Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Ltd; Commissioner of Taxation of the Commonwealth of Australia & Anor v Wengermeier-Ferguson (S126-93; M122-93

[1993] HCATrans 338

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl26 of 1993

B e t w e e n -

THE DEPUTY COMMISSIONER OF

TAXATION OF THE COMMONWEALTH

OF AUSTRALIA

Applicant

and

RICHARD WALTER PTY LTD

Respondent

Application for removal of

cause pursuant to section 40(2)

of the Judiciary Act

Office of the Registry

Melbourne Nos Ml22 and M123 of 1993

B e t w e e n -

M.J. CARMODY, THE COMMISSIONER

OF TAXATION OF THE COMMONWEALTH

OF AUSTRALIA

and

Walter	1	28/10/93
MASON CJ BRENNAN J TOOHEY J

K.H. COLLINS, DEPUTY

COMMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Applicants

and

SABINA WENGERMEIER-FERGUSON

and WOLFGANG WENGERMEIER

Respondents

Applications for removal of

cause pursuant to section 40

of the Judiciary Act

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON THURSDAY, 28 OCTOBER 1993, AT 9.38 AM

Copyright in the High Court of Australia

MR G.A. NETTLE, OC:  May it please the Court, I appear in

the first of those matters with my learned friend,

DR S.C. KENNY, for the Commissioner. (instructed

by the Australian Government Solicitor)

MR I.V. GZELL, OC: If the Court eleases, I appear in that

matter for the respondent with my learned friends,

MR J.W. DURACK and MS V.J. WEBSTER.	(instructed by
Mallesons Stephen Jaques)

MR R. MERKEL, OC: If the Court pleases, I appear with my

learned friend, MR G.T. PAGONE, for the applicants

in the second and third matters. (instructed by

the Australian Government Solicitor)

MR A. CHERNOV, OC:  May it please the Court, I appear with

my learned friend, MR G.J.G. DAVIES, for the

respondents in each of the second and third

matters. (instructed by Coadys)

MASON CJ:  Mr Nettle. We have called these matters on

together because they involve similar, though not

completely identical, points and therefore it may	be necessary to refer to the other applications in
the course of an address by counsel in one of them
to another of the applications.

MR NETTLE:  If Your Honour please. The Court will be aware

that this is an application in our case under

subsection (2) of section 40 of the Judiciary Act
for removal of the cause to this Court. The cause
raises the important question for consideration of
whether section 39B of the Judiciary Act empowers

the Federal Court to treat as invalid a notice of

assessment purporting to be an assessment produced

to the court under section 177 of the Income Tax

Assessment Act.

Walter 28/10/93

We have an outline of submission in support of

our contention that it is appropriate in all the circumstances, including the public interest and the interests of the parties, that the cause be

removed to this Court under subsection (2) of

section 40.

MASON CJ:  Thank you. I take it that the application is not

consented to, therefore it is necessary for you to

make out a case under section 40(4)(b).

MR NETTLE: If Your Honour please. There has been an

outline of submission filed by our friends which

concedes or accepts that the question is one which

is worthy of the Court's consideration.

MASON CJ: But that does not amount, in itself, to a consent

to the application.

MR NETTLE:  No, it does not; indeed, the application in that

sense is opposed.

MASON CJ: Yes.

MR NETTLE: Shortly, Your Honour, we advance three

submissions in support of our contention. The

first is that this question, the question of

whether section 39B empowers the Federal Court to

treat as invalid an assessment produced under

section 177 is one which is clearly worthy of this

Court's consideration. We make that submission

because this Court has already said that it is

worthy of its consideration.

MASON CJ: In David Jones Finance.

MR NETTLE:  It is submitted also that it is important in the

public interest that this Court consider the question now. It is important in the public

interest because, as a result of the Full Federal

Court's decision in David Jones, different courts	are now applying different principles. By that we
mean that when recovery proceedings are brought in
the State supreme courts those courts being bound by the decision of this Court in Bloemen's case
will not assume a jurisdiction to treat as invalid
a notice of assessment produced under section 177.

Conversely, however, in the Federal Court in

section 39B proceedings, the Federal Court is
following the Full Court's decision in David Jones
and assuming unto itself a jurisdiction to treat as

invalid a notice of assessment produced under

section 177.

MASON CJ: There are questions other than this question that

was agitated in David Jones Finance.

Walter 3 28/10/93

MR NETTLE:  In our proceeding, in a sense, there is not.

Our contention is that there is but this one

question which we ask the Court to determine and,

moreover, it is squarely isolated by the notice of
motion for judgment which was filed by the

Commissioner in the Federal Court but has not yet

been heard or determined by that Court.

MASON CJ: But it is not the only question, is it?

MR NETTLE: 

In the whole of the proceeding, no, it is not, but we would envisage that if the Court would

entertain the consideration of the question, and

if it were after that to decide against the

Commissioner on the question, the balance of the

proceeding would be remitted and the facts could

be heard with confidence that there would be no

need of further appeal to this Court on the
question.

MASON CJ: 

If we were to decide the question in favour of

the Commissioner, would that necessarily dispose of
the proceedings?

MR NETTLE: 

That would necessarily dispose of the whole of the proceeding.

MASON CJ: Is that common ground between the parties?

MR NETTLE:  I cannot imagine that it is not, Your Honour,

but I do not know.

MR GZELL:  Your Honour, it certainly would dispose of the

proceedings seeking declaratory relief. It would

not dispose of the proceedings under Part IV C of
the Administration Act, that is the objection and

the appeal from the objection.

MR NETTLE: That is clearly right, but I speak of the

proceeding which we seek to remove to this Court,

namely the section 39B proceeding pending in the

Federal Court.

BRENNAN J:  Would we not be advantaged by having the views

of the Full Federal Court, perhaps constituted as

Justice Hill suggested by five judges?

MR NETTLE:  If Your Honour please, on this question it is

submitted not. The Court already has such benefit

as there is to be derived from decisions of four

judges of that court; the judge at first instance

and in DJF and I, and dissenting views expressed

by various members of the Full Court in the DJF

and I appeal. In our submission, given that the

battle lines are relatively clearly drawn, any

additional benefit to be derived from a decision

of a further Full Court, however constituted,

Walter 28/10/93

would for this Court at best be marginal. What is required, not only in the interests of the parties but in the public interest, is a decision now by

this Court.

MASON CJ:  When you say the dissenting opinions in the Full

Court, what are you referring to?

MR NETTLE:  Mr Justice Pincus' dissenting decision, as

against the majority decision of

Mr Justice Merling -

MASON CJ:  I thought you were referring to opinions in the

plural.

MR NETTLE:	A bad choice of expression, I expect.
TOOHEY J:	When you say that the David Jones decision is

being applied by the Federal Court, you mean there
are instances of the court simply applying that

decision.

MR NETTLE: Applying the decision in the sense that the

court proceeds in section 39B proceedings to

determine whether or not an assessment produced

under section 177 is valid, whereas in a State

supreme court, that court being bound by this

Court's decision in Bloemen, the court will not

entertain the question on whether such an

assessment produced under section 177 is valid.

It translates into real difficulties, rather than

just academic ones. If recovery proceedings are

instituted in a State supreme court, their outcome

will be governed by this Court's decision in

Bloemen. If recovery proceedings are instituted

in the Federal Court, as is often happened,
coupled with a section 39B application by the
taxpayer, the Federal Court will proceed first to

determine the section 39B application in

accordance with David Jones Finance Full Court

decision, and leave in abeyance the recovery

proceedings. So that, in effect, the ability of

the Commissioner to recover is being governed by

principles which are totally at odds with those

laid down by this Court in Bloemen's case.

There is a third situation which arises in

this case. Recovery proceedings are instituted in
the State supreme court; the taxpayer then

institutes section 39B proceedings in the Federal

Court; the taxpayer then has the State supreme

court proceedings cross-vested to the Federal Court
and the Federal Court leaves those proceedings as

cross-vested in abeyance until it has determined

the section 39B proceeding. And thus, whilst not

in form, in effect the Federal Court, although

exercising the State court's supreme jurisdiction

Walter 28/10/93

under section 39 of the Judiciary Act and thus

being governed by this Court's decision in proceeding by reference not to this Court's

principleb in Bloemen but by reference to the Full

Court's decision in DJF and I.

TOOHEY J: Leaving aside the three cases that are before us

today, there are instances, are there, of this

happening?

MR NETTLE:  Yes, there are, and they are deposed to in the

affidavit - I withdraw that. Yes, there are

instances of it happening. With the consequence,

be it regarded as important or not, in our

submission it is, that the ability of the

Commissioner to go either to a Federal Court or a

State supreme court to recover under section 177,

whilst the Part IV C proceedings remain

undetermined, is frustrated. It requires very

little ingenuity to create a section 39B

application, based upon allegations of improper

purpose, to bring recovery proceedings to a halt

whilst the section 39B proceeding is being

determined.

MASON CJ:  I wanted to raise with you, Mr Nettle, the

possibility that if the Federal Court were to

constitute a court of five to hear this question,

that might conceivably result in a view different

from the view taken in David Jones Finance,

because after all, it was only a majority of 2:1 in

David Jones Finance. So I do not think it is a

case in which we can put beyond the bounds of

possibility the likelihood, the possibility that

the court of five might take a different view.

MR NETTLE:  No such thing is suggested, Your Honour. With

respect, you are correct, but our submission is,
regardless of what a court of five or fifty of the

Federal Court, with respect, say, this matter,
this question must come back to this Court.	It is

so important and its effects upon the ability of

the Commissioner to recover under section 177 are such that if the Commissioner loses before a Full

Court he will seek to come here; and if a taxpayer, if not this one but probably this one,

loses he will seek to come here. So ultimately

the matter will inevitably come back to this

Court, if not in this case but probably in this
case, then in another, and such guidance as you,

with respect, would derive from a decision from

five further justices of the Federal Court would

be marginal, given that you already have the

benefit of the four already on it.

Walter 6 28/10/93

What we seek, with respect, Your Honour, is a

binding determination of the question, not a

further determination of an intermediate appeal

court. We cannot get a binding determination,

obviously, until and unless we come and get the

decision of this Court.

BRENNAN J: What would be brought here? What, in fact, is

the state of the litigation that would be brought

here if this matter was removed.

MR NETTLE:  Can I answer the question in two parts? The

state of the litigation is that there is an

application, a statement of claim, request for

particulars, a set of particulars provided,

interrogatories and answers to them. There is no

defence and there is no - - -

BRENNAN J: In what proceeding?

MR NETTLE:	In the section 39B proceeding instituted by the taxpayer to have declared invalid and void the
assessment which has been produced under
section 177 and to have orders made restraining the Commissioner from enforcing those assessments.
BRENNAN J:	What proceeding is pending now for determination

in the Federal Court?

MR NETTLE:  Two proceedings are pending.

BRENNAN J: In the 39B proceeding, what is on the file?

MR NETTLE:  What I have outlined to Your Honour:

application, statement of claim, request for

particulars, particulars, interrogatories and

answers, plus some transcript at an interlocutory

decision.

BRENNAN J: There is no application being made for any

relief at this stage?

MR NETTLE: There is in addition, as you will find in the

application book, a motion for judgment filed by

the Commissioner but not yet determined by the

Federal Court. You will find that at page 70 of

the application book.

TOOHEY J: Effectively, that is what you would be seeking to

have brought before the Court, would you not?

MR NETTLE: Yes, it is, Your Honour, exactly so. Whether

the Court chooses, as we thought appropriate, to bring up the whole cause, deal with that motion, and then assuming it thinks it appropriate remit the balance, or whether the Court would wish us to

reconstitute the application so as to bring only

Walter 7 28/10/93

that motion before it, is a matter, with respect,

of not a great deal of significance to us.	What
we seek is a determination of the question.

MASON CJ: There is some advantage, if the case is to be

removed, in removing the proceeding rather than

your particular motion, because it may give the

Court greater flexibility in stating questions if it is to be thought that a statement of questions

or a reservation of questions is the best way of

proceeding once the matter gets to this Court.

MR NETTLE:  Yes, with respect, Your Honour, we would adopt

that and that is why we have asked thus far that

the whole of the cause be removed under

section 40(2).

Your Honours, might we say that our second

submission is - and, indeed, in part it has been
covered by what been asked already - this case is

pre-eminently an appropriate vehicle for the
determination of the question. It is pre-eminently
appropriate because the motion for judgment
squarely raises the question and it is the only

question which need be decided. There are no facts

which need to be decided by a judge at first

instance before this Court can determine the

question. The question which we seek to have

answered is whether section 39B confers on the

Federal Court power to treat as invalid an

assessment, purporting to be a notice of

assessment, produced under section 177. We do not

seek to have determined by this Court, and we would

not, the question of what the results would be if

that power is found to exist and is exercised on

the facts of this case.

TOOHEY J: Is it apparent - I understand how, from your

point of view, the matter can be disposed of

without reference to the facts, is that equally

clear on the other side?

MR NETTLE: There is no doubt of that, in our submission.

If one goes to the transcript of the proceedings

before His Honour Mr Justice Hill, which is to be found in part at page 85 of the application book,

it will be seen that His Honour asked of the

taxpayer's counsel whether the only relevant facts

were the fact that there were what he was pleased

to describe as two inconsistent determinations,

and it was said by counsel that that was so. So

Your Honours know - the Court would know that all

that is in issue is that there have been two

assessments issued, two assessments which on their

face purport to be definitive assessments, and a

contention made in section 39B proceedings that

because there are two assessments issued to

Walter 8 28/10/93

different taxpayers, both of them must be invalid

and void and motivated for improper purposes.

Now, our contention, if we are successful in

this application would, on the hearing of the

substantive matter, be that Bloemen is clear that

where assessments are produced which are definitive

assessments under section 177, then section 39B -

or indeed section 75(v) of the Constitution - gives

jurisdiction but it is not a jurisdiction which is to be exercised to treat as invalid that which the parliament has said will be treated as valid. It

would be different, of course, if no 177 notice had

been produced because then the validity of the

assessment might depend upon the Commissioner's

state of mind or purpose. But as this Court has

said in Bloemen's case, the parliament can make,
under its legislative power, something be something

and, if it does, then it is inappropriate, it is

misdirected, to exercise jurisdiction under
section 75(v) to consider motivations when
motivations are no longer pertinent to the validity

of the assessment. Parliament has deemed that the

assessment will be valid, therefore purposes are

not to the point.

MASON CJ: That covers, does it not, what you want to put in

support of the application?

MR NETTLE:  Your Honour, I did want to say it is in the

interest of the parties. It is in the interest of

the parties because, obviously, if it is decided

in favour of the Commissioner by this Court, it

disposes of the whole. Contrariwise, if the Court

were to send it now to a trial, if the trial were

to be decided on the facts in favour of the

Commissioner, it would make impossible the use of

this case as a vehicle for decision of the

question. And if the case were decided on the

facts against the Commissioner, it would then have

to come back through the relatively turgid route

of appeals, with special leave applications, to

get Your Honours to consider what you have already

said, with respect, is something which is worthy

of your consideration.

Might we add, as a final consideration, that

the matter is also important, in our submission, because inasmuch as section 39B of the Judiciary Act purports to import the jurisdiction conferred

on this Court by section 75(v) of the Constitution,

a determination of the question which we would seek

to pose for the Court would necessarily involve a

consideration of whether in the exercise of the

jurisdiction conferred on this Court by

section 75(v), it is appropriate for this Court to

Walter 9 28/10/93

treat as invalid that which parliament has said

will be valid when produced under section 177.

BRENNAN J:	Mr Nettle, am I correct in thinking that the challenge that is made to the validity of the
notices of assessment is one which is founded on an
alleged abuse of power and it does not touch at all the question of the procedure which was followed in the issuing of the notice as a purported exercise
of power?
MR NETTLE:	I think that is right, but to be comprehensive in the answer may I remind Your Honour that both
sets of assessments - because they gauge four
years - both assessments are in part dependent
upon Part IV A determinations.  Each assessment
was preceded by a determination by the
Commissioner under Part IV A that there had been a
tax avoidance arrangement which, if the income
were not otherwise assessable, as he contends,
ought be included in the assessment in order to
remove the tax advantage obtained under the
scheme.

BRENNAN J: There is no challenge made to the fact that you

did make a determination in fact, though the

validity of the determination is in question?

MR NETTLE: Correct. And those determinations are before the

Court in the application book. No dispute is made

about it and, indeed, it was said expressly below

before His Honour Mr Justice Hill that there is no

dispute about the fact of it having occurred.

If the Court please, it is submitted that in

all the circumstances, including public interest

and the interests of the parties, section 40

warrants the removal of this cause to the Court.

May it please the Court.

MASON CJ: Thank you, Mr Nettle. Mr Merkel, it would be

convenient to hear you at this stage.

MR MERKEL:  Can we hand up an outline of our argument to

Your Honours.

MASON CJ:  You rely upon the same arguments as have been

presented by Mr Nettle?

MR MERKEL:  We do, except to this extent, if Your Honours

please. We also make application, unlike my

learned friend - - -

MASON CJ: Under subsection (1), on the basis that resolving

the question of interpretation necessarily entails

regard to the Constitution.

Walter 10 28/10/93

MR MERKEL:  Yes, Your Honour, and that carries with it the

added element which my learned friend did not

address, and it is a reason why we would submit

this matter should be dealt with by this Court

rather than the alternative route of poss~bly - we

say that is only a theoretical possibility, a Full
Court of five judges in the Federal Court - is that

the issue arising under section 40(1) does involve a consideration of the ambit of the judicial power and the legislative interference with that judicial

power that the wide view of section 177 would have,

and that, indeed, was the very basis of the

majority view in David Jones. We would say that is

a peculiar matter that should be dealt with and

considered by this Court and we would say that this

Court would not be assisted on that particular

aspect by consideration of those matters by the

Full Federal Court because - - -

MASON CJ:	Why?
MR MERKEL:	Your Honours, we have set out in our

argument - - -

MASON CJ:  I can understand that in a particular case, but

as a general proposition it cannot be supported,

surely.

MR MERKEL:  I do not wish to put it in a general sense,

Your Honours, we really put it by reference to this

particular issue because the very issue of the

ability of the Federal Parliament to erode or have

an incursion into the judicial power has been

considered at some length by this Court in recent
decisions such as O'Toole, Lim's case, indeed the

cases that we have referred to in our outline, in

Werrin's case also, and we say that the

substantive issue raised which we would seek to
raise on the removal is that the operation of
section 177 in no way inhibits or impedes the

judicial power of the Commonwealth and that it was

fully within the legislative competence of the

Federal Parliament to enact a provision such as
177, subject only to the correctness of the
assessment being fully able to be challenged by the

objection process. And that is indeed provided for

under the Act. So it is our submission that the

question arising under the Constitution is one of

added importance and, answering Your Honour the

Chief Justice's question - - -

MASON CJ: But there are other questions in your case, are

there not?

MR MERKEL: There are, Your Honour, but we say that that

really arises from the very problem that we seek to

have this Court resolve. Our proceedings were

Walter 11 28/10/93

issued originally in the supreme court and were

recovery proceedings based upon the assessments and

the assessments alone. It is only because of the cross-vesting of those proceedings in the Federal

Court that the other problems arise.

If our argument be correct, there would not be

other problems in our proceedings or, indeed, there

would not be other problems which could be relied

upon as a defence to the judgment sought in

reliance on the assessments. So although our

opponents no doubt put the fragmentation of the

proceedings, we say that it cannot be right that

that can prevent us from challenging the very issue

which gives rise to that fragmentation occurring.

If we are right, there would be just no basis

for cross-vesting a matter raised in the supreme
court by simple recovery proceedings with the quite
separate issues sought to be raised in relation to
the section 218 notices, which are quite discrete

to the question of the assessment. We would submit

that that cannot properly be used or relied upon

to, in effect, prevent us from saying that we

should never have to be subjected to the

cross-vesting by reason of the decision in

Bloemen's case being correct, irrespective of whether the jurisdiction is exercised under

section 39 or 39B.

Indeed, that very problem arises in the Federal Court because under the Federal Court

umbrella, it is exercising 39B jurisdiction as a

result of the David Jones decision, but under the cross-vested jurisdiction from the supreme court,

what is cross-vested is the jurisdiction under

section 39 which, in Bloemen's case was held not to

permit a challenge to the due making of the

assessment. We say it is the resolution of that

problem which is our answer to why we say this

matter should be dealt with in this Court, and it

is no answer to our application to say, well, that

fragments the proceedings, because the

fragmentation arises really from the decision in

David Jones case which we seek to challenge.

But we say that the - and we have sought to

identify this in paragraph 3 of our outline - the
constitutional issues raised are ones of great

importance and we would submit that - - -

MASON CJ:  I do not think there is any need for you to

expand on that.

MR MERKEL:  I will not, Your Honours. The other reasons

that we put in support of our application are those

set out in paragraph 2. There is a conflict which

Walter 12 28/10/93

my learned friend, Mr Nettle, has addressed,

arising between the two courts, that is the supreme
courts in New South Wales and Victoria, and we say
that would extend, resulting in the anomaly
referred in the first point at paragraph 3, that
there are different outcomes now in three different

situations - - -

MASON CJ:  He has made that point and you adopt it.

MR MERKEL:  We do, Your Honour. The other two points we

would seek to make are that the failure to remove

at this stage has the consequence of subjecting the

Commissioner to the interlocutory and trial

processes which, in our submission, this Court

recognized in Bloemen ought to be foreclosed by

section 177. The third point we make under

paragraph 3 is that the longstanding ability of the

Commissioner to recover tax in the way that has traditionally been relied upon has been severely

curtailed, particularly in the more difficult cases

where this question is going to arise.

We make the further points in paragraphs 4 and

5 that in our submission the question of any fact

finding would not be relevant to the determination

of the issue and, indeed, in our opponent's

affidavit to our application it is not suggested

that there are any facts that would be relevant to

the determination of this issue. So we would

submit that it is appropriate to remove it at this

stage.

MASON CJ:  Now, like Mr Nettle, you seek removal of the

whole proceedings, but with a view to determining

only this question?

MR MERKEL:  We, unlike my learned friend, have sought

removal of the issues raised on our motion which

seek to strike out the paragraphs which directly or

indirectly rely on the invalidity of the
assessment.	We have not sought to introduce into

this Court the section 218 issues.

MASON CJ: Yes. It is the proceeding in the notice of

motion dated 15 September that you want removed?

MR MERKEL: Yes, Your Honours, and we limit that to issues -

what I could describe as arising directly or

indirectly out of the validity or invalidity of the

assessments, and we would say those issues would

give this Court full scope to deal with any

incidental questions arising from the challenge to

the validity of the assessments.

Walter 13 28/10/93

They are the matters we would put in support

of our removal application under section 40(1) and

(2), if the Court pleases.

MASON CJ:  Thank you, Mr Merkel. Mr Gzell.

MR GZELL:	If the Court pleases. We do not cavil with the proposition that the question whether section 177 forecloses proceedings under section 39B is a
matter which ought to be determined by the High
Court at some stage. The submissions that we have
put before Your Honours deals with the question of the timing at which that matter might be considered
by the High Court. In our submission, in the premature. It is premature because there is not
only the issue under section 177 which is part of those proceedings but also the question whether the
Commissioner is entitled to issue inconsistent
simultaneous determinations under Part IV A of the
Assessment Act.

In respect of the second of those issues which

is currently in the 39B proceedings in the Federal Court, it is necessary that there be some findings of fact. Findings of fact of fairly short compass

because what has been alleged on our part is that

the source of the income which the Commissioner

determined should be included in the assessable

income of Richard Walter Pty Ltd and another
taxpayer was the same. That has not been conceded

by the Commissioner; indeed the Commissioner sought

particulars of our allegation that the income was

the same. It is therefore necessary that that

conflict be resolved before the question whether

there were inconsistent determinations can be

adequately dealt with.

TOOHEY J: That might be so on your argument. It would not

necessarily be so on the Commissioner's, would it?

MR GZELL:	No, the -
TOOHEY J:	The Commissioner's argument, if accepted in its

entirety, would foreclose that second proposition.

MR GZELL:  Would foreclose that determination, quite, and I

do accept that. But if one is seeking, as we

understand our learned friends to be doing, to lift

the entire matter to the High Court, not only the

section 177 argument which would foreclose anything
else, but also the argument, in the event that

David Jones is upheld by the High Court, that one does analyse the question whether there has been an

abuse of power, that requires the resolution of

facts in small compass, and that is why His Honour

Mr Justice Hill gave the parties liberty to apply

Walter 14 28/10/93

to the registry to set down the hearing of that

issue for half a day plus. If that matter is
resolved and that short issue of fact determined,

then the entirety of the matter can proceed to the

High Court and be resolved by the High Court

finally, whichever view is taken of the David Jones

case.

We also submit, Your Honours, that the

advantage ought to be taken, before the High Court

entertains the two issues, of hearing the views of

the Federal Court on both. The views of the

Federal Court sitting a bench of five in respect of

David Jones might come to a contrary conclusion

than the case itself. The views of a bench of five

considering a matter which has not been considered

by any court yet would also be of advantage to this

Court. And it is for those reasons that we submit

that the appropriate course is to allow the

proceedings to continue as Mr Justice Hill had in

mind, a short finding of fact, the matter proceed

expeditiously to a bench of five where both matters

might be considered, and then the unsuccessful

party might seek special leave to bring the matter

before the High Court.

BRENNAN J:  Mr Gzell, if the Commissioner is successful in

his argument on section 177 it would not matter,

would it, that the Commissioner has issued two

assessments in respect of the same income?

MR GZELL: It would not matter in the 39B proceedings. It

would still continue to be a live issue in the

Part IV C proceedings and, indeed, might be

regarded as a preliminary point in the Part IV C

proceedings because the determination of whether or

not the Commissioner can issue inconsistent

determinations under Part IV A, being determined in

favour of the taxpayer, would foreclose any of the

other arguments under Part IV A. The taxpayer

would win on that basis and it would be unnecessary

for the Court to consider the various other

arguments as to whether or not other provisions of

Part IV A were appropriately to be found as a foundation for the exercise of that determination.

BRENNAN J: 

I suppose so long as that is not determined you

have an argument on the 177 point that it cannot be
right that the Commissioner can do this simply by

putting his signature to a piece of paper.

MR GZELL: 

Yes.

BRENNAN J: 

Do you want the point determined before you are able to put that argument?

Walter	15	28/10/93
MR GZELL:	Your Honour, we stick by our submissions.	We

would prefer that the matter come before this Court

after the short findings of fact which ground our

allegation that there has been an abuse of power are found. I take it that Your Honours have our

outline of argument which were filed in the Court?

MASON CJ: Yes, we have.

MR GZELL:  Those are our submissions, if the Court pleases.

MASON CJ: Thank you. Mr Chernov.

MR CHERNOV:  Your Honours, we do not contend that the issue

raised is not one of importance, as has been

outlined by counsel for the Commissioner, but we do
submit that the matter is an inappropriate
vehicle - the proceedings are an inappropriate
vehicle to bring the issue which is sought to be

resolved by the High Court to this Court.

Your Honours, the notice of motion which is

sought to be uplifted to this Court is at page 91

of the application book and, Your Honours, there

are three issues which are before the Federal Court

at the moment.	The section 177 issue is only one
of them.	The other two issues involve the validity

of the determination or decisions to issue

section 218 notices. More importantly, the

decision to institute recovery proceedings is

attacked as being an abuse of process, in effect,

in the circumstances of the case. That raises

questions of fact. That matter is sought to be

brought to the High Court under that notice of
motion. That matter cannot be resolved in the High

Court or anywhere else, in our submission, on a

strike out motion.

BRENNAN J:  Why not?

MR CHERNOV: Because, Your Honour, the cause of action is

one which is available to the present respondent

and has been - - -

BRENNAN J: That may, itself, be a matter of some

controversy.

MR CHERNOV:  Yes, it is, it might be. But, Your Honour,

with respect, unless it is a question of pure law

it would not be an appropriate matter to be

resolved by the High Court and, in our submission,

looking at the pleadings, this matter is one where

substantial issues of fact arise, if one looks, for

instance, at paragraphs 21 to 30 of the reply filed

by the Commissioner.

Walter 16 28/10/93

But the principal argument, in our submission,

in support of the Commissioner's application to

bring this matter to the Court is that once the 177
issue is resolved, the whole proceeding will be
resolved. That is just not so. It will not

resolve the recovery proceeding and, indeed,

Your Honours, the situation can arise where the

Federal Court may find for the Commissioner on the

177 proceeding but find ultimately against him on

the recovery proceeding because the Court may find

that, in the circumstances, the decision to

institute recovery proceedings was an abuse of

process. So that you can get a situation where the

177 issue becomes, in relative terms or relevant

terms, irrelevant so far as this application is

concerned.

BRENNAN J:  How could it be an abuse of process, if there is

a debt which is recoverable, to seek to recover it?

MR CHERNOV: It is intertwined, Your Honour, with the

argument that the whole purpose of issuing

proceedings was to discriminate against the

taxpayer. There are decisions, in our submissions,

which recognize the excessiveness may be a ground

for attacking a decision to issue recovery
proceedings. In other words, the purpose for

issuing the recovery proceedings, for instance, is

to discriminate, and that has been recognized by

Mr Justice Harper in Worn's case, to which I might

take Your Honours if the Court wishes to pursue

that point. There are certain observations of the

Chief Justice in Clyne's case which also, in our

submission, lend support to the argument that it is

at least arguable that in certain circumstances the

institution of proceeding where, for example, an

objection has been lodged and not determined, may

amount to an abuse of process.

So that what we submit is no more than that it

is arguable that the Commissioner, by instituting

proceedings in certain circumstances, has abused

his power and that goes to the validity, in our

submission, of the institution of recovery

proceedings. Now, if that point is arguable, in

our submission, as we submit it is, then it is

premature to bring the 177 question to the High

Court in the context of this proceeding.

MASON CJ: But in a sense, on that issue, you may be

dependent on the attitude of the Court in relation

to the other application.

MR CHERNOV: Precisely, Your Honour. That may be so. I was

going to qualify later what we are submitting	by
saying or submitting this, that if the Court	were
minded to uplift the David Jones issue for

Walter 17 28/10/93

resolution, then it may be appropriate to uplift

the David Jones point in this case for resolution.

MASON CJ:	In other words, if it is coming on in Walter, you would not want to be left behind.
MR CHERNOV:	Your Honour, I was not going to put it that

way. What I was going to submit is that as a

matter of reality the Federal Court is likely to await, in any event, the resolution of the David

Jones issue because, of course, in our proceeding,

that issue does go not only to the notice of

assessment but goes to the attack on the 218

notices and to the recovery of proceeding -

instituting of the recovery proceedings, so we

would be submitting, Your Honours, if the Court

were minded today, or in due course, to decide to

uplift, so to speak, the David Jones issue in the

first matter, then it would be appropriate to

uplift it in this case because the issues raised

for the purposes of section 177 in our case is

slightly different - not slightly - are relevantly

different to those raised, that is to say the

factual dispute.

TOOHEY J:	But if we did that, on either approach would the matter then not have to go back to the Federal
Court?
MR CHERNOV:	Undoubtedly, Your Honour.

TOOHEY J: Resolving the David Jones point would not resolve

either of these applications in the way that they

have been presented.

MR CHERNOV:  I think not in the first case; certainly not in

our cases, Your Honour. May I also say this,

onwards, the Commissioner has annexed extracts from

Your Honours, that if one looks at what the

notices of assessment. If I can take Your Honours

to page 32 Your Honours will see that the issue
date is 28 July 1992.	Your Honours will also see

that the date due and payable is also 28 July 1992.
Now not surprisingly, that notice is attacked by

us. But more relevantly for immediate purposes, if

Your Honours would be good enough to go to page 34
Your Honours will see that the extract shows that

the issue date is 28 July 1992 and the date due and

payable is 8 September 1992.

Now, by reason of section 177(4) extracts have

certain evidentiary force and it is probably the

intention of the Commissioner to use section 177(4)
to get the benefit of 177(1). Our submission will

be, in due course, that that extract is wrong; that

the due date payable should be 28 July 1992. And

Walter 18 28/10/93

therein lies a potential problem for the High

Court, in our respectful submission - and I say no

more than potential - that there may be an issue

fact sought to be raised as to whether this notice,

which is exhibited to the statement of claim and in

the appeal book, is factually correct. Now,

whether the Commissioner will be arguing that we

are precluded from raising that issue or whether

the Commissioner will seek to substitute some other

document, I do not know, but it is a potential

factual issue as are the particulars of assessment

that are to be found at pages 27 to 30 of the

application book. Your Honours will see that from

page 31 the extract C to which I have referred is

relied upon by the Commissioner, in paragraph 7 of

the amended statement of claim and, of course, is

challenged by us.

Your Honours, we would submit with great

respect that this Court would be benefited by a

decision of the Full Court of five. A judge in the

first matter would not lightly give that indication

if that were the mere possibility that Mr Merkel would have it. In our submission it may be that

the Full Court of five may decide that the David

Jones case was wrong and the Bloemen principle to

apply. In any event, whether it does or does not,

in our submission this Court, with great respect,

would be benefited by a consideration of this

matter, the importance of it of course being clear,

of five Federal Court judges.

BRENNAN J:  I am not quite sure that I have followed your

argument in the latter part. Do I understand you

to be saying that even if the Bloemen case were

applied in what is thought to be its full rigour,

that you would still have an argument that these

notices of assessment do not satisfy the

requirements of section 177?

MR CHERNOV:  In relation to one at least, yes, Your Honour.

We would submit we have any argument, Your Honour,

and that is because of the factual point to which I

have just taken the Court. In that respect, that

would be so. But otherwise, we would submit we are

entirely bound to accept the notices under 177.

BRENNAN J:  Even those which specify a date for payment

being the date of issue?

MR CHERNOV:  On our reading of Bloemen, yes, Your Honour.

We would be seeking, of course, to argue that

Bloemen, with respect, should be reconsidered if

that question ever arose but we do say, however,

Your Honour, that that does not apply to exhibit C

where there is, in our submission, a factual error

Walter 19 28/10/93

and 177, in our submission, would not preclude the

taxpayer from going to evidence on that point.

BRENNAN J:  In other words, you say that the 177 point may

not arise on the facts of your case.

MR CHERNOV:  Yes, Your Honour. In our submission, the

fragmentation is not as Mr Merkel would have it,

with respect, brought about by the David Jones
decision at all; the fragmentation is brought about
by the fact that there are three separate causes of

action or claims, rather, in our proceeding and if

one of them were to be removed to this Court, there

would be necessarily a fragmentation and that, of

course, goes against the interests of the parties,

it goes against the public interest, in our

submission.

TOOHEY J:  Mr Chernov, I do not understand your answer to

Justice Brennan. The section 177 point would have

to arise, would it not, on the Commissioner's

argument, whatever arguments you put, because the

Commissioner would be arguing that the operation of

section 177 is such as to shut out these other

arguments.

MR CHERNOV:  Yes, Your Honour. I regret I have probably

answered that badly. Exhibit C would be the only

notice in relation to which we would be submitting

177, on the present authority, precludes it from

being challenged. In other words, the current

authorities would prevent us from challenging, we

would submit, the efficacy of the due making - or
the due making of the assessment in relation to the

notices other than C.

TOOHEY J:	On either approach - on your approach you would want to give section 177 a limited operation so as
to let in these other arguments.

MR CHERNOV:  Yes, Your Honour. I should also have said that

our contention would be, of course, that Bloemen is

distinguishable for the reasons that the Federal
Court has given, but essentially, if one looks at

the question and accepts Bloemen's case, then we
are bound by it in relation to all the notices

other than notice C. But, in our submission, the

most pertinent fact is that the resolution of the

David Jones point in this case, in our case, will

not only fail to enable the Commissioner to enter

judgment as he would have it, in paragraph 16 of

the affidavits, but it may be in one sense an

unnecessary exercise because one can find for the

Commissioner on 177 and find against him in the

proceeding. I am only talking about the recovery

proceeding because I have put the 218 proceeding

challenges to one side altogether.

Walter 20 28/10/93

Your Honours know, if I may with respect

remind Your Honours, that this is a proceeding

which has been consolidated and it was cross-

vested, that is the recovery proceeding instituted

by the Commissioner was cross-vested from the State

court where there is, on one view, a reluctance by the State court judges to apply David Jones and to

follow Bloemen's case. The cross-vesting was made

late last year without opposition from the

Commissioner. So the Commissioner knew that point

that he is going into the Federal Court on the

whole matter where the Full Court of the Federal

Court binds the judge of single instance in

relation to the 177 point.

Rather belatedly, Your Honours, can I hand to

the Court an outline of our submissions.
Unfortunately, modern technology has not permitted

me to make the amendments I wanted to make and

which I have made in submission to paragraph

numbered 7 because one matter that arose was this

question of fact which we submit may arise in

relation to the 177 issue.

I should also say, Your Honours, that it seems

now that the Commissioner has notionally changed

his notice of motion and does not want brought up

the matters that are in the Federal Court notice of

motion but seeks to bring the whole of the

proceeding to the Court and does not want any

matter to be resolved other than the David Jones

point. I have already referred Your Honours to the

Federal Court notice of motion which the

Commissioner filed and which he seeks to bring up at page 91 which raises, of course, the matter

slightly differently.

Those are our submissions, if the Court

pleases.

MASON CJ:  Thank you, Mr Chernov. Mr Nettle.

MR NETTLE:  If Your Honours please. May we just say that

notwithstanding the difficulties referred to, the

section 39B question, as a matter of public

interest, cries out for urgent determination.

Richard Walter provides a near perfect vehicle for

the determination of that question. Section 40

has been said by Your Honour the Chief Justice to

have the objective of providing an early

resolution for constitutional issues and other

issues of public importance. We pray that view in

aid in support of our contention that it is

appropriate that, at least in Richard Walter, this

Court remove the cause so that that question may

be decided. It will dispose of the whole of the

cause if it goes in favour of the Commissioner and

Walter 21 28/10/93

if it goes against the Commissioner, the matter

may then proceed without risk of further appeal on

the question, almost probably, on the merits of

the tax appeal and the Part IV C proceedings.	May
it please the Court.

MASON CJ: 

Mr Merkel.

MR MERKEL: 

In our submission, my learned friend has not

produced reasons why removal should not be made.
In so far as he wishes to raise an issue about the

right to issue recovery proceedings, we say that at

the moment no facts are put forward by the court

which would say this Court could not resolve that

issue as one of law which is, in itself, bound up

with the policy underlying section 177. He puts

before Your Honours two questions under exhibit A

which is at page 32, which is an assessment which is due and payable on the date of issue. In fact

that is not one of the assessments which are relied

upon for recovery. Exhibit C, at page 34, he says

may raise an issue of fact. He has not identified

it, but that itself raises two questions which are

relevant for the Court: one is that that will raise
that there is a question of fact, the question as

Your Honour Justice Brennan puts it, the full

rigour of 177, and secondly, it leaves untouched
all the other assessments which are not raised by a
question of fact but which are challenged on the

ground that they were not duly made.

So we would say that those reasons really

support the view that we have put to Your Honours,

that it is appropriate to lift the proceeding the
subject of the motion so the Court will have before

it the full range of questions that arise under

section 177 which it can resolve in an appropriate

way on the removal. If Your Honours please.

MASON CJ:  Thank you, Mr Merkel. The Court will take a

short adjournment in order to consider the course

it will take in these matters.

AT 10.33 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.50 AM:

MASON CJ:	In each of these applications the Court makes an order for removal of the proceedings on the notice
of motion pending in the Federal Court. I should
point out that it will be necessary for a Justice

Walter 22 28/10/93

of the Court to give, on a summons for directions,
close attention to the questions which should be

framed for consideration by the Full Court of this

Court, particularly in the second and third

applications, the applications in which Mr Merkel

appears for the applicants.

MR GZELL:	Your Honours, in view of the circumstance that that means that the proceedings are fractured and
that the ordinary course of events is not followed,
and in view of the submissions that have been made
to Your Honours that the administration of the Act
is the motivating force in the Commissioner seeking
to have the matters removed, and in view of the
fact that if the matter goes against the
Commissioner there may well be a duplication of
costs, we would ask that Your Honours give
consideration to ordering the Commissioner to pay
the costs in any event as a condition of removal.
MR CHERNOV:	Your Honours, we would make a like application.
MASON CJ:	What do you say about that, Mr Nettle and

Mr Merkel?

MR NETTLE:  Your Honour, it is submitted that it is

inappropriate but if the Court deems it
appropriate, then we will consent to the payment

of costs of the hearing of the substantive issues

sought to be removed.

MASON CJ:	Mr Merkel.
MR MERKEL:	We put the same submission, although we would

put that it is a matter that is appropriate to be

considered by the Full Court on the question of

costs, leaving it open to be put at that time.

MASON CJ:  The Court takes the view that it is a matter that

should be considered by the Full Court when the

matter comes before it.

AT 10.53 AM THE MATTER WAS ADJOURNED SINE DIE

Walter 23 28/10/93