Cmr of Taxation of the Cth v Stokes

[1997] HCATrans 195

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S14 of 1997

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

KERRY MATTHEW STOKES

Respondent

Application for special leave to appeal

DAWSON J
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 4 AUGUST 1997, AT 10.19 AM

Copyright in the High Court of Australia

MR B.J. SHAW, QC:   If the Court pleases, I appear with my learned friend, MR G.T. PAGONE, QC, for the applicant.  (instructed by the Australian Government Solicitor)

MR D.H. BLOOM, QC:   May it please the Court, I appear with my learned friends, MR A. ROBERTSON, SC, and MR S.J. GAGELER, for the respondent.  (instructed by Andersen Legal)

DAWSON J:   Yes, Mr Shaw.

MR SHAW:   If the Court pleases, it is submitted that this case raises an important questions about the general administration of the Act and the protection provided by sections 175 and 177 to notices of assessment.  The question arises in the context of alternative determinations under Part IVA.  The Court will recall that - - -

DAWSON J:   You seem to assume that there can be such a thing as an alternative determination.

MR SHAW:   Yes, it does.

DAWSON J:   Yes, it does, or you do?

MR SHAW:   Your Honour, the Full Court did not decide that question.  The court, at first instance, said that there could not, but the way in which the case was decided by the Full Court was to decide that, whether or not there could be alternative determinations under Part IVA, there had not been assessment at all and, therefore, the apparent notices of assessment did not receive any protection from section 175 and section 177.

GAUDRON J:   Is that not the same point, expressed in different words?

MR SHAW:   No, it is not, your Honour, because it is conceivable that one might have alternative determinations under Part IVA, and then one might have merely one assessment after those alternative determinations.

DAWSON J:   So, you are drawing a distinction between determinations and assessments, are you?

MR SHAW:   Yes, I am.

DAWSON J:   You would concede that you cannot have alternative assessments?

MR SHAW:   No, I would not.

DAWSON J:   No, I did not think you would.

MR SHAW:   Your Honour is perfectly correct, though, that there are two steps; that there are alternative determinations and then alternative assessments, and what the Full Court said was that it was unnecessary to determine whether there could be alternative determinations, because there could not be alternative assessments, and there had apparently been, and that was the end of the matter.  There were not any assessments.

Now, what there were were three notices, each of them apparently a definitive assessment, and it was held that because they were issued together they should be read together and that, reading them together, it became clear that there was no definitive assessment and the situation remained fairly tentative in the sense of Hoffnung’s Case.  The position is that, in Richard Walter, the Court accepted the authority of Richardson’s Case that there could be valid alternative assessments in respect of the same amount of income issued to different taxpayers and that means, in our submission, that you can - - -

DAWSON J:   But then, in that situation there was an obligation created on the part of the individuals to whom the assessments were - whatever assessment was given.

MR SHAW:   Yes, there was.  But the position was, in respect of each of the taxpayers, that that taxpayer was liable under an assessment which proceeded on the basis that that taxpayer was liable for the amount of tax assessed in the notice of assessment, or it might be that he was not liable for any tax at all, because it might be that the other taxpayer was liable for the amount.

McHUGH J:   But that was because the assessment in Walter assessed a fixed and certain sum which was definitely due, neither more nor less.  You cannot say that about this case. 

MR SHAW:   Your Honour, in our submission, although it is true that each of the assessments was for a definite amount, and for one amount only, it proceeded on the basis that that taxpayer might not be liable at all, because the other taxpayer might be liable. 

DAWSON J:   But in relation to each of the taxpayers - and this is the point ‑ you could identify the amount for which he was liable, or even may be liable, if you would like to put it that way.  In this case, you cannot do that.

MR SHAW:   Your Honour, in our submission, this is really a stronger case than Richard Walter, and stronger for this reason - - -

McHUGH J:   That is not an argument that has found much attraction in the courts below.

MR SHAW:   Your Honour, that is true, but it is true that sometimes this Court has not adopted the view adopted in the courts below and, in our submission, this is one of those cases in which that should happen.  In this case, what the Commissioner was saying is, “Here is a transaction in respect of which I say that you, the taxpayer, are liable to tax, but I am not certain of the particular way in which that liability arises.  It might arise in one of three different ways, which gives rise to different amounts of liability.”  So that, what has happened is that the - - -

DAWSON J:   Yes, but you stop short.  What makes the taxpayer liable is a valid assessment and to have a valid assessment you have to have one assessment.  You cannot have three in the alternative.

MR SHAW:   Your Honour, the Act does not say you can only have one assessment.

DAWSON J:   It says there has to be a valid assessment.  How can there be a valid assessment when you do not know which one of three is said to be the assessment?

MR SHAW:   Your Honour, what you do know is that it is one of three amounts.

DAWSON J:   What you do know is the Commissioner is in a dilemma as to which determination he will choose, and that he has failed to choose.

MR SHAW:   Well, your Honour, what he said is that, “I say it is one of these amounts.”  In that sense, he has chosen them all.

DAWSON J:   Yes, but he does not say which one.

MR SHAW:   He does not say which one, that is true, your Honour.  But that was equally true of Walter - - -

DAWSON J:   No, it was not.  He said “each of you are liable, in this amount”.

MR SHAW:   “But not both of you.”

DAWSON J:   Well, that may be what was in his mind, but so far as the Court is concerned, each was liable, until it was demonstrated that either or both of the assessments were not valid.

MR SHAW:   No, your Honour.  It was accepted in Richard Walter and it was accepted in Richardson that both of them could not be liable; it had to be one or the other, not both.

DAWSON J:   And one would, therefore, have to show, to demonstrate that position, that one or other of the assessments was not valid, but you cannot do that here.

MR SHAW:   Your Honour, in Richardson, and in Walter, it necessarily followed from the fact that assessment (a) was valid, if you like, but assessment (b) was not.

DAWSON J:   Yes, but having regard to the structure of the Act, you could proceed upon an assessment and say that you cannot go behind it except for certain reasons, but you could proceed on the assessment and it would be up to those who contested its validity to do so.  But you cannot contest the validity of something which does not exist.

MR SHAW:   Your Honour, I agree that one cannot contest the validity of something which does not exist.

DAWSON J:   And that was the point of the decision below; no assessment had been made.

MR SHAW:   Well, your Honour, that is the question, whether an assessment had been made or not, and it is said that an assessment had not been made because it was tentative.  One can start from the position that it is not tentative to say, “Here is an amount of tax for which I say either you or X is liable”, one or the other, not both.

McHUGH J:   Mr Shaw, if one was just looking at the Act, uninstructed by authority, the propositions you put might be arguable.  But “assessment” has got to be understood against the background of the jurisprudence which preceded the 1936 Act and, if you go back to Hoffnung’s Case and the War‑time Profits Tax Assessment Act 1917, the Court gave content to the term “assessment” there, and that has been accepted ever since. It seems to me that makes it now extremely difficulty, if not impossible, to maintain the proposition that you want to put, unless we revisit those cases and say you just cannot accept what was said by Justices Isaacs, Higgins, and others.

MR SHAW:   Your Honour, in our submission, if one looks at page 60 of the application book and compares it with page 52, one sees the defect in what the courts below decided.  Going to line 9, after referring to the possibility that alternative determinations might, “culminate in one definitive assessment”, the court says:

If there is but one assessment which, on its face and by reference to external circumstances is definitive, that assessment will attract the provisions of s177. 

Now, that statement is derived, apparently, from what your Honour Justice McHugh said in Richard Walter, which is set out at page 52, at line 16.  There is a citation from what your Honour said:

On its face, each of the documents issued to the taxpayer is in the form of an assessment within the meaning of s6 of the Act. 

That is true here.

It specifies that a fixed sum is definitely due and payable by the taxpayer.

That is true here.

There is nothing tentative or provisional about the tax liability that it assumes.”

And it is submitted that that is true here, too.  But what the court says is:

But the present case is quite different.  It is impossible to determine what the fixed sum is that is definitely due and payable by the taxpayer in respect of the particular year of income.  This is recognised by the Commissioner who accepts that only one amount need be paid.  Why that should be the highest amount is a matter known only to the Commissioner.  These matters, together with the admissions made in the Commissioner’s defence and the acceptance that each assessment is based on one of the positions in the Commissioner’s “position paper”, leads inexorably to the conclusion that none of the assessments purports to fix a definitive liability.

It is submitted that the way your Honour put it, what one did was look at the particular assessment and say, “Is that definitive?”  And if one does that here, one gets the answer, “Yes, it is.”

DAWSON J:   When you say “the particular assessment”, what is the particular assessment?

MR SHAW:   Your Honour, there are three of them, and the Commissioner has conceded that he can recover only under one.  That, it is submitted, is precisely the same position as where he issues two alternative assessments to different taxpayers and concedes he can only recover under one, because he is simply saying, “One or other of these assessments - either to different taxpayers or the one taxpayer - is valid; the other is not.”

DAWSON J:   The point is that they are not assessments.

MR SHAW:   Your Honour, the only reason they are not assessments is because they are said to be tentative and - - -

DAWSON J:   They are not tentative at all; they are alternative.

MR SHAW:   Well, your Honour, the jurisprudence requires, as your Honour Justice McHugh said, in order that they fail, that they be either tentative or not definitive.  The fact that they are alternative is not sufficient to render them outside the protection of the Act.

GAUDRON J:   It is sufficient, is it not, to render them non-definitive?

MR SHAW:   Your Honour, it is submitted that internally that is - by that, I meant looking at each one by itself - not so, and the only reason that is advanced to suggest that it is so is because of the existence of the others, and the existence of other assessments, for other amounts - at least when they are in respect of a different taxpayer - does not have that effect.  So that it is submitted that there really is no difference between this case and Richard Walter, and that is emphasised here by the circumstances in which the assessments, or notices of assessments, were issued.  They were issued under Part IVA and it is necessary, according to Peabody, that one, in making a determination, correctly identifies the tax benefit.

McHUGH J:   You have made a bit of ground on me, I must say, with this argument of yours, but why should we grant special leave?  What is special about it?  I mean, this is a particular factual situation.

GAUDRON J:   And in answering that, even assuming you could establish that it was definitive and, therefore, prima facie an assessment, you still have to face Hickman, have you not?

MR SHAW:   No.  Well, the answer is yes, of course.  What I meant was, we could easily, which I suppose is a different proposition, your Honour.  Yes, of course.  But in O’Toole v Charles David it was said that in order to attract the bona fides part of the Hickman rule, one had to show that what was done was not done honestly.  Now, what is perfectly clear here, it is submitted, is that the Commissioner has attempted to be completely honest and say, “Look, here is this situation.  I say you are liable in respect of this transaction, but I am not quite sure how, so I am going to say here are these three alternatives.  You can object to them all” - which, in fact, has happened - “and they can all be dealt with, and all be dealt with as one.”

Now, there is no disadvantage to the taxpayer at all in that, it is submitted, and the Commissioner has been wholly frank.  The effect of what the Full Court has held is that, even if the truth is that he is not sure, he must say he is and be less than frank. 

DAWSON J:   That is not so.  He has to make an assessment.  He has not done it.

MR SHAW:   Your Honour, the question is - - -

DAWSON J:   I do not know if that is being frank, but that is the way in which the Act works.

MR SHAW:   Your Honour, the question is whether, in a case where the Commissioner feels there is doubt, he is bound to put all his eggs in one basket.

DAWSON J:   Yes, precisely.

MR SHAW:   It is submitted that Richard Walter shows that he is not.  I might add, your Honours, that we have discovered some English cases which suggest that in England alternative assessments are permissible, both in respect of capital gains tax and income tax, although they are there two separate Acts, and in respect of income tax itself, the Court of Appeal seems to accept that you can have alternative ‑ ‑ ‑

DAWSON J:   That would depend on the legislation.

MR SHAW:   Of course it would.  

McHUGH J:   Your argument is starting to persuade me perhaps we were wrong in Richard Walter.

MR SHAW:   Your Honour, that is not what I am trying to do.

McHUGH J:   .....my judgment.

DAWSON J:   But the point about Richard Walter was that there were assessments, and it may be that you could not proceed to enforce each of them, but there were assessments and, having enforced one, the Commissioner made himself liable to attack on the other such that it could not be enforced.  But there were assessments.

MR SHAW:   That is certainly true, your Honour, and the question here is whether one ceases to have assessments because the alternatives are alternatives not against different people but the same person.

DAWSON J:   And the answer is you cannot have alternative assessments because you have not assessed anyone.  You cannot say it is one or two or three when you ask which one, get no answer; you cannot say there is an assessment.  Just as if this Court said, “We are in doubt about this case.  We could give judgment this way or we could give judgment that way, so we will give it both ways and you can take your choice.”

MR SHAW:   Your Honour, this Court could not do that, of course.

DAWSON J:   No, and the Commissioner cannot do that with assessments.

MR SHAW:   And the Commissioner is not a court.

DAWSON J:   No, but he is charged with making a decision which takes the form of assessment.

MR SHAW:   He is charged, your Honour, with the administration of the Act.

DAWSON J:   Which involves making a decision.

MR SHAW:   And what he decided was that, in this particular case, it was very difficult to know which was the correct way so he ‑ ‑ ‑

DAWSON J:   So he did not make a decision.

MR SHAW:   No, your Honour, that is not true, because he decided something.  It may not be enough, but he certainly decided something.

DAWSON J:   What did he decide?

MR SHAW:   He decided that the taxpayer was liable under one of three alternative bases.  So that is something, and the question is whether that is enough.  In our submission, the only reason suggested why not is because it is not definitive.  This word has, as your Honour said, been introduced in Hoffnung and accepted ever since and adopted in Richard Walter, indeed.  It does not come from the Act but it is submitted that because of the sense given to “definitive”, the Commissioner has acted properly here.  Certainly it must be said he has acted honestly.

DAWSON J:   No one is doubting that.  I see the red light is shining, Mr Shaw

MR SHAW:   So did I, your Honour. 

DAWSON J:   The Court need not trouble you, Mr Bloom.

There is insufficient reason to doubt the correctness of the decision of the Full Court to warrant the grant of special leave in this matter.  Special leave is accordingly refused.

MR BLOOM:   May we have costs, if your Honour pleases?

DAWSON J:   Can you say anything about that, Mr Shaw?  It is refused with costs.

AT 10.40 AM THE MATTER WAS CONCLUDED