Commissioner of Taxation of the Commonwealth of Australia v David Jones Finance & Investments Pty Ltd

[1991] HCATrans 190

~

~ -,~~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No All of 1991

B e t w e e n -

COMMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Applicant

and

DAVID JONES FINANCE &

INVESTMENTS PTY LTD

First Respondent

ADSTE.AM FINANCE & INVESTMENTS

PTY LIMITED

Second Respondent

Application for special leave

to appeal

MASON CJ
DEANE J

MCHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY. 5 AUGUST 1991, AT 9·.32 AM

Copyright in the High Court of Australia

David Jones 1 5/8/91

MR B.J. SHAW, QC: If the Court pleases, I appear with my

learned friends, MR G.T. PAGONE and MR A.

ROBERTSON, for the Commissioner. (instructed by the Australian Government Solicitor)

MR B.W. WALKER: If it please Your Honours, I appear for the

respondents. (instructed by Speed & Stracey)

MR SHAW:  If the Court pleases, this application is an

appeal from a judgment given in the Federal Court

by a majority in which the court held that section

177 of the Income Tax Assessment Act was

ineffective in the Federal Court to prevent an

investigation of an allegation that an assessment

had been made in abuse of the Commissioner's power.

And the court held that despite the decision of

this Court in Bloemen's case, it being said by the

majority that the decision in Bloemen's case was

given, I imagine one would say, per incuriam,

because the question of the effect of section 75(5)

of the Constitution and its relationship to section

39 of the Judiciary Act was not raised in that

case, or argued, and this despite the fact that in
the argument addressed to the Court in Bloemen's

case there was specific reference to the fact that

jurisdiction which the court there involved, which

was the Supreme Court of New South Wales, was a

jurisdiction under section 39 of the Judiciary Act.

MASON CJ: Mr Shaw, subject to hearing what you may have to

say in response to objections that the respondent

makes to the grant of special leave in this case,
in particular to that part of the respondent's

suggestion that in some way or other there was an

agreement that bears· on the matter, it may be to
our advantage if we heard at this stage from

Mr Walker.

MR SHAW: If Your Honour pleases.

MASON CJ: Yes, Mr Walker.

MR WALKER:  May it please Your Honours. Your Honours, at

the outset, the substantive matter which has been

briefly adverted to by my learned friend is one

which we have to concede is one of general public

importance. It is a matter which affects certainly

the· judicial role in the administration of the

revenue laws in an intimate and important fashion,

and I do not wish to be heard to the contrary of

that proposition. It is that this case is not an

apt case for special leave by reason firstly of the

fact that the case, in reality, has been settled.

Your Honours I think have seen the affidavit

of Denise Jean Morgenthaler which, in paragraph 4,

David Jones 2 5/8/91

cites the pattern of obligation which binds all

relevant parties there with relation to the Adsteam

Group, so-called. There are two obligations which

remain binding. The Commissioner is to discontinue

all existing legal proceedings.

DEANE J:  Mr Walker, I am not conscious of having seen the

affidavit that you have referred to.

MR WALKER:  Your Honours, I have copies against that

possibility.	I understand they have been filed,
though.

DEANE J: Well,·I have a bundle but that one does not seem

to be among it.

MR WALKER:	If I could take Your Honours to page 2 of that affidavit, there is a verbatim quotation from one
of the exhibits, which will suffice entirely for present purposes. Your Honours see on paragraph 4:

"The Commissioner will discontinue all

existing legal proceedings with Adsteam Group

which have been commenced by the Commissioner.

And there may or may not be a dispute as to whether

that includes the motion, which is ultimately that

which is before Your Honours.

MASON CJ: Had the motion been filed at the time the

agreement was accepted?

MR WALKER:	Yes. This agreement postdates the argument in the Full Court of the Federal Court but predates
the judgment. The next sentence:

All legal proceedings commenced by the Adsteam

Group will be discontinued -

and then an important expression -

save and except that the Commissioner reserves

the right -

Your Honours note that was not the Adsteam Group -

to seek special leave to appeal to the High

Court if a decision of the Full Federal Court

- in the proceedings under section 39B of the

Judiciary Act is adverse to the Commissioner.

And then:

All applications made under the Freedom of

Information Act are to be discontinued -

David Jones 3 5/8/91

Now, Your Honours, what is before this Court

is an application for special leave with respect to

a notice of motion brought by the Commissioner in

the Federal Court, a notice of motion as a

respondent; that is, there was no cross-claim or

anything of that kind relevantly concerned. We had

sued, to oversimplify, alleging abuse of power in

the issue of certain assessments. There were
raised threshold questions, which are the ones of

general public importance adverted to by my friend,

by a motion.

Whatever the result in this Court, were

special leave to be granted, the obligation on us

to discontinue those proceedings will remain.

Nothing that this Court will do can affect one iota

the substantive rights between these parties, so

far as tax payable is concerned, or so far as the

more fundamental controversy between the parties is

concerned, namely, the rightness or propriety of

the issue of these particular assessments.

DEANE J:  Mr Walker, what are the proceedings that the

Commissioner reserves the right to seek special

leave to appeal about?

MR WALKER: These ones.

DEANE J: They are these proceedings?

MR WALKER:  Yes. The Commissioner was there prescient of

the very thing which happened, namely, an adverse

decision in the Full Court of the Federal Court.

DEANE J: But does not that mean that on no approach does

that clause cover these proceedings?

MR WALKER:  It means that on no approach can what the

Commissioner is doing now be a breach of the agreement, and we would not dream of alleging so;

it is not.

DEANE J: That answers my query.

MR WALKER:  They reserved the right to seek special leave.

That does not give their application for special leave anything which it would not have at law, and what the application for special leave does not have, as a matter of law, is a pending controversy between these parties about anything substantive at

all.

Now, one may query, with respect, as to

whether what would result from such a circumstance

is a matter which this Court could entertain at all

as a matter of jurisdiction. It may not be

necessary to address that question of· competence

David Jones 4 5/8/91

until one sees the actual notice of appeal. The

draft notice of appeal, which is the subject of

this application, raises - as one, with respect,

would expect - simply the very important

substantive questions concerning the jurisdiction,

relevantly of the Federal Court, in face of the

tender by the Commissioner of an issued assessment.

But they are matters all of which have been

settled between the parties once and for all so

that there is no longer any dispute or controversy

justiciable between these parties as to the

rightness of the issue of those assessments, for

this reason: that the Commissioner has given up

forever the right to sue on those assessments, just

as we have given up the right to challenge the

issue of those assessments as having been in some

relevant sense improper. And instead, the parties

have agreed, ultimately, in financial terms, for

the payment of certain money in return for the

release of certain rights.

Two of the covenants necessary to work out

that settlement by which we pay money in return for

release from further assessments, and further

proceedings on existing assessments, were the

mutual covenants to discontinue legal proceedings. True, there is the exception for the right to seek special leave, but there still has to be something

which it is apt for special leave to attach to and

a settled substantive dispute between the parties

hardly fits that description, in our respectful

submission.

DEANE J: Have you discontinued the proceedings?

MR WALKER:  No, the proceedings are in the hands of this

Court.	We have nothing to discontinue in this
Court.

DEANE J: But if all that is involved is a motion within the

proceedings, would it not be open to you to file a

notice of discontinuance in the Federal Court?

MR WALKER:  Well, it is open to us to do that and we are obliged to it, in fact.

DEANE J: You are obliged to do it.·

MR WALKER:  Yes, but I should say there is no question of

any complaint	by the other side that we have not
done it yet.	As a matter of - it may only be
etiquette but	it is probably a matter of
jurisdiction,	we cannot be moving in the Federal
Court - - -

David Jones 5 5/8/91

DEANE J: But your point is that we should approach the

matter on the basis that the position is as if you

had filed such a notice?

MR WALKER:  Yes. The parties come before you as parties to

a contract, there being no suggestion by any of the

parties that any of the others are in breach of

that contract. And I stand before Your Honours to

say that we will comply with our contract as soon as the matter is properly back within the purview of the Federal Court.

DEANE J: But if the appeal is only from a notice of motion,

has the matter ever left the Federal Court, as

distinct from the subject of the notice of motion?

MR WALKER:	No, the substantive matter remains completely within the Federal Court, yes. But the position
that presents itself is this: the applicant in the
substantive proceeding in the Federal Court has said, in as solemn a fashion as one can get short
of the actual notice of discontinuance, "I do not
wish to persist with this case. I withdraw" - to
use the expression in order 22 of the Federal
Court - "I withdraw my case".

The respondent had said earlier, "The case

must fail at threshold because I'm going to or I

have tendered this assessment". Then the applicant

says, "I withdraw". Then the respondent comes to

the High Court to say, "Stop their case at the

outset. Prevent them from going on". In my

submission, there is a fundamental absurdity in a
respondent persisting in an argument which says to

the applicant, "You have no case", when the

applicant has said, "Indeed, I have no case, I wish

to withdraw it.	We have settled our outstanding
disputes".

In my submission, the substance of the matter

is very plain. What was sought to be protected by

the Commissioner by expressions such as are found

in 2.10 of the settlement agreement was the moot

point, the advisory opinion point, whereby the

Commissioner sought to avoid what it saw, for

reasons which have nothing to do with the dispute

between these instant parties, as the possibility

of an undesirable precedent against the
Commissioner's interests by the Full Court of the

Federal Court. And it sought to protect against

that possibility by having a right, as it called

it, to seek special leave to this Court, to seek

from this Court a mere precedent setting exercise, a mere opinion on what had become by then entirely moot between the parties, there being no

substantive rights to be affected, nothing to be

determined one way or the other, not a dollar of

David Jones 6 5/8/91

liability to alter according to whatever this Court

might hold on appeal. So, for those reasons, in my

submission, the case could not be less apt for a

grant of special leave, even assuming - and it may

only be a matter of assumption - that it is a

matter which would be within this Court's

jurisdiction.

Now, Your Honours, it may be said against us

that the last prayer for relief in the draft notice

of appeal provides a clue to what is a proper lease

to get before this Court on appeal; namely, a

desire on the Commissioner's part to reverse an

order for costs, both at first instance and in the

Full Court. There are several things to be said against that.

The first is a general submission which,

regardless of the merits of the point of law at
stake, observed that it is most exceptional, with
respect, for this Court to grant special leave
simply in order to disturb an order for costs,

without affecting in any way substantive rights

otherwise between the parties. That is the first

thing. The second thing is this, that a case

between the Commissioner and taxpayers, where no

substantive rights between the Commissioner and the

taxpayers are to be disturbed by the appeal, not a

dollar of tax extra would be paid regardless of the
event - and we are committed by the agreement not

to say, if we succeed in the High Court, that we do

not have to say any tax on that assessment - where

there is no substantive alteration contemplated by the appeal, then it would be, in my submission, in

accordance with the ordinary practice of this Court

to impose as a condition of special leave that the

Commissioner not seek disturbance of any of the

orders for costs in the courts below, the exercise

being one which takes the taxpayer to the High

Court for the sake of the revenue administration as

a whole rather than for the sake of adjudicating

any dispute between the parties. That, in my

submission, is a by no means uncommon approach by

this Court. That would mean that there was not

even the costs question for the tail to wag the dog

to get a lease before this Court.

The next thing is this, and perhaps the most

important aspect of the costs point, were it to be

attached to alone. The effect of a discontinuance

in the Federal Court upon costs is something which,
at least in the first instance, ought to be within

the purview of the Federal Court, and in

particular, that part of the court, those members

of the court, who have dealt with the applications

in this case. Order 22 of the Federal Court Rules

David Jones 5/8/91

says, relevantly, as to withdrawal and

discontinuance and costs, that:

A party who discontinues •.... shall be liable

to pay the costs of the other party or parties

occasioned by the whole or the relevant part
of the proceeding.

There is clearly an argument, which may or may not be looming, about whether this is a whole or

relevant part case and, in any event, what is the

relevant part of these proceedings.

Now, those are matters which are not at all

right for this Court to consider. This Court would

be sitting, as it were, in first instance, to

determine the application of Order 22 rule 3 to a

case where parties have fought right through to
reserve judgment in the Full Court and then they
have agreed to discontinue. In my respectful

submission, therefore, it cannot be said that the

issue of costs alone is sufficient to erect some

controversy between these parties apt for this

Court to interfere.

So, in the upshot, Your Honours, the case is

one where there is no single right whatever which,
in my submission, on complete analysis, would be

determined by any decision of this Court, whether

adverse to the taxpayer or otherwise and for those

reasons, there is no case, no matter, no

justiciable dispute, which this Court ought to

entertain on appeal. May it please Your Honours.

MASON CJ: Yes, Mr Shaw, what do you say to this?

MR SHAW:  If I could hand up to the Court some bundles of

cases.

MASON CJ: Mr Shaw, before you commence your submissions on

the point, why was this point not disclosed by the

applicant in the affidavit in support of the

application for special leave?

MR SHAW:  Your Honour, there is a reference to the agreement

in the last paragraph of the affidavit. It says

that these proceedings have not been settled, which

is accurate. In fact, the affidavit did not

exhibit the heads of agreement, but a subsequent

affidavit was prepared and did.

DEANE J: What, the Commissioner put on an affidavit

disclosing that the Commissioner's case had been

settled?

MR SHAW:  The Commissioner's first affidavit, in the last

paragraph - - -

David Jones 8 5/8/91

DEANE J: Yes, I had misapprehended the fact that the

Commissioner had disclosed the fact that these

proceedings had been settled.

MR SHAW:	It is on page 107 in paragraph 24.
DEANE J:	I have read that.
MR SHAW:	And then there was a subsequent affidavit filed on behalf of the Commissioner which, since Your Honour
did not have the other affidavit perhaps Your
Honour has not got that one either, but there is a
subsequent affidavit by Mr Catt which corrects a
mistake which was made in that earlier affidavit
and exhibits the document - I say document, I mean
the heads of agreement.

MASON CJ: Yes, I think this affidavit was handed to me this

morning, Mr Shaw, before we came into Court.

MR SHAW: There are some copies there.

DEANE J: But this was only put on after the respondent had

drawn attention to the fact that the matter had

been settled, was it not?

MR SHAW:  I think not, Your Honour, no. I am instructed

that our affidav~t was filed before their affidavit

was served on us, so that, in our submission, this

point was disclosed. The next thing we would say

is this, if the Court pleases: in exercising its

power under section 73 of the Constitution - that

is the appellate jurisdiction of this Court - it is

said that an appeal lies to the Court from

judgments, orders, and the concatenation of

phrases. There is no reference in that section to

the continuing existence of a matter although, of

course, there had to be a matte~ in the first place

and it is, it is submitted, not clear - at least

since Charles David v O'Toole - what the position

is in the appellate jurisdiction of this Court,

whether one needs a continuing matter or not.

In England, where, of course, the power of the

court is not constrained by the provisions of a

Constitution like the power of this Court is, in

two recent cases it has been held that an appeal

oug~t to be allowed to proceed despite the fact

that there was no longer any matter in issue at

all. Those two cases are Don Pasquale v Customs
and Excise Commissioners, (1990) 1 WLR 1108, which
was a customs duty case; and Reg v Board of

Visitors of Dartmoor Prison, (1987) 1 QB 106.

In that latter case, at page 114 - a copy of

which I have handed to the Court - the fact that

there was no longer any substantive dispute between

David Jones 9 5/8/91

the parties appears below the letter G, and the

argument was put that no appeal lay, there having been a cessation of any issue between the parties

before the appeal was lodged, and at page 115, at

the letter F, the court said that:

It seemed to all members of this court

that the fact that the prisoner was no longer

at risk of further disciplinary proceedings
did not deprive the court of jurisdiction to
hear this appeal; that there were in it

questions of general public interest; and

that, even if the prisoner is rightly to be

regarded as having no interest in the outcome,

the court should, in the exercise of its

discretion, hear the appeal on the merits.

And the Don Pasquale case is a case substantially

to the same effect, although there was not there

involved, as was said by the Master of the Rolls, a

question of public law, but rather - - -

DEANE J: If the headnote in the Don Pasquale case is

accurate, it weighs rather strongly against you,

does it not, in that it says it was exceptional

because it was an important point that was unlikely

to come before the Court of Appeal?

MR SHAW:  There was that reason in that particular case,

quite, Your Honour. So that, in our submission,

the jurisdiction of the Court remains, even

although there is no enduring lis. But it is

submitted that there is nevertheless here - - -

DEANE J: But need you worry about jurisdiction? I mean,

there is a standing order for costs and, even

though what Mr Walker says about conditions is

undoubtedly correct, on any approach that standing

order suffices for jurisdiction.

MR SHAW:	So it does, Your Honour.
DEANE J: But your problem is: why on earth should this

Court get involved in a dispute which the parties

have settled, in circumstances where your client

will undoubtedly have other opportunities to bring

the matter on appeal?

MR SHAW: Well, Your Honour, if I may say so, what

Your Honour said about the jurisdiction is

certainly correct, in our submission. In both the

Privy Council and in the House of Lords it has been

held - if I could just hand up this bundle of

cases. In Elders Pastoral Ltd v Bank of New

Zealand, (1990) 1 WLR 1090, the Privy Council dealt

with this question and, at page 1095, below the

letter E, after citation from two decisions of the

David Jones 10 5/8/91

House of Lords in Westminster City Council v

Croyalgrange and Ainsbury v Millington, the Privy

Council said:

It appears from the authorities that even if

the only effect of a successful appeal between

the parties will be to reverse an order for

costs made in the courts below, there remains

a lis or issue between the parties.

And at the bottom of that paragraph -

Where there is no appeal as of right, an

appellant may seek special leave,

notwithstanding that the only effect will be

on costs but the appellant will only obtain

such special leave in very exceptional

circumstances.

That is beside the letter G. The second case is

the case of Allen Commercial Constructions Pty Ltd

v North Sydney Municipal Council. The application

for special leave is reported in 44 ALJR at 173.

It is between the letters F and G. What this Court

said there on an application for special leave -

the Court consisting of Justices Kitto, Menzies and

Walsh - was:

We think that it must be in a rare case only

that special leave to appeal should be granted

where there remains nothing in the litigation

except the question of costs. In the

circumstances of this case however we think it

desirable that the question of general

interest should be determined and for that

reason we grant special leave.

And attached at the back of that is, in fact, the

decision by the Court on the hearing of the appeal

and the Court will see that the question of general

interest to which the Court was referring in that

decision to grant special leave was a question

whether or not an authority had power under the

terms of a planning scheme to impose conditions

which restricted the hours of work which could be

allowed in a building, the construction of which

was permitted by a permit. So that the question of

general interest there was, it is submitted, a
question of much less general interest than the

question which this appeal raises.

Our submission is that the Court should grant

special leave because of the very great

significance, it is submitted, of the point which

arises in this appeal, added to which, we would not

accept what my learned friend has said about the

effect of the settlement because, in our

David Jones 11 5/8/91

submission, it may be that questions of the

validity of the assessments may hereafter arise

despite the settlement.

Those circumstances are perhaps not, prima

facie, the circumstances which are most likely to

occur, but nevertheless they may, and if I might

give a number of illustrations: the first

illustration is, if liquidation were to occur of

any of the relevant companies within six months of
any of the payments under the heads of agreement,

then a question of preference might arise, and

whether or not the payment ought to be set aside.

That might raise the question of the validity of

the assessments.

Secondly, the agreement contains in its terms

provisions which deal with the exaction of

additional tax under section 207 of the Act, and

the amount of additional tax which will be or is to

be paid - that is in paragraph 2.3, 3.3 and so on

of the agreement, so that there are a series of

provisions dealing with additional tax - and the

validity of the imposition of that tax, even though

so limited, depends on the validity of the

assessments.

Thirdly, if it were to occur that the

agreement were not performed, then it might be -

not performed on the part of the taxpayer, I mean,

or taxpayers - then it might be that the

Commissioner would seek to sue on the assessments

themselves rather than on the agreement, if the

agreement were terminated, in which case the

validity of the assessments might arise, or,

alternatively, if the Commissioner were to sue on

the agreement, he might be met by a plea that the

agreement itself was not enforceable because of the

effect on the assessments; so that in that way,

too, the validity of the assessments might arise.

So that, in our submission, there are a number

of circumstances - there are probably more - in

which the question of the validity of the

assessments might arise despite the terms of the

settlement agreement and in the case of Ridgway -

which is one the cases which I handed up, at 593 to

594 and 604 - two members of the Court of Appeal

took the view that the existence of what were

called artificial claims justified the continuance

of an appeal, and these claims, or these

possibilities which we raise here are, it is

submitted, much more real than the ones which the

Court of Appeal had under consideration in Ridgway.

Secondly, the matter is, it is submitted, one

of very significant importance and one which it is

David Jones 12 5/8/91

important that this Court should deal with, and
deal with as quickly as may be, and it is submitted
that accordingly the case is an apt one for special
leave. There is a matter, there is a lis, and the
matter is one of great general importance.

Accordingly, in our submission, special leave should be granted.

MASON CJ:  The point which the Commissioner seeks to raise

in this Court is one which, in an appropriate case,

would warrant the grant of special leave. However,

by an agreement between the Commissioner and the

group qf companies of which the respondent is one,

it is provided that the respondent will discontinue

the current proceedings in the Federal Court. The

respondent states that it will comply with that

requirement and asks us to consider the matter on

that footing.

It follows that, except as to the order for costs which the Commissioner seeks to obtain in

this Court, the substance of the controversy

between the parties has been settled. As the

question which the Commissioner seeks to agitate in

this Court is likely to arise in other proceedings

leave in the present case when the appeal, if successful, would determine, as between the parties, only the issue of costs. The application for special leave is therefore refused.

in which this Court can grant special leave, the special

Mr Walker, might I ask you this question:

would you have any objection to the refusal of the

application being without prejudice to the

Commissioner's right. or liberty to present an

application again in the future in the event that

matters arising under the agreement give actuality

to some of the contingencies which Mr Shaw has

mentioned during the course of argument?

MR WALKER:	No, Your Honour.	We would seek costs of today.
MASON CJ:	Yes, very well.	The application will be refused,

but it will be refused without prejudice to the

Commissioner's right or liberty to present an

application again in the future if so advised.	Do
you have any objection or any argument on the
question of costs?

MR SHAW:  No, Your Honour.

David Jones 13 5/8/91

MASON CJ:  The application will be refused with costs.

MR WALKER: If it please the Court.

AT 10.12 AM THE MATTER WAS ADJOURNED SINE DIE

David Jones 14 5/8/91