Deputy Commissioner of Taxation for the Commonwealth of Australia v Cumins [No 3] - [2008] WASC 87

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA -v- CUMINS [No 3] [2008] WASC 87

CORAM: NEWNES J

HEARD: 6 MAY 2008

DELIVERED : 6 MAY 2008

PUBLISHED : 15 MAY 2008

FILE NO/S: CIV 1171 of 2001

BETWEEN: DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA
Plaintiff
AND
BRIAN CUMINS
Defendant

Catchwords:

Practice and procedure - Judgment for plaintiff on application for summary judgment - Grant of judgment not opposed - Defendant did not appear - Subsequent discovery by plaintiff of error in calculations causing amount for which judgment obtained to be overstated - Application by defendant to set aside judgment - Application by plaintiff to vary amount of judgment to correct error - Whether defendant entitled to have judgment set aside as of right - Whether defendant has arguable defence to claim for amount of varied judgment - Whether judgment should be set aside or varied - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 14 r 12

Result:

Application to set aside judgment dismissed
Amount of judgment varied

Category: B

Representation:

Counsel:

Plaintiff: Mr L A Tsaknis
Defendant: Mr M F Holler

Solicitors:

Plaintiff: Australian Government Solicitor
Defendant: Q Legal

Case(s) referred to in judgment(s):

Aboyne Pty Ltd v Dixon Homes Pty Ltd [1980] Qd R 142
Bank of Credit and Commerce International (Overseas) Ltd (in liq) v Habib Bank Ltd [1998] 4 All ER 753
Building Guarantee & Discount Co Ltd v Dolejsi [1967] VR 764
Conners v Acheron Pty Ltd [1995] 1 Qd R 504
Cusack v De Angelis [2007] QCA 313
Deputy Commissioner of Taxation for the Commonwealth of Australia v Cumins [2003] WASC 3
Faircharm Investments Ltd v Citibank International plc [1998] EWCA Civ 171
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263

NEWNES J: On 6 May 2008, two applications came on before me for hearing. One was an application by the defendant, filed on 2 May 2008, seeking orders that the judgment obtained by the plaintiff on 15 June 2005 be set aside and that the plaintiff be restrained from taking any steps to enforce or rely upon the judgment, including in respect of proceedings under the Bankruptcy Act 1966 (Cth). For reasons I will come to, the determination of that application was said to be urgent. The other application was an application by the plaintiff to vary the amount of the judgment by reducing it from the sum of $38,084,522.24 to an amount of $38,053,514.52, a reduction of $31,007.72.
On 6 May 2008, I granted the plaintiff's application to vary the amount of the judgment and dismissed the defendant's application to set the judgment aside. I said I would provide reasons for my decision. These are the reasons.

The facts

This action has its genesis in notices of amended assessment issued by the plaintiff on 23 October 2000 in respect of the defendant's taxation liability for the financial years ended 30 June 1996, 30 June 1997 and 30 June 1998. The assessments are in connection with the defendant's involvement in a tax minimisation scheme known as 'Infomercials'.
The defendant lodged objections to the assessments on 14 November 2000. The plaintiff then commenced this action seeking to recover from the defendant the amount of those assessments and also for amended assessments issued on 23 November 2000 in respect of the financial years ended 30 June 1995, 30 June 1996 and 30 June 1998.
The defendant filed a defence to the action on 12 July 2001. On the following day, 13 July 2001, the plaintiff disallowed each of the defendant's objections to the assessments. (It appears that the defendant had also lodged objections to the assessments in respect of the financial years ended 30 June 1995, 30 June 1996 and 30 June 1998.)
The defendant filed applications for review in the Administrative Appeals Tribunal (AAT) seeking a review of the plaintiff's decisions to disallow the defendant's objections. I will refer to those proceedings as the objection proceedings.
It appears there was then a considerable hiatus until, on 15 August 2002, the plaintiff applied for summary judgment in this action. The defendant responded on 20 September 2002 with an application to stay the action pending the determination of the objection proceedings.
The plaintiff's application for summary judgment came on for hearing before Acting Master Dixon on 8 November 2002, together with the defendant's application for a stay of the action.
In opposition to the summary judgment application, the defendant contended that, in relation to the October assessments, certain public statements made by the Federal Commissioner of Taxation had given rise to a legitimate expectation on the part of the defendant that the plaintiff would not proceed further with this action until such time as the objection proceedings had been determined and that that was a position from which the plaintiff was not entitled to resile. The public statements related to what were described as 'mass marketed taxation schemes' and were to the effect that, in relation to such schemes, where an objection to an assessment had been lodged by the taxpayer the plaintiff would not take recovery action pending the determination of the objection, provided there was no evidence of any dissipation of assets by the taxpayer.
The learned acting master granted leave to the defendant to defend the action: Deputy Commissioner of Taxation for the Commonwealth of Australia v Cumins [2003] WASC 3. In his reasons for decision, delivered on 10 January 2003, the learned acting master said:
In my view there are issues to be tried as to whether the defendant's AAT matter is in fact a test case, as to the meaning and effect of the various statements by the Commissioner, whether they were such as to give rise to a legitimate expectation on the part of the defendant to the effect that the plaintiff would not proceed with the action until such time as the defendant's AAT appeal had been heard, and whether by reason thereof the plaintiff is not entitled to proceed with this action until such time as the appeal has been decided or without first having heard the defendant on the issue. In light of that I would give the defendant leave to defend in respect of the October assessments.
I should briefly mention the November assessments. The plaintiff's position, for reasons that I do not understand fully, is that it would not wish to have a judgment entered in its favour in respect of those assessments if leave to defend is given in respect of the October assessments. In light of this and the conclusion that I have reached in respect of the October assessments, I would also grant leave to defend in respect of the November assessments [29] ‑ [30].
The learned acting master refused, however, a stay of the action, on the ground that any apparent need for a stay had been removed as the defendant had leave to defend the action and the defendant's objections to the assessments were likely to be determined by the AAT before the action went to trial.
The objection proceedings were set down for hearing in the AAT from 4 February 2005 to 5 March 2005. On 3 February 2005, however, the defendant filed a notice withdrawing the proceedings. The defendant says he did that because a promoter of the Infomercials, one Peter Ambrosy, whose evidence was critical to the defendant's case, refused to give evidence voluntarily on behalf of the defendant and it had not been possible to serve Mr Ambrosy with a subpoena. In the absence of Mr Ambrosy's evidence, the defendant concluded that he could not succeed in the objection proceedings. As a result of the withdrawal, the defendant's applications were taken to have been dismissed: Administrative Appeals Tribunal Act 1975 (Cth), s 42A(1B).
On 1 March 2005, the defendant's then solicitors advised the plaintiff's solicitors that the defendant would not consent to judgment in the action but would not oppose judgment being entered for the amount of the assessments.
On 3 June 2005, the plaintiff applied for summary judgment and that application was listed for hearing on 15 June 2005. On 14 June 2005, the defendant's then solicitors wrote to the plaintiff's solicitors saying that the defendant would not oppose judgment being entered and he would not be represented at the hearing. On 15 June 2005, the plaintiff obtained judgment against the defendant in the total sum of $38,084,522.24. The defendant did not appear and was not represented at the hearing.
On 17 March 2006, the plaintiff caused a bankruptcy notice to be issued and that was served on the defendant on 4 August 2006. On 14 August 2006, the defendant commenced proceedings in the Federal Court seeking an order that the bankruptcy notice be set aside.
On 23 August 2006, the defendant applied for an extension of time to appeal against the judgment entered in the action on 15 June 2005. That application came before Pullin JA on 18 December 2006. On 8 February 2007, his Honour dismissed the application. The defendant filed an application for review of that decision. That application was dismissed by the Court of Appeal on 11 October 2007.
On or about 13 November 2007, the defendant was served with a subpoena to give evidence on behalf of the Crown in the County Court of Melbourne in February 2008 in the trial of Mr Ambrosy on criminal charges relating to the Infomercials scheme. The defendant says, in effect, that he thus became aware of Mr Ambrosy's whereabouts. (It appears that Mr Ambrosy's whereabouts will continue to be known for some time to come as I was informed that he is currently serving a term of 7 years' imprisonment following his conviction on 22 February 2008 on charges arising out of the Infomercials scheme.)
The defendant's solicitors wrote to the AAT, on or about 13 November 2007, seeking the reinstatement of the objection proceedings. As at the date of the hearing of the present application, the question of the reinstatement of the objection proceedings in the AAT remains unresolved.
In the meantime, the defendant's application in the Federal Court to set aside the bankruptcy notice had been dismissed and an appeal against its dismissal had failed, leading to an unsuccessful application by the defendant for special leave to appeal to the High Court which, on 18 January 2008, was dismissed.
The hearing of the bankruptcy petition commenced in the Federal Court on 18 March 2008. On 26 March 2008, in the course of those proceedings the defendant provided to the plaintiff grounds of opposition to the petition. Included in the grounds was an assertion by the defendant that the amount of the judgment in the action was overstated. Among other things, the defendant contended that a number of (relatively small) payments which had been garnisheed by the plaintiff had not been credited to his account on the proper date, resulting in excessive general interest charges. The complaint that the judgment sum was overstated led to an officer of the plaintiff conducting a review of the calculation of the amount of the defendant's liability. The review revealed that the amount of the judgment was overstated by the sum of $31,007.72.
On 9 April 2008, the plaintiff filed in the bankruptcy proceedings and served on the defendant's solicitors an affidavit of an officer employed by the plaintiff deposing to the error and setting out how it was calculated. I should say that the overstated sum was not related to any of the errors which the defendant claimed had occurred.
On 11 April 2008, the plaintiff instituted new proceedings (the new action) in this court seeking, in essence, the same orders as are now sought in the defendant's current application in the action. When the new action came before me on 1 May 2008, on the defendant's application for admission to the Commercial and Managed Cases List, I asked the defendant's counsel why no application had been brought in this action. I was informed that it was intended to bring such an application and, on 2 May 2008, the current application was filed. I understood it to be common ground that this application effectively supersedes the new action. Certainly, the determination of the former will effectively resolve the latter.
Meanwhile, there had been an exchange of correspondence between the parties in the course of which the plaintiff's solicitors proposed that, by consent, the amount of the judgment be varied to correct the error found by the plaintiff. The defendant, however, contended that he was entitled to have the judgment set aside in its entirety, both on the ground that it had been irregularly entered, in that it had been entered for an amount in excess of the amount owing, and also on the ground that he had now located Mr Ambrosy and he intended to pursue the objection proceedings in the AAT.
The defendant says that the determination of this application is urgent because final submissions are to be made in the Federal Court on the bankruptcy petition on 12 May 2008. There was some argument as to whether the defendant could advance in opposition to the bankruptcy petition substantially the same matters as he seeks to raise in support of this application, with the result that there is in fact no sense of urgency in respect of this application. I do not think it is necessary to deal with that. It is appropriate that the defendant's application be dealt with at once.

The defendant's submissions

The defendant submitted that the judgment should be set aside under the inherent jurisdiction of the court or, alternatively, under O 14 r 12. The latter rule empowers the court to set aside or vary any judgment given against a party who does not appear at the hearing of a summary judgment application.
It was submitted that the plaintiff having, by its own error, obtained a judgment for an amount greater than that to which it was entitled, the defendant was entitled to have the judgment set aside as of right. Counsel argued that it was of significance in the present case that the error had been made solely by the plaintiff and had been repeated by the plaintiff when counsel signed the statement of claim in the action, in the affidavit sworn in support of the summary judgment application, and after a bankruptcy notice founded on the judgment had been issued. It was only after the defendant contested the creditor's petition that the plaintiff reviewed the figures and ultimately, in April 2008, discovered and agreed to correct the error.
Counsel for the defendant argued that in those circumstances the discretion of the court to vary (rather than set aside) the judgment should not be exercised but the judgment should be set aside and the defendant given leave to defend the action. He referred to Building Guarantee & Discount Co Ltd v Dolejsi [1967] VR 764.
In the alternative, it was submitted that the judgment should be set aside under O 14 r 12 as it was entered without the defendant having appeared on the application and the circumstances have substantially changed from those existing at the time judgment was entered. Mr Ambrosy, a material witness for the purposes of the objection proceedings, has now been located and an application has been made by the defendant to the AAT to reinstate the objection proceedings. Until the defendant's objections to the assessments have been determined the court cannot be certain what amount (if any) is properly the subject of the judgment. In addition, the belated admission by the plaintiff of the error, and the additional miscalculations claimed by the defendant in his affidavit in support of this application (albeit, they are not admitted by the plaintiff), means that it is not safe to rely upon the amount now claimed as an accurate statement of the amount to which the plaintiff is entitled. No prejudice will arise if the defendant is given the opportunity to defend the action as the plaintiff is the only creditor of the defendant.

The plaintiff's submissions

It was submitted on behalf of the plaintiff that immediately the error was detected the defendant was advised of it and at all times the plaintiff has been prepared to vary the amount of the judgment to reflect the correct amount. No purpose would be served by setting aside the judgment. It is not in dispute that the defendant can only resist payment of the amount of the assessments by successfully exercising his objection and appeal rights; he cannot raise objections to the assessments in defence of the action: Income Tax Assessment Act 1936 (Cth), s 177, McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263, 269.
The calculation of the amount of the assessments has been reviewed and the correct amount of the judgment has been certified, pursuant to the Taxation Administration Act 1953 (Cth), as the sum due and payable by the defendant and there is nothing which puts in issue that prima facie evidence.
As to the discovery of the whereabouts of Mr Ambrosy, it was submitted that to the extent the conduct of the promoters of the Infomercials might be relevant to the defendant's liability for the amount of the assessments, that is a matter that can be raised only in the objection proceedings. There are currently no extant proceedings in the AAT. Whether or not the objection proceedings will be reinstated is a matter still to be determined by the AAT.
No other arguable defence has been shown. On the evidence, the figures relied upon for the summary judgment application have been reviewed. That review has disclosed only the error of which the defendant has been informed. There is nothing to suggest that there is any other error or any other basis upon which the defendant is entitled to defend the plaintiff's claim.

The disposition of the applications

In my view, the plaintiff's application to vary the amount of the judgment to correct the admitted error should be granted and the defendant's application to set aside the whole of the judgment should be dismissed.
In support of his application, the defendant claims that the total amount of the assessments now claimed by the plaintiff is incorrect. That claim is made in the most general terms, apart from a number of relatively small payments made pursuant to a garnishee order which the defendant alleges were not credited to his account with the plaintiff on the correct date, with the result that excessive general interest was debited to the account.
It is not clear whether those payments are (or include) the payments referred to in the grounds of objection of 26 March 2008 in the bankruptcy proceedings, to which I referred previously. It appears, however, that the various payments referred to by the defendant on this application total $12,600 and the alleged period of delay in crediting the defendant's account with those payments (and therefore the period for which the defendant's account was improperly debited with interest in respect of those amounts) was between nine and three months, depending on the date of the particular payment. On the defendant's evidence, all of the payments should have been credited by 6 June 2005 and the earliest should have been credited in December 2004. In other words, they pre‑dated the hearing of the summary judgment application (although not raised by the defendant on the application), the subsequent review conducted by the plaintiff of the judgment sum, and the current certificate under the Taxation Administration Act.
Although the defendant says that, until about 10 April 2008, he was unaware that the plaintiff had delayed in crediting the payments to his account, or that the account had been debited with interest charges in respect of those amounts, he does not say why he was previously unaware of that or how it ultimately came to his attention. There is therefore no satisfactory explanation as to why, if at the relevant time proper diligence had been exercised by the defendant, these matters could not have been raised in opposition to the summary judgment application if they are said to be capable of providing a defence to it. I should also observe that, in the context of the judgment sum, the amount involved, even on the defendant's case, is extremely small.

It was further submitted on behalf of the defendant that, in any event, the proposed varied judgment sum proposed by the plaintiff is, at best, unreliable, and therefore the court cannot be certain as to what amount the plaintiff is actually entitled. The defendant's counsel sought to gain some traction for that contention by reference to the admitted error as suggestive of the possibility of other errors. It was submitted that although the defendant has not (apart from the alleged errors relating to the interest charges, to which I have just referred) identified any other specific error, the defendant cannot do more than make a general assertion that the sum is incorrect or unreliable because only the plaintiff has all the relevant information. I am not sure I understand that submission. In circumstances where the liability for taxation arises by reference to the financial affairs of the defendant, it is not obvious why the defendant is not in a position to indicate with a greater degree of specificity in what respects he says the plaintiff's determination of the amount is incorrect or unreliable. There is nothing in the evidence to explain his alleged inability to do so, nor why, if they are said to raise a ground of defence, the matters on which he will seek to rely could not, with reasonable diligence, have been raised on the summary judgment application.
While it is the case that since judgment was entered the plaintiff has discovered an error in the original calculation of the defendant's liability, the error must be considered in context. It was an error of $31,007.72 in a total amount of $38,084,522.24, or an overstatement of a magnitude of 0.0008%. It is not an error which of its nature casts some general doubt on the reliability of the figures produced by the plaintiff.
Moreover, the defendant is faced with a certificate under s 255‑45 in sch 1 to the Taxation Administration Act certifying that the (corrected) sum of $38,053,514.52 was, as at 15 June 2005, the sum due and payable by the defendant. That certificate is prima facie evidence of that indebtedness. On the material before me, there is nothing to suggest that the defendant is capable of overcoming the effect of the certificate.
It does not seem to me to be to the point that Mr Ambrosy has now been located. The evidence of Mr Ambrosy is said to be critical to the defendant's case in the objection proceedings. But the objection proceedings were brought to an end in 2002 when the defendant withdrew his applications for review and there are currently no proceedings in the AAT by which the defendant can pursue his objections to the assessments. The defendant's counsel did not contend that Mr Ambrosy was a relevant witness in the action. As I have said, it was conceded that the defendant cannot raise objections to the assessments in defence of this action.
It also does not seem to me to be material that the defendant had previously been granted leave to defend the action. The defendant was granted leave to defend by the learned acting master on the basis that the objection proceedings were on foot and that by reason of certain public statements made by the Federal Commissioner of Taxation prior to August 2002, the defendant had a legitimate expectation that the plaintiff would not pursue recovery proceedings while the defendant's objections to the assessments remained unresolved. That is all water under the bridge now.
In the course of argument, I was referred by the defendant's counsel to a number of authorities dealing with the principles to be applied on an application to set aside a default judgment. Those cases were relied upon for the proposition that the fact that the judgment had been entered for an excessive amount, and the plaintiff had only applied to vary the judgment after the defendant applied to set it aside, was sufficient to warrant setting it aside.
The present judgment was not, of course, a default judgment, but what I think does emerge from those cases is that where a default judgment has been entered for an excessive amount the court will not ordinarily set it aside if the defendant has no arguable defence to the claim: see, for instance, Bank of Credit and Commerce International (Overseas) Ltd (in liq) v Habib Bank Ltd [1998] 4 All ER 753, 757; Faircharm Investments Ltd v Citibank International plc [1998] EWCA Civ 171; Cusack v De Angelis [2007] QCA 313. To the extent there are statements in some of the older cases which might appear to support the defendant's contention, they do not, in my view, represent the modern law.
In my view, the fact that, due to an error on the part of the plaintiff, judgment was obtained for an amount in excess of the amount to which the plaintiff was entitled, is not a sufficient reason to set aside the judgment, rather than vary it. The business of the court is not to punish a party for errors it makes in the course of proceedings but to do justice. The approach the court is to take in the disposition of the matters before it is set out in O 1 r 4B, which requires the court to ensure the just, efficient and timely determination of litigation, at a cost affordable to the parties, and in doing so to make the most efficient use of the available judicial and administrative resources.
Putting aside for present purposes any issues as to delay and the defendant's failure to appear at the hearing, I consider that in order to succeed on this application the defendant must show that he has an arguable defence to the claim (after deduction of the admitted error) or that there is some other reason the action should go to trial: Aboyne Pty Ltd v Dixon Homes Pty Ltd [1980] Qd R 142, 143.
On the material before me, in my view the defendant has no arguable defence to the claim and there is no other reason the action should go to trial.
It seems to me that in circumstances such as the present, where the amount for which judgment has been obtained is overstated but the amount of the judgment to which the plaintiff is entitled is clear, no purpose would be served by the trouble and expense of a trial which can only have the same outcome as a judgment varied to record the correct amount; to set aside the judgment would be an exercise in futility and would be inconsistent with the principles contained in O 1 r 4B. The correct approach is to vary the judgment to substitute the amount to which the plaintiff is actually entitled for the overstated amount: see Conners v Acheron Pty Ltd [1995] 1 Qd R 504, 508.

Conclusion

It was for those reasons that I granted the plaintiff's application to amend the amount of the judgment and dismissed the defendant's application to set aside the judgment. I should add that it was for the same reasons I dismissed the new action by which the defendant sought to set aside the judgment, without the need to consider whether such an action was open to him.