Bayeh v Deputy Commissioner of Taxation

[1999] HCATrans 219

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S79 of 1999

B e t w e e n -

LOUIS BAYEH

Applicant

and

DEPUTY COMMISSIONER OF TAXATION

Respondent

Application for removal pursuant to section 40 of the Judiciary Act 1903

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 AUGUST 1999, AT 3.07 PM

Copyright in the High Court of Australia

MR G.D. WENDLER:   May it please the Court, I appear for the applicant.  (instructed by Hovan & Co.)

MR H.C. BURMESTER, QC:   May it please the Court, I appear with MR S.W. GIBB, for the respondent. (instructed by the Australian Government Solicitor)

GLEESON CJ:  Yes, Mr Wendler.

MR WENDLER:   Before I open the application, can I indicate to your Honours that yesterday there was an affidavit filed by my instructing solicitor in relation to the compliance with section 78B of the Judiciary Act.  That affidavit discloses that notices were sent to the Attorneys-General throughout the Commonwealth advising them of an issue involving the Commonwealth of Australia Constitution Act or its interpretation.  There were responses to that notice and in all cases no Attorney wishes to intervene; in some cases further instruction is sought if the matter is removed.

GLEESON CJ:   Thank you.

MR WENDLER:   Can I move then to the application. Your Honours, ultimately this application concerns, once again, consideration of the question concerning the legal relationship between two juristic entities identified in the Constitution.

GUMMOW J:   I am not sure that is really right at all, Mr Wendler.  What was the law of the Commonwealth pursuant to which the income tax Commissioner made his assessments?

MR WENDLER:   Section 177, I think, of the Income Tax Assessment Act.

GUMMOW J:   But does not section 166 empower him to make an assessment or oblige him to make an assessment from any other information in his possession?

MR WENDLER:   I rather thought the notice of assessment relied on section 177, as well as other sections in the Income Tax Assessment Act, but that section, 177, simply authorised the notice of assessment - raising the notice of assessment and as a result that was the proof of indebtedness.

GUMMOW J:   No, no, but do you not say that the Commissioner was not empowered to make these assessments, relying on this ‑ ‑ ‑

MR WENDLER:   That is right, but was not entitled to the information which led to the assessments.

GUMMOW J:   Well that is what I am putting to you.  Why does not section 166 empower him to do what he did?  It is a law of the Commonwealth and why would not section 109 give it such affect as it has to give it in order to overcome what you say are some State laws on the matter?  It has got nothing to do with Cigamatic and if it is a section 109 case, Justice McHugh regularly says, they are the running down jurisdiction here; we do not ordinarily remove section 109 cases.

MR WENDLER:   Right, let us analyse it.  I do not entirely agree that it is a section 109 case, with respect.

GUMMOW J:   Well, why not?

MR WENDLER:   Because, if it is a section 109 case, it is predicated on the assumption that it is a valid law of the Commonwealth.

GUMMOW J:   That is right; and you want to say section 166 is not a valid law of the Commonwealth?

MR WENDLER:   To the extent that it interferes with an important State function or instrumentality, it attracts the operation of the principle in the Melbourne Corporation Case and to that extent it is invalid, or should be read down as not to interfere with that principle that is implied in the structure of the Constitution. So, in my respectful submission, it does raise an issue concerning the application of what might conveniently be described as the Melbourne Corporation Case.

Now the next invitation your Honour made to me was, well, it does not have anything to do with Cigamatic at all.  Well, that depends ‑ ‑ ‑

GUMMOW J:   Well, it does not, does it?

MR WENDLER:   - - -how we analyse, once again, the legal effect of Cigamatic, having regard to the ‑ ‑ ‑

GUMMOW J:   No, Cigamatic is all about a State law, where there was no relevant Commonwealth law legislating the priority, but the question was, was the Commonwealth prerogative, so called, with respect to Crown debts, displaced, et cetera.

MR WENDLER:   A special case, because it concerned ‑ ‑ ‑

GUMMOW J:   No, it is a question of the impact of State legislation on the Commonwealth executive power.  If you have a law of the Parliament you are operating through section 109, and that law may or may not be valid, that is true, but that is a question of section 51; Cigamatic has nothing to say to that.  It says so in terms.  The Chief Justice says so, “There is no section 109 question here.”

MR WENDLER:   Well, in my respectful submission, Cigamatic has application to the extent that it cannot be successfully said that there is a blanket immunity given to the Commonwealth by virtue of the legal effect ‑ ‑ ‑

GUMMOW J:   What do you mean by the Commonwealth?

MR WENDLER:   Well, the Crown in right of the Commonwealth, the Commonwealth Government, the Executive; that organ or that ‑ ‑ ‑

GUMMOW J:   The Commissioner of Taxation is an officer of the Commonwealth who derives his powers and functions from the Income Tax Act, which provides for the establishment of his office, along with the taxation management right.

MR WENDLER:   Yes, I understand that, and that is a Commonwealth capacity.  There is no suggestion here that the capacity of the Commonwealth is being interfered with in any way.  All that is happening here is that the Commonwealth is exercising ‑ ‑ ‑

GUMMOW J:   Well, he may be…..very considerably; there is an enormous public interest in the Commissioner being able to make assessments from information derived from all sorts of sources.

MR WENDLER:   And there is enormous public interest in States setting up royal commissions to investigate matters important to the people of that State.  Now if those institutions cannot run effectively, in other words, if a culture develops that the idea gets around that people will not co-operate with these commissions of inquiry because it is more convenient to simply be fined or put in gaol as a result of being in contempt of the Commission rather than expose themselves to collateral Commonwealth action, whether it be by taxation or other Commonwealth criminal offences. 

Now it is my respectful submission the Cigamatic – well, let us leave the Cigamatic doctrine aside; let us call it residential tenancies, seeing that is the latest treatment concerning the Cigamatic doctrine.  That clearly demonstrates the jurisprudence in residential tenancies there is no blanket immunity.  So the question then becomes what is the legal relationship between those sections in the Royal Commissions Act and the relevant sections in the Income Tax Assessment Act.

GUMMOW J:   Now, at the moment you do not have a cause pending in the State, do you?

MR WENDLER:   We have a cause pending in the State. Section 40 talks about cause and part of a cause.

GUMMOW J:   Yes, well what do you say about what Mr Burmester says in reliance on the passage of Sir Daryl Dawson’s judgment in one of the Commonwealth - - -?

MR WENDLER:   Well, I do not agree with it.

GUMMOW J:   Well, you might not agree with it, but why should we not agree with it?

GLEESON CJ:   What is the subject of the application?  Is it that which appears on page 9 of the application book?

MR WENDLER:   That which is constituted by the notice of motion before the Supreme Court.

GLEESON CJ:   To set aside the default judgment?

MR WENDLER:   Yes. That is the cause and that cause involves an issue involving the Constitution or its interpretation, because ‑ ‑ ‑

GUMMOW J:   You may never get to first base.  Your delay may be so great, for all I know, that there is no way you will get this discretion exercised in your favour.

MR WENDLER:   Well, that depends on the value and the assessment of the constitutional point.  It may well be that the constitutional point is a good point, and that is perhaps the most prime consideration as to whether or not an extension of time would be granted.

GUMMOW J:   When was this default judgment entered?

GLEESON CJ:   On 15 November 1996 and the date of the application to set it aside was May 1999.

MR WENDLER:   That is right, but we are dealing with an applicant who is illiterate.  He has been in gaol for, I think, in excess of three years now.  He has all the problems of a person in custody and all the problems of a person who is illiterate and relies on his legal advisers to assist him and ‑ ‑ ‑

GUMMOW J:   Well, if the Commissioner is correct, he seems to have derived a fair amount of income.

MR WENDLER:   Well, that is because he co-operated with the Commission and the promise to him in the Commission was, none of this material will be used against you in any proceeding, and a declaration was made to that effect and, of course, what was going on was that all this material was, in fact, used against him and, irrespective of any representation made to him, that it would not be used.

GUMMOW J:   What are the dates of these assessments?

MR WENDLER:   They range over between 1989 and 1993.

GUMMOW J:   And when were they issued in terms of years?

MR WENDLER:   The exact date ‑ ‑ ‑

GUMMOW J:   No objection, no notice of objection.

MR WENDLER:   Yes, there were notices of objection in relation to these fresh notices over the period of time I have just mentioned.

GUMMOW J:   What happened?

MR WENDLER:   They are presently before the Federal Court on an adjourned basis, because proceedings were taken pursuant to the Taxation Administration Act to challenge the decision-making process in relation to formulating these assessments, so that is still one of the matters floating around in the Federal C.  But this is more fundamental; this goes to the whole legality of the exercise in raising these assessments.

GLEESON CJ:   Mr Wendler, is it still the rule – at the risk of some oversimplification – in relation to applications, to set aside default judgments, that you have to show a defence on the merits and an explanation of delay?

MR WENDLER:   Yes, that is right; that is fundamentally it.

GLEESON CJ:   Well, now the problem, I think, that you need to address is that, whatever the strength of your arguments on the first of those limbs, you might never get to them, because of the second.

MR WENDLER:   It is my respectful submission, if he can demonstrate a legally arguable case, that will get him over the line, irrespective of those other matters.  It has always been the situation where there is, for instance, a defence which is clearly available, and obviously a strong one ‑ ‑ ‑

GLEESON CJ:   This is not a judgment that was snapped on him, I presume?

MR WENDLER:   Well, in a sense it was.  Suddenly he gives all this evidence, turns around, and the tax people are suddenly interested in him and letters are sent saying, “These new assessments are going to be made and you now owe us $1 million, irrespective of the fact that you thought that you were getting blanket immunity, by reason of the ‑ ‑ ‑”

GLEESON CJ:   But the practical problem is that the High Court might be off on a wild goose chase.  If we were to remove this application to set aside the default judgment, we would be removing a matter that might be disposed of on a basis that raised none of these issues at all.

MR WENDLER:   No, because, whatever happens, the constitutional issue will be raised, because it is relevant to the notice of motion – the successful prosecution of the notice of motion.  That issue will be agitated; it is obviously ‑ ‑ ‑

GLEESON CJ:   So it will not necessarily be decided.  The judge doing this application doing this application - is made consistently with principle and authority and practice, in relation to setting aside default judgments - might say, I have listened with great interest to all these constitutional arguments, but I have heard no satisfactory explanation of the delay in applying to set aside this default judgment.  The application is dismissed.  What would be wrong with that?

MR WENDLER:   I would be surprised at that finding, if it was devoid of a finding on the merits of the constitutional point.  Clearly there would be an obligation to resolve the merits of that point, otherwise the decision would be legally imperfect.

GUMMOW J:   Why?

MR WENDLER:   I mean, the merits of the constitutional point has to be resolved, and that is what we are seeking to remove, the constitutional point which the applicant says is pending - a cause pending, or part of a cause pending before the Supreme Court of New South Wales. Now, the cause issue, if I can come back to that concept again, cause or part of a cause - of course, once an action is disposed of, there are other matters that are often still alive, such as a costs argument, a stay. These are all matters which are part of the cause, as it were. So there is no impediment so far as the structure of section 40 of the Judiciary Act is concerned. 

This is important for this applicant because, if he is not successful in this application, the reality of the situation may well be this, that he will be bankrupted, all his rights will then vest in his trustee and it would be unlikely that he would be able to significantly or have any hope of successfully agitating the constitutional point.  In short, he seeks the protection of the Australian Constitution Act; that is what he seeks.

GLEESON CJ:   Yes, but he seeks it two and a half years after the judgment that he wants set aside was entered.

MR WENDLER:   There is no time limit on justice.  I would not have thought there was some time - - -

GLEESON CJ:   There is time limit on asserting your rights, otherwise people can trifle with the legal system.

MR WENDLER:   This applicant is not “trifling” with the legal system; this applicant co-operated with the legal system when he gave evidence before the Royal Commission.  He cooperated with the legal system ‑ ‑ ‑

GLEESON CJ:   What is the explanation for the period of two and a half years that elapsed between the date of the judgment and the application to set it aside?

MR WENDLER:   It is a combination of his illiteracy, the fact that he had advised us ‑ ‑ ‑

GLEESON CJ:   Is this not a person who has access and who had, at all material times, regular access to legal advice?

MR WENDLER:   I would not say “regular”.  He has been in custody, I think, for over two year years ‑ ‑ ‑

GLEESON CJ:   And in constant contact with lawyers while he was in custody?

MR WENDLER:   Well, he has been in contact with lawyers and because he is illiterate he has left all the matters to them to negotiate on his behalf and I am instructed that at no stage ever that anyone said to him, “Listen, we think constitutionally you might be able to do something with this.”

GUMMOW J:   If we decline to remove this, he is not being shut out of any constitutional rights.  I do not understand that.  The Supreme Court has the relevant federal jurisdiction.

MR WENDLER:   Yes, but the situation is that if he is bankrupted in the Federal Court - and the matter comes on, I think, next week on Monday - there is a creditors’ petition before the Federal Court, which presently stands adjourned. If, through that process, he ends up being bankrupted, how is he going to fight the constitutional point then? Rely on his trustee to do it. Well that would be unrealistic. At the moment he simply says, “I have an issue involving the Constitution.” It is before the Supreme Court of New South Wales. It is arguable. He seeks to remove it into the ‑ ‑ ‑

GUMMOW J:   Are you suggesting that the Federal Court will deal with the application for a sequestration order on one basis, if there is this pending application in the Supreme Court to deal with all these issues, and on another basis if something has been raised here?

MR WENDLER:   Yes, that is right.

GUMMOW J:   Why?

MR WENDLER:   They will press to have it resolved.  The matter has been adjourned on numerous occasions and also, I think it runs out in time.  I think it has been over two years that they have had this.

GUMMOW J:   Yes, exactly.

MR WENDLER:   And, of course, that is an added problem, so he carries that burden and I cannot imagine he will get any special sympathy in relation to that problem.

GUMMOW J:   Is there a two-year period on the petition?

MR WENDLER:   Yes.

GUMMOW J:   Well, that is going to expire no matter what happens, is it not?

MR WENDLER:   Quite, but that would be an added ground for the Federal Court making adverse orders against him, because the whole process would have to start again.

GUMMOW J:   Does the statutory period of two years permit of any extension?

MR WENDLER:   No, they would have to start the process again.  So he is in a difficult position.  He looks back and says, “Look, I co-operated in your Royal Commission.  I gave names, I gave information which led to the exposing of cells of corruption and so on and so forth, now you are attacking me in relation to this taxation situation.  The only protection I have got left is the Australian Constitution, that is all I have got left.”  If the Court pleases, that is the submission.

GLEESON CJ:   This is an application under section 40 of the Judiciary Act 1903 for removal into this Court of what is said to be a cause or part of a cause arising under the Constitution or involving its interpretation. What is sought to be removed is an application to set aside a default judgment.

The brief history of the matter is that on 15 November 1996, the Deputy Commissioner of Taxation obtained in the Supreme Court of New South Wales a default judgment in his favour in respect of tax payable for the financial years 1989 to 1993.  Some two and a half years later on 27 May 1999, the applicant filed a notice of motion seeking to have that default judgment set aside.

The principal ground in support of the application was that, for constitutional reasons, which need not presently be elaborated, the judgment that was entered in favour of the Deputy Commissioner of Taxation should not have been entered.  No doubt, the Supreme Court, in the ordinary course, in considering the application to set aside the default judgment, would have regard to the explanation, if any, that is offered on behalf of the applicant for the delay in making the application to set aside the default judgment.  It is at least possible that the Supreme Court would find itself able to dispose of the application to set aside the default judgment without the necessity of making any decision about the constitutional issues which the applicant now seeks to raise.

If, on the other hand, the Supreme Court finds it appropriate or necessary to deal with those constitutional issues, any refusal on this Court to remove the matter pursuant to section 40 will not adversely affect any rights on the part of the applicant to advance a constitutional argument. In those circumstances the Court is of the view that the order sought should be refused. Can you resist an order for costs?

MR WENDLER:   I want to be heard on costs.  I do not know whether I can resist it.  He is in custody and he was refused parole only recently, which means that he will have to serve his entire sentence, inclusive of the additional term.  He is not in the position to pay, in short, costs.

GLEESON CJ:   So you say; it may be that we do not – I mean, I am not sure that we have any evidence about the financial position of Mr Bayeh; we certainly do not have any judicial knowledge of it.

MR WENDLER:   No, but I can indicate to your Honour, on my instructions, it would be, in effect, a titular order for costs, having regard to his circumstances.

GLEESON CJ:   Yes.  Do you seek costs?

MR BURMESTER:    I do, your Honour.

GLEESON CJ:   Very well.  The applicant must pay the costs of the respondent to the application.

AT 3.30 PM THE MATTER WAS CONCLUDED