Bayview v Commissioner of State Revenue

[2009] VSC 568

IN THE SUPREME COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

LIST A

No. 7972 of 2009

BAYVIEW CONCEPTS PTY LTD	Plaintiff
v
COMMISSIONER OF STATE REVENUE VICTORIA	Defendant

---

JUDGE:	Pagone J
WHERE HELD:	Melbourne
DATE OF HEARING:	23 November 2009
DATE OF JUDGMENT:	23 November 2009
CASE MAY BE CITED AS:	Bayview v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2009] VSC 568

---

CORPORATIONS LAW – Application to set aside statutory demand – Statutory demand issued as notice of assessment – Whether assessment validly issued – s 14, 127 Taxation Administration Act 1997 (Vic), s 177 Income Assessment Act 1936 (Cth).

COSTS – Indemnity costs – Whether appellant should have known it had no chance of success.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S. Palmer	Oakley Thompson & Co
For the Defendant	Mr S. J. Maiden	State Revenue Office

HIS HONOUR:

1. This is an appeal from a decision of Gardiner AsJ made on 25 September 2009. Gardiner AsJ dismissed an application brought under s 459G of the Corporations Act2001 (Cth) to set aside a demand made under s 459J. The statutory demand was made on 2 July 2009, and is based upon three documents which have been tendered, both before his Honour and me, and are each described on their face as a “notice of assessment”.

1. In my opinion, the conclusion of Gardiner AsJ is correct for the reasons which he gave. I do not propose to restate those reasons, except to make a few short observations. Section 127 of the Taxation Administration Act 1997 (Vic) is the primary field of contention between the parties. The respondent relied upon that in the hearing before Gardiner AsJ and before me. The purpose of s 127 is essentially to prevent disputes in proceedings other than under the objection review and appeal proceedings provided for by the Taxation Administration Act.

1. A consideration of s 127 will show a number of things. It will show a substantial similarity with the equivalent provision found in s 177 of the Income Tax Assessment Act 1936 (Cth). It will also show, importantly, that there are two categories of challenges that might be made to an assessment that are dealt with by s 127. The two are, first, the due making of the assessment and, secondly, the correctness of the amount and the particulars of the assessment.[1] The first, namely, the due making of the assessment, is given conclusivity by s 127 in all proceedings. The second, namely, the correctness of the amount and all of the particulars, is given conclusivity only in proceedings that are not objection review or appeal proceedings contemplated by the Act. In other words, one category of challenge is put beyond challenge in all disputes; the other is capable of being challenged in proceedings contemplated by the Act. There are sound policy reasons for that to be so, and it is important that the courts should give effect to those sound policy reasons.

   [1]See McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263, 269 (Dixon CJ, McTiernan and Webb JJ) where their Honours said, “the meaning and effect of s. 177(1) is to give evidentiary effect to such an assessment over the whole ground which by law it is the function of an assessment to cover.”

1. Here the challenge is that the assessments have not complied with s 14 of the Taxation Administration Act because s 14, it is said, requires a notice of assessment to express the liability to the tax, and it is said that in this case the documents purporting to be notices of assessment do not identify the basis upon which the assessment is raised. I do not think that to be an accurate reading of the notice of assessment, or of s 14, or of the relationship between s 14 and s 127. The documents purporting to be notices of assessment identify clearly and unambiguously an amount of money said to be the tax made payable. A person reading the notice of assessment would be under no doubt that what the document is saying to the recipient is that there is an amount of money payable as duty and which has been assessed as tax. The person made liable by those notices is able to challenge them in objection and review proceedings.

1. The notices are, in my view, documents which express an assessment of liability to the tax within the meaning of s 14. They enliven the objection and review provisions for them to be challenged on the grounds of being incorrect in particulars or amount. Misdescriptions in the document are not sufficient to deprive the document of its legal character as a notice of assessment; nor is it sufficient to prevent the application or invocation of s 127 of the Tax Administration Act. Indeed, a moment's reflection will reveal that s 127 is intended to operate where a document purporting to be a notice of assessment might not have been duly made, or might contain amounts and particulars that were not correct.

1. Let me put that differently: there would be no function for s 127 to perform other than where a notice of assessment had not been duly made, or where the particulars and the amounts were not correct. It is only when there is some error in the due making, or some error in the amount in the particulars, that s 127 has work to do. It is therefore not sufficient to oust the operation of s 127 by pointing to some defect in a document purporting to be a notice of assessment, whether it be a defect going to the due making of the assessment or a defect going to the amount or the particulars of the notice of assessment. Defects are assumed by the operation of s 127 and, indeed, are a precondition to their operation and effect.

1. It is unnecessary for me to consider whether s 127 of the Victorian Act is in all respects identical to s 177 of the Federal Act. In view of its close similarity in drafting, there is, I think, a powerful argument that s 127 should be construed consistently with the construction given to s 177 including any limitations to its operation, notwithstanding that the construction of the latter derive in part from limitations imposed upon the Commonwealth legislature by reason of the Commonwealth Constitution,[2] which may not be applicable to the State legislation.   That said, however, any difference in construction to either provision would, in that regard, necessarily not assist the applicant and accordingly, need not be pursued.

   [2]Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168; Commissioner of Taxation v Grimaldi (No 9) [2009] FCA 1404.

1. An application is also made for costs on a solicitor and client or indemnity basis in reliance upon dicta, in, amongst other places, the reasons of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd.[3]  His Honour dealt with an argument that costs on an indemnity basis could be made where there has been high‑handed conduct by a losing party, but decided that there had not been such conduct in the case before him and went on to say, however, that:

[I]t is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success.[4]  

These observations about awarding costs on a “solicitor and client” basis were in addition to those regarding the awarding of costs where there was high‑handed behaviour or where proceedings were commenced or maintained in an improper manner.

[3](1988) 81 ALR 397.

[4]Ibid 401.

1. The application of the principle applied in Fountain Selected Meats is therefore not addressed by showing that there is no high‑handed behaviour or improper manner in the conduct of the unsuccessful party in this occasion.  The test for present purposes is whether I should exercise my discretion in circumstances where the appellant should have known that there was no prospect of success if properly advised.

1. Counsel for the appellant in part relies upon the proceeding before Gardiner AsJ having taken better part of a full day, that his Honour reserved his decision and that he then delivered a reasoned decision.  This is said to indicate that there was some prospect of success.  My reading of the judgment of his Honour leads me to the contrary conclusion to that urged upon me; and indeed, if I add the content of the reasons given by his Honour to the other circumstances relied upon by counsel for the appellant (namely, that the hearing took a whole day, that the Associate Justice reserved his decision, and that the decision was given with reasons), the conclusion seems to me rather stronger against the appellant.  In my view, a reading of his Honour's judgment should have lead to the conclusion that the case could not succeed especially given that a whole day was devoted to argument, that the arguments were fully traversed, and that the Associate Justice gave a considered decision.  That does not mean that I must order the costs on an indemnity basis, but only that it is within my discretion to do so.  In this case, however, there was no chance of success and that the applicant properly advised should have been of that view.

1. In saying that, I of course do not know what advice he was actually given, and I should not be understood as expressing any criticism of those who advised him because I have no idea whether he was advised that the appeal would fail.  However, on the material available to me, properly advised he should have known that he had no chance of success, and I will award costs on a solicitor and client basis.