DCT v Sent
[2013] VSC 64
•22 February 2013
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMON LAW DIVISION
S CI 2011 00047
| DEPUTY COMMISSIONER OF TAXATION | Plaintiff |
| – and – | |
| EDOUARD CHRISTIAAN SENT | Defendant |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 20 February 2013 | |
DATE OF JUDGMENT: | 22 February 2013 | |
CASE MAY BE CITED AS: | DCT v Sent | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 64 | |
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INCOME TAX ― Income tax assessments ― Penalty assessments ― Debt due for substantial amount ― Objection to assessment ― Assessment affirmed ― Failed review of objection decision ― Failed appeal on question of law ― Failed appeal to Full Court ― Application pending for special leave to appeal in High Court ― Action for recovery of substantial amount ― Application for summary judgment ― Conclusiveness of assessment ― Limitations on possible challenges ― Stay refused ― Summary judgment granted
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr E F Wheelahan | ATO Legal Services Branch |
| For the Defendant | Mr L A Warren (solicitor) | Russell Kennedy |
HIS HONOUR:
This is a recovery action by the plaintiff (“the Commissioner”) on notices of assessment for income tax and penalties. On 20 February 2013, I gave summary judgment for the Commissioner for $22 848 994.13. That was preceded by orders refusing three applications sequentially by the defendant taxpayer, that is: (i) to strike out the Commissioner’s statement of claim on compositional grounds; (ii) to adjourn the summary judgment application; and (iii) to stay the proceeding. In each application I gave reasons ex tempore. What follows is a restatement of those reasons with a little elaboration. What remains for future adjudication is an application by the taxpayer for a stay of execution of the judgment.
By summons filed 17 January 2013, the Commissioner has applied for summary judgment. The Commissioner sues on notices of amended assessment dated 20 November 2006 and 3 June 2008 for the 2002 and 2003 income years respectively, and notices of assessment and liability to pay penalty for those income years, dated 20 November 2006 and 6 June 2006. On those assessments, general interest charges have accrued under the Income Tax Assessment Act 1936 (“the ITAA”). In total, as at 18 February 2013 (the return date of the application) the total debt for which the Commissioner sought judgment against the tax payer was $22 836 179.63. That increased to $22 848 994.13 on the second day of hearing.
The facts underlying the imposition of liability on the defendant to pay income tax are not relevant for present purposes, at least not in any detail. It is sufficient to say that the assessments arise out of a payment of bonuses made to the defendant by his employer, Primelife Corporation Ltd, to a trust of which the defendant was a beneficiary. The bonuses were paid in the form of shares which were assessed as assessable income as either ordinary or statutory income. In the alternative the Commissioner also determined that the anti‑avoidance provisions of the ITAA applied and issued the assessments giving effect to that determination.
Although the claim is substantial, by nature and by its elements this is a typical recovery action brought in the same way and sought to be proved by the same means in which applications for summary judgment on a tax assessment are commonly made in this Court. The imposition and proof of liability is governed by a statutory regime designed to protect the revenue, and a near ossified body of law concerning the evidentiary conclusiveness of tax assessments in recovery proceedings and the legal preclusions to challenges by a tax payer to the validity of an assessment (assuming it is final or not tentative), absent a conscious maladministration of the assessment process. I shall return to that later.
The case has experienced delay or hindrance since the writ was filed on 10 January 2011. There is no need to give a detailed account of the events that have occurred. It is sufficient to isolate these events:
(a)a defence was filed by the tax payer in July 2011 and there followed multiple adjournments for about a year attributable so it seems to the taxpayer having brought Part IVC proceedings in the Administrative Appeals Tribunal and then an appeal to the Federal Court (and the Commissioner cross appealed on a penalties question);
(b)in September 2011 Murphy J of the Federal Court of Australia heard the appeals;
(c)on 16 April 2012, Murphy J published his judgment in which he dismissed the tax payer’s appeal and allowed the Commissioner’s appeal;
(d)the taxpayer appealed to the Full Court of the Federal Court;
(e)in August 2012, an Associate Judge granted the Commissioner leave to amend the statement of claim to make adjustments for figures in the light of events that had occurred but also, over the Commissioner’s objection, granted a stay of the proceedings until 13 December 2012 because, it seems, of the pending appeal;
(f)the appeal was heard on 29 November 2012, and on that day the Full Court, without calling upon the Commissioner, dismissed the tax payer’s appeal and subsequently published its reasons on 19 December 2012.
On 16 January 2013 the defendant filed an application in the High Court of Australia seeking special leave to appeal. The following day, the Commissioner filed his application for summary judgment. That application was served on 18 January 2013 and made returnable one month later on 18 February 2013.
The tax payer did not file any affidavit material in opposition to the application for summary judgment, as would be expected if it was to be resisted. Instead, on 15 February 2013, being the last working day before the hearing of the application, he filed an application seeking four orders. First, he sought to adjourn the application for summary judgment to a date to be fixed and requested the Court to make directions for the conduct of the summary judgment application. Mr Warren, the solicitor acting for the tax payer who also appeared on the application swore:
Until late on the afternoon of 15 February 2013, I had apprehended that although the Plaintiff’s summons for summary judgment was returnable on 18 February 2013, only directions would be made on that date. That was the procedure that was last adopted when I acted for a defendant in respect of a summary judgment application in 2011.
When pressed in the course of submissions about the meaning of saying “I had apprehended”, I could not ascertain the factual ground of his apprehension beyond being told that such a course was taken in another recovery proceeding before another judge. I do not accept this as reasonable grounds for an apprehension. Nothing from the Court, or from the plaintiff, or from anyone else, has induced such an apprehension. To the contrary, correspondence from the ATO made it clear that on the return date of the application, the Commissioner would be proceeding to seek summary judgment, and to that end, the Commissioner served a further affidavit exhibiting evidentiary certificates under the Taxation Administration Act 1953 (“TAA”) stating the tax debt as at the date of hearing.
What is more, when pressed about the defendant’s intentions on the application, I was told the defendant had no intention to file any opposing affidavit material on the application. The taxpayer would be contending, I was told, that the assessments were not actionable or the proceedings on the assessments were not competent because of defects in the statement of claim. Secondly, it was said the Commissioner would be put to proof that the assessments were properly served. Thirdly, he would contend that the certificates of indebtedness relied upon by the Commissioner did not comply with the TAA.
The defendant could not show any good reason why the application ought be adjourned. Hence the refusal.
There then followed an attack on the Commissioner’s statement of claim. It was said to be “ambiguous, embarrassing and confusing”. There followed, until I stopped it, a line by line scrutiny of words and phraseology within each of the pleadings, with assertions that the allegations were unclear to the point that the case should not proceed. These were all unmeritorious criticisms. The functions of pleadings need hardly be restated. It is to properly inform the defendant of the material facts, as well as allegations of mixed fact and law, by which a litigant contends that it is entitled to the relief that it seeks. Moreover, the content of a pleading, or the amplitude of the allegations, depend on the nature of the case. In taxation recovery proceedings, the critical fact is the rendering of the Notice of Assessment, service of the notices, liability to pay, and the magnitude of the indebtedness. All of these matters have been pleaded. It is in my view preposterous for the defendant in this case to contend that it does not understand the case to be met. Hence I refused the application to strike out the statement of claim.
The third application was to stay the proceeding. A temporary stay was sought pending the hearing and determination of the tax payer’s application for special leave to appeal to the High Court of Australia. It was submitted that there was a “course of conduct” between the parties leading to an expectation (and submissions occasionally strayed to saying an agreement) whereby these recovery proceeding was to be adjourned for as long as there were court proceedings pending. But there were no facts identified to substantiate the asserted “course of dealing” or an agreement. It is the language of estoppel or some other conduct making it unconscientious for a litigant to depart from some assumption it has induced or some convention in which it has been actively involved. In the end, the submission came down to this: in the past the parties have, or the on one occasion the Court has, adjourned the case when an appeal was pending, and that should happen again.
I rejected that submission. True it is, on 15 August 2012 an Associate Judge granted a stay until 13 December 2012 because of the tax payer’s appeal to the Full Court of the Federal Court. That stay was opposed. I cannot be sure, but it seems to have been granted on the basis that if the Commissioner was to be given leave to amend its statement of claim then it was thought to be even handed that the taxpayer have a stay. But I am not concerned, for I am firmly of the view that the stay granted on that occasion does not therefore mean that a stay should be granted on this occasion. The tax payer failed in his appeal before Murphy J and failed again before the Full Court. of the Federal Court of Australia. An appeal of itself is no ground for preventing the Commissioner from proceeding to obtain judgment on its assessment. There might be a separate question whether there ought to be a stay of enforcement of the assessment. But before then, the Commissioner is entitled to proceed.
The disposal of those applications then cleared the way for the Commissioner to proceed on its application for summary judgment, which is what occurred. The affidavits filed in support of the application prove first, the making of the two Notices of Amended Assessment and the two Notices of Assessment and Liability to Pay Penalty. Secondly, there is proof of service of those notices on the tax payer. That was proved by certificate under s 255-45(2)(c) of Schedule 1 of the TAA. I find it perplexing that a service point was even taken. No such point was taken in the defence as filed and moreover, the tax payer has taken proceedings under Part IVC on the assessments and taken an appeal on a question of law to the Federal Court of Australia and a subsequent appeal to the Full Court of the Federal Court of Australia. It is absurd for the tax payer to contend that he was not properly served, or that the Commissioner ought be put to proof of service, when the tax payer has taken all the steps to challenge the assessment. Thirdly, there is proof of the amount owing. This is done, as is typical, by a certificated filed under s 255-45(2)(e) of Schedule 1 of the TAA. In this case it was done by a certificate dated 20 February 2013 certifying that the sum of $22 848 994.13 was a debt due and payable as at 20 February 2013.
On those facts, absent a ground for a tax payer to say that there is a case to be investigated or some other defence on the merits, the Commissioner is entitled to judgment. There is a settled body of law concerning the conclusiveness of the validity of a tax assessment. It is based upon ss 175 and 177 of the ITAA. Section 175 provides that the validity of any assessment shall not be affected by reason that any of the provisions of the Act have not been complied with. Section 177 provides that the production of a copy of a Notice of Assessment is conclusive evidence of the due making of the assessment. And, unless there are proceedings and a review or appeal under Part IVC of the TAA, it is also conclusive evidence that the amount and all the particulars of the assessment are correct.
Harsh as this may be thought to be, the “asperity” of the Commissioner’s powers (as it has been described) has been recognised by the High Court as implementing a longstanding legislative approach to protect the interests of the revenue: see DCT v Broadbeach Properties Pty Ltd.[1] See also Bloemen v Commissioner of Taxation;[2] DCT v Richard Walter Pty Ltd;[3] and Commissioner of Taxation v Futuris Corporation Ltd.[4] The Commissioner’s charter to commence recovery proceedings under the taxation legislation means that the fact that an appeal is pending cannot in the meantime interfere with the assessment which is the subject of the appeal and income tax can be recovered on the assessment as if no appeal was pending.
[1](2008) 237 CLR 473 at 491-2.
[2](1980) 147 CLR 360 at 375.
[3](1994) 183 CLR 168 at 188.
[4](2008) 237 CLR 146.
In DCT v Haritos,[5] I summarised the applicable propositions as follows:
[5][2010] VSC 275.
(a)The Commissioner has the general administration of the ITAA, and under s 166 makes an assessment from the returns, and from any other information in his possession. An assessment by the Commissioner identifies the completion of the process by which the provisions of the ITAA relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.[6]
(b)The provisions of Part IVC of the TAA set up a regime for the making of taxation objections, and review, and appeals to the Federal Court. Section 177 of the ITAA operates to change what would otherwise be the operation of the relevant laws of evidence. The presence of Part IVC means section 177 meets the requirement of the Constitution that a tax may not be made incontestable because to do so would place beyond examination the limits upon legislative power.
(c)When s 175 is read with s 177, the result is that the validity of an assessment is not affected by failure to comply with any provisions of the Act. But a taxpayer with a grievance may object to the assessment in the manner set out in Part IVC. The effect of s 175 is that errors in the process of assessment do not go to jurisdiction.
(d)There are two situations that may attract a remedy for jurisdictional error. First, section 175 only operates where there has been what answers the statutory description of an “assessment”. A tentative or provisional assessment does not answer to that description. Secondly, conscious maladministration of the assessment process may also not produce an “assessment”.
(e)An amended assessment is not to be treated as tentative or provisional simply because it might be the subject of a compensatory adjustment in the future or may not entirely survive a proceeding under Part IVC. An assessment may be tentative or provisional where it is self-described as such or it fails to specify the amount of the taxable income which has been assessed and the tax payable.
(f)The notion of conscious maladministration arises as section 175 should be construed to not bring within the jurisdiction of the Commissioner an assessment which is made with a deliberate failure to comply with the provisions of the Act. That is, it does not encompass deliberate failures to administer the law according to its terms. Such a failure is a manifestation of jurisdictional error. But allegations that statutory powers have been exercised corruptly or with deliberate disregard of the scope of those powers are not likely to be made or upheld.
[6]See Batogol v FCT (1963) 109 CLR 243 at 252 (per Kitto J).
Reference should also be made to the decision of McDonald J in DCT v Collie.[7] That case establishes that not only does proof of an assessment under s 177 of the ITAA prove entitlement to recovery, but it forecloses against the tax payer the issue of whether the assessment was valid, bona fide and final. Therefore, so that case held, any evidence sought to be adduced by the tax payer concerning the conclusivity of the assessment was inadmissible. See also DCT v Loftus.[8]
[7](1998) 2 VR 106, especially at 112.
[8][2002] VSC 68, especially at [17] and [18].
So what are the asserted grounds by which the tax payer seeks to resist summary judgment?
First, he submits that the certificate by which the Commissioner seeks to prove service does not properly comply with the statute by which such certificates may be tendered. I reject that submission. The certificate is entirely faithful to the provisions of that legislation.
Secondly, turning to the contents of the amended defence filed on 4 February 2013, there are two contentions put forward. First, at page 2 of the defence it is asserted that the assessments were not assessments “because they involved double counting”. The particulars to that allegation say that the assessments were tentative because they brought into account the taxation purpose, the taxation liability, not only the defendant but his related entity. But this point is unsustainable. It was established in DCT v Richard Walter,[9] as a matter of longstanding authority that s 177 precludes a challenge to the validity of an assessment on the ground that the Commissioner has included the same amounts in the taxable income of more than one tax payer, and that in any event, the Commissioner has power to assess more than one tax payer in respect of the same income.[10] Secondly, Bloemen as considered in Collie establishes that where the Commissioner produces and tenders into evidence the Notices of Assessment, then on their face, they are final and not tentative. Any attempt by a tax payer to contend that despite that the assessments are provisional or tentative is inadmissible.
[9](1994) 183 CLR 168 at 188.
[10]See 188.
In the end, as was established in Futuris, the only ground for impeaching the assessment (that is, an assessment which is not tentative or provisional) is to contend that a conscious maladministration of the assessment process has not produced an “assessment”. There was no such allegation put here or any other assertion of jurisdictional error. In any event, such a case would have to be brought by other means.
There is no defence to this claim. Whether one applies the civil procedure test of “no reasonable prospects of success” under s 63, or the pre-existing body of cases requiring it to be demonstrated that the defence was “hopeless”, in neither case, in my view, on the legal principles as I stated and on the evidence, there is no case to be investigated here and summary judgment ought be entered for the amount certified on behalf of the Commissioner.
Finally, the defendant sought an order that despite the granting of final judgment, that there be liberty to apply to set aside or vary the order made. That was sought, to cover the contingency that should special leave to appeal to the High Court be granted, and should the appeal be subsequently allowed, there would then be a reduction in the tax payer’s liability and associated liabilities for penalty and general interest charges. The apprehension is that as I would be functus officio, the tax payer would not have the opportunity to return to the judge making the final judgment to have it altered.
I have rejected this application. First, liberty to apply, frequently sought to relieve a party from having to file a fresh summons, ought not generally speaking be granted where there is final relief unless, for example, orders are made which may require revisiting if they need further working out or alteration. A good example is a decree for specific performance. But in this case, as the Commissioner submitted, giving liberty to apply to vary or discharge the judgment is a derogation from the finality of the order made. It is not unknown when appeal courts make decisions adverse to the Commissioner for there to have to be subsequent adjustments as between Commissioner and tax payer in the assessable amounts. This has to be. In the event of an adverse outcome, the Commissioner is bound to take steps to carry out the appeal judgment and give effect to it in the state of accounting between the revenues and the taxpayer. If the request for liberty to apply is Mr Sent’s apprehension is that the Commissioner is going to somehow defy an appeal court’s decision, then I think there is no real and sensible basis for that. If that happens, a tax payer has all sorts of remedies to hold the Commissioner to account.
What remains for the Court to consider is the tax payer’s application for a stay of execution of this judgment pending the hearing and determination of the special leave application. This is something about which the tax payer wishes to adduce some affidavit evidence. I have made procedural orders requiring the filing of material and submissions to determine that matter at a future date.
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