is relevant, without being especially important, that the language here is permissive. What may be more noticeable is that that permissive language is not conditioned by matters to which regard must be had by the decision-maker.

The case most closely on point is the 1920s authority of Commonwealth Agricultural Services. It was a judgment in the Full Court of the Supreme Court of South Australia, went to the High Court. It was evaluated by the trial judge and her Honour did that – I do not ask your Honours to go to it – at paragraphs 180 to 183. It speaks, at least as an analogue, closely to a provision of this type and without difficulty concluded at appellate level that it was a permissive power only.

Our submission is this. The critical consideration is an evaluation of the relevant legislative framework fairly evaluated. That framework includes the objection provisions, the timely nature within which they must be made, the appeal rights, the express statutory appropriations – that is, appropriation powers – and the refund provisions understood in light of the statutory history which again referring to the trial judge was evaluated over eight paragraphs and a series of pages commencing in the application book at pages 17 and following. Again, I do not ask your Honours to go to it this morning.

Our submission is that the focus of the Court of Appeal narrowly and, with respect, unsatisfactorily was to construe section 19 outside any other context, outside the objection regime, outside the refund provisions, outside the statutory history. Further and lastly on this third error, the evaluation of Justice Brennan in the majority in Royal Insurance found no voice until we had already lost. The Court of Appeal considered itself able to evaluate section 19 in total and did so before any consideration of Royal Insurance.

If I may say, the interesting questions thereby raised about which the Court of Appeal expressed itself on a series of occasions to be unsure as to the precise scope, in particular, of the statements by Justice Brennan, seeking for there to be an aliunde liability arising under general law or statutory law and at the very least this matter would be an excellent vehicle for consideration of an issue that this Court was unclear about and expressed itself to be so on a number of occasions.

As your Honours would have seen, the evaluation of the Court of Appeal instead focused on and only on knowledge of the Commissioner, putting to one side all of the matters I have raised and, further and lastly, the circumstance that this was an assessment regime which of itself is a critical distinction to Royal Insurance recognised by the trial judge. That is the third error for which we contend.

The fourth error is this. Section 90AA(1) provided that proceedings for the refund or recovery of tax paid under or purportedly paid under this Act must not be brought. Would your Honours kindly turn to page 214 in the application book, paragraph 212. This, at least at first blush or, worse still, at least to me, presented as a total answer to the mandamus claim. The way in which it was dealt with by the Court of Appeal in 212 was as follows. The submission of the taxpayer is recorded, and it is recorded as follows:

In short, the submission is that because the operative mistake ultimately deprived the Commissioner of authority to take, and retain, the excess amount, the excess amount could not be aptly described as a payment made ‘under, or purportedly paid under’ the Act .

At 213, the Court of Appeal concluded that section 90AA is not applicable here. It provided no evaluation as to why it so concluded and your Honours might reasonably take from that that it adopted without alteration the submission set out in paragraph 212. Further, if your Honours would go to page 219, paragraph 225:

In any event . . . we do not consider that the circumstances here amount to ‘a proceeding in accordance with another Act’ . . . because we do not consider that the proceedings meet the description under s 90AA of being ‘proceedings for the refund or recovery of tax –

These were payments made under assessments. How might it reasonably have been contended that they were not for the refund or recovery of tax paid or purportedly paid under the Act? This matter raises issues of real public importance. In particular, the analysis as to tax debts is of singular importance for the administration of tax schemes throughout Australia.

Further, questions of restitution on payments of tax made under an assessment are important and there must be a lack of clarity about them because the Court of Appeal could not be clear as to the scope of Royal

Insurance. The trial judgment in 100 pages sets out the contrary arguments for the assistance of the Court. We seek special leave.

BELL J: Yes, thank you, Mr Solomon. Yes, Ms Symon.

MS SYMON: If the Court pleases. It is, in our submission, significant that our learned friend’s argument barely mentions section 19 when the case was about the meaning and application of section 19 of the Land Tax Act in specific and unusual circumstances. The Commissioner’s application and his case below simply does not address section 19. It is focused elsewhere on other mechanisms in the Act which provide for objection and refund and, as a result, sets up a series of false issues which fall away once attention is directed to the discretion given to the Commissioner by the section and its exercise in the particular circumstances of this case.

BELL J: Does it entirely fall away when one gets findings with respect to the matters touched on by Mr Solomon concerning whether the assessment created a debt? It just seemed to me that there are findings that the court made. I understand your point which is to put the construction of section 19 and the mandamus claim at the forefront, but I do not know that you can entirely ignore the points that Mr Solomon makes firstly and secondly.

MS SYMON: No, I do not seek to do that, your Honour, and here is why. The point about the tax debt ignores the fact that at the end of the day the debt that is created by the legislation is a debt for tax. That is made clear by section 39. It opens with the words “A sum payable for tax”. The point of the jurisdictional error in this case is that – and the game-changing event in this case is that the Commissioner acknowledged that he had sought duplicate payments of tax. That means there were amounts paid which the Commissioner was not authorised to demand or retain under the Act. The payments that were made were not for tax.

Our learned friends focus on the time that the payments were made. The mandamus case focuses correctly on the jurisdictional error that was made in refusing to amend assessments when there was a duty to do so. The duty arose under section 19 because of the acknowledged error and the mandamus case and the rights to enforce the exercise of the power to amend and the consequent refunds arise there. So it is the want of authority - - -

NETTLE J: Ms Symon, granted that the Commissioner was in error in issuing the duplicate assessment, as it were, why is this any different to any other case in which the Commissioner makes a mistake in issuing an assessment?

MS SYMON: There are two reasons for that, your Honour. One is section 19 provided a basis for the Commissioner to amend an assessment. It was focused on ensuring the correctness and accuracy of assessments. So that makes it different.

NETTLE J: But presumably section 19 is to be construed in the context of the objection and refund provisions?

MS SYMON: In our submission, there is no real reason for that, your Honour, because section 19 – you see, the path here starts with Royal Insurance. In fact, it begins back with the principle in Julius v Lord Bishop of Oxford. One must start with the provision, section 19. It provides a facultative power to amend. The question in this case was: was this a case where “may” means “must”? One looks to the context in that instance.

Now, the context in this case was that the provision appears in a taxing Act and, as a result, gives no authority to the taxing authority to levy demand or retain taxes which are not properly imposed under the Act. It is important, your Honour, in light of the passage that our learned friend referred to at paragraphs 196 and 197 of the Court of Appeal decision, at page 209 because the context in which the court said there was no statutory debt followed the statement of the principle and the finding made by Chief Justice Mason in the Royal Insurance Case.

The words of Chief Justice Mason are set out at the top of page 210, as I have expressed them. The context in which a duty attached to the power to amend in this case was that section 19 is a taxing Act and confers no authority upon the Commissioner to levy demand or retain moneys. It is in that context, the context of the want of authority, that the court went on to say that in these cases there was no relevant tax debt and, even if there was, it is the subsequent event of the removal of authority which gives rise to the duty. So, one is concerned with the amended assessments, not the original assessments.

BELL J: Ms Symon, does it follow from this that in any instance when a taxpayer realises that an assessment has contained an error in the taxpayer’s favour, no matter how many years later and notwithstanding the scheme respecting objections and the time limits, the taxpayer can compel the Commissioner under section 19?

MS SYMON: No, it does not, your Honour, because one of the principal reasons for refusing special leave in this case is that section 19 does no longer exist. So to the extent that it provided an avenue in this case and a foundation for a jurisdictional error in this case the question is not going to arise again. Section 19 has no analogue in any other taxation legislation in Australia, so there is no wider basis for this decision to apply.

NETTLE J: That is to say, absent 19, there would be no restitutionary claim available.

MS SYMON: That is not the case we are making, your Honour. There may well be but significantly in this case the Court of Appeal did not go on to award a remedy in restitution. It stopped short at the mandamus case, which was indeed our primary case.

NETTLE J: There are some prima facie remarkable restitutionary propositions in the Court of Appeal’s judgment as to payment of tax, which seem to inform the final conclusion.

MS SYMON: The Court of Appeal did consider the question of restitution in the context of our learned friend’s submission that Royal Insurance required the establishment of an aliunde liability. In our submission, and it would seem in the way the Court of Appeal dealt with the matter, that proposition is unsound and proceeds from a misunderstanding of the Royal Insurance Case.

The court’s primary finding was in the mandamus case and that was our primary case. Of course, one of the things that must be remembered about that primary case is that it is a case founded on jurisdictional error. Our learned friends rely on Futuris and Broadbeach and, in the state arena, Gas Ban, but the point of Futuris was to say well, the objection and refund regimes might be exhaustive but not in cases of jurisdictional error.

We established a jurisdictional error and the right to mandamus, so in our submission, there is no utility in granting special leave in this case when the primary liability was established in respect of a section which no longer exists and has no analogue elsewhere and obviously, in our submission, does not undermine the decisions like Futuris which are founded and directed to the.....and which make an exception for a case of this kind in any event.

If I could turn to section 19 and its terms, on its face it provided a mechanism by which the Commissioner might amend assessments in order to ensure completeness and accuracy and to do so at any time. That is denoted by the words “from time to time”. So, one gives offence to section 19, one does it by reading into it time limitations that exist in other mechanisms in the Act which provide for refund and objection.

We say at the end of the day section 19 was part of the statutory regime and the notion that it might circumvent other statutory objectional refund regimes really ignores its very presence. There is certainly nothing in its language and particularly significant is that language, the power to amend “from time to time” which would suggest that it is subject to provisions for objection to assessments or claims for refund.

And, of course, the jurisdictional error that we rely on in this case was of the nature identified in Futuris. We say that the Commissioner refused to administer section 19 according to its terms when in the particular circumstances of this case he was obliged to exercise the discretion it gave him to amend.

That is a straightforward application of the Court’s decision in Royal Insurance because of the circumstance that the Commissioner acknowledged the error and section 19 exists in a taxing Act and gives the Commissioner no authority to retain moneys which the Act does not permit him to impose. Section 19, of course, is limited as well. Even if it continued to operate, it did not have a wide operation. It was confined to cases of error denoted by the words the Commissioner could exercise the power to ensure “completeness and accuracy” in assessment.

The power to amend was facultative, denoted by the word “may”, so the Commissioner would not always be required to amend. So it is the most unusual circumstances of this case which gave rise to that duty to exercise the power to amend, as we know from the line of authorities which begins with Julius v Lord Bishop of Oxford, sometimes “may” means “must” and the circumstances of this case was one of those circumstances.

The Commissioner does not seek to say that he was authorised to levy, demand or retain the amounts overpaid, only that the respondent would not be entitled to a refund of the overpayments because of the application of the other regimes. But we say his regard to those other regimes is misconceived because refund of the overpayments must follow the required exercise of the power to amend given by section 19.

Firstly, we rely on the principle expressed in D’Emden v Pedder as we have set it out in paragraph 23 of our summary, that the power to refund follows as a necessary corollary of the duty to amend because the power to amend is deprived of utility without carrying with it the power to make the refund.

So, section 19 establishes the necessary machinery for – necessarily once one accepts a power to refund, the necessary machinery for giving effect to it either by collecting the tax or making a refund of amounts which are overpaid. So the Commissioner refused a refund on the basis that the respondent was not entitled to a refund or able to demand one because of the operation of other provisions of the Act, but really the matter turns on the Commissioner’s duty and the content of that duty that arose in the circumstances of the case and having regard to the powers under section 19.

A straightforward application of the majority reasoning in Royal Insurance takes us to the same result by a slightly different route, and one must start with the fact that the Commissioner does not dispute that in the circumstances the power was coupled with a duty....power to amend. Once the amendments are made, the amendments expose an amount which the Commissioner had no authority under the Act to demand or receive and must have none to retain.

So the consequence of the required amendments must be a statutory liability to refund, based not on the original assessments but on amended assessments which the Commissioner is required to make in the proper administration of section 19.

The reasoning as to statutory liability in Royal Insurance cannot be distinguished. The events giving rise to the obligation to refund were different in each case. In Royal Insurance it was the operation of retrospective legislation in relation to payments which had properly been made at the time they were made. In this case, payments were made in response to assessments at the time they were made, but the retrospective legislation change passed.

In our submission, in this case, what changed the past was the Commissioner’s change of mind and the acknowledgement that he had made an error. So what found the liability is not the event which changes the past but the consequence of that event which is the removal of authority to retain money which had been previously paid.

The reasoning in Royal Insurance as to restitution is also applicable here and one arrives at the same route again starting with the required exercise of the power under section 19. Once one accepts a power to amend, the amendment exposes an amount which the Commissioner was not authorised by the Act to demand or retain. If he seeks to retain those amounts, he is unjustly enriched, and so it follows from the amendment that the overpayments would be recoverable under the general law of restitution.

In the circumstances that the Court of Appeal found here, the original payments were made under the mistaken belief that the respondent was legally obliged to make them and that the landholdings listed for the respondent in the assessments it responded to were accurate.

So, in our submission, the submissions that the statutory debt was not open to challenge except by the refund and objection regimes simply misconceives the mandamus case because the respondent does not seek to challenge the original assessments. So the objection and refund provisions and their prescribed time limits are irrelevant. The mandamus case

concerns a refusal to exercise power to amend original assessments which the Commissioner knew were wrong and as a consequence the revenue had received money and had to refund it.

BELL J: Coming back to the matter I first raised with you, looking at it in the context of this statute and understanding section 19 no longer forms part of it, the reasoning that you have just developed does produce the result that at any time later, notwithstanding a scheme that provided for time limits on objections and the like, in the event of a mistake there was a duty on the Commissioner to issue the amended assessment.

MS SYMON: In our submission, that is not this case because of the way the Court of Appeal dealt with the matter. So our case is founded on section 19, which no longer exists.

BELL J: Yes, I think we have that point.

MS SYMON: The question of whether general restitutionary remedies might lie is really not for this case. In our submission, there might be another case which would be a vehicle for this but this case turns on section19.

BELL J: Thank you.

MS SYMON: If the Court pleases.

BELL J: We do not need to hear from you, thank you, Mr Solomon.

MR SOLOMON: If your Honours please.

BELL J: There will be a grant of special leave in this matter. The parties should collect from the Registry the directions in connection with the preparation of the matter for hearing. What is the likely estimate, Mr Solomon?

MR SOLOMON: Your Honour, there are a number of important issues to deal with - one day.

BELL J: Yes. Ms Symon?

MS SYMON: Yes, I would agree with that, if your Honour pleases.

BELL J: Very well. Thank you.

AT 10.49 AM THE MATTER WAS ADJOURNED