Deputy Commissioner of Taxation v Glennan

[2005] NSWSC 888

CITATION:	Deputy Commissioner of Taxation v Glennan [2005] NSWSC 888
HEARING DATE(S):	13 April 2005
JUDGMENT DATE :	2 September 2005
JURISDICTION:	Common Law
JUDGMENT OF:	Adams J
DECISION:	The appeal is dismissed. The defendant is to pay the plaintiff's costs as agreed or assessed.

CATCHWORDS:	Income Tax - assessment - taxpayer's right to challenge - significance of s177(1) ITAA - allegations of impropriety by Commissioner - whether litigable - significance of Federal proceedings - estoppel
LEGISLATION CITED:	Income Tax Assessment Act 1936 Bill of Rights 1689 Article 4, (Imperial) and Constitution Act s 5 Commonwealth of Australia Constitution Act 1900 (Imperial) Taxation Administraton Act (TAA), 1953
CASES CITED:	Glennan v FCT [2003] 31 (2003) 198 ALR 250 McLaurin v FCT (1961) 104 CLR 381 Allsop v FCT (1965) CLR 341 Carmody; ex parte Glennan 31; 198ALR 259 Port Melbourne Authority v Anision Pty Limited (1981) 147 CLR 589 Henderson v Henderson [1843-60] All ER 378 DCT v Walker (1994) 183 CLR 168 Mooney v DCT (1906) 3 CLR 221
PARTIES:	Deputy Commissioner of Taxation - Plaintiff Michael J Glennan - Defendant
FILE NUMBER(S):	SC 11821/2003
COUNSEL:	Mr R Quinn - Plaintiff Mr T Hall - Defendant
SOLICITORS:	Ms E Whan - Australian Government Solicitor Mr D Knaggs

LOWER COURT JURISDICTION:	Supreme Court (Master)
LOWER COURT FILE NUMBER(S):	11821/2003
LOWER COURT JUDICIAL OFFICER :	Associate Justice Harrison

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ADAMS J

2 September 2005

11821/03

DEPUTY COMMISSIONER OF TAXATION v GLENNAN

JUDGMENT

1 HIS HONOUR: The plaintiff, The Deputy Commissioner of Taxation sued the defendant taxpayer for unpaid tax. The defendant filed, in due course, a Further Amended Statement of Defence and an Amended Cross-claim, (which, for convenience, are called defence and cross-claim). The Commissioner moved to strike out the defence and dismiss the cross-claim and sought summary judgment. The notice of motion was determined on 24 September 2004 by Associate Justice Harrison who concluded that the defence was hopeless and the cross-claim disclosed no reasonable cause of action and should be struck out as vexatious. Her Honour entered judgment in favour of the plaintiff in the sum $5,667,207 plus costs. The defendant appeals from the Associate Judge’s decision.

Background

2 Between 1978 and 1987 the defendant was a practising barrister. During the period 1983-1984, whilst continuing to practise at the Bar the defendant, acting alone and as a spare-time exercise, conducted research for a major transport tunnel under Sydney Harbour. He selected a route, drew a cross sectional plan and devised what was said to be “the optimum engineering method (as ultimately constructed)”. About August 1984, the defendant became a party to a joint venture which, it was proposed, would undertake the engineering project involving construction of the Sydney Harbour Tunnel. The parties fell out and the defendant became involved in two sets of litigation, both of which were settled the defendant was paid $1,365,000. Two successive deeds of settlement were entered into, the latter rescinding the former. Amongst other things, the defendant argues that the first deed was completely irrelevant and the Commissioner should not have had regard to it. (It seems to me to be self-evident that the whole of the transactions taking place between the parties that resulted in the payments to him were relevant. However, I do not have to determine this point.) The Commissioner determined that the settlement sum was assessable income and issued an assessment accordingly. The plaintiff objected to the assessment. His objection was disallowed.

The defendant’s appeals

3 The defendant applied to the Administrative Appeals Tribunal on 27 March 1996 for review of the plaintiff’s objection decision concerning the defendant’s objection to the 1988 assessment.

4 On 8 November 1996 the Tribunal affirmed the Commissioner’s assessment. The defendant appealed to the Federal Court of Australia. On 17 October 1997 the Court (Foster J) ordered that the Tribunal decision be set aside and the matter be remitted to the Tribunal for re-determination in accordance with the judgment. In substance, Foster J concluded that the Tribunal had erred by not considering whether the settlement sum was received as a “windfall gain”. On 13 February 1998, the defendant sought by notice of motion in the Federal Court orders that the remittal to the Tribunal be rescinded and that the settlement sum was not taxable. On 9 September 1998 Foster J varied the order of remittal by directing that the Tribunal find that the settlement sum was not taxable under s 25(1) or s 25A(1) of the Income Tax Assessment Act 1936 (the ITAA) but leaving open alternative arguments available to the Commissioner as to whether the sum was taxable. Foster J rejected the defendant’s constitutional argument.

5 On 29 September 1998 the defendant appealed to the Full Court of the Federal Court against the second decision of Foster J and, on 30 September 1998, the plaintiff appealed against both judgments, also seeking leave to appeal out of time in relation to the first of them.

6 On 26 March 1999 the Full Federal Court gave the Commissioner leave to appeal, allowed the appeal, set the orders of Foster J aside and ordered that the defendant’s appeal from the Tribunal be dismissed. In substance, the Full Court held that the Tribunal had not erred in law in concluding that the whole of the settlement sum was income according to ordinary concepts and was therefore was assessable as income under s 25(1) of the ITAA. As the Associate Justice observed, the reasons for the Full Court’s conclusion turned upon the provisions of the joint venture agreement, the nature of the defendant’s claim in the Supreme Court and the relationship between that claim and the settlement.

7 On 16 March 1999, following the hearing of the appeal, but before judgment was delivered, the defendant was granted leave to file further submissions responding to matters raised by additional submission in reply that had been filed by the plaintiff. In his submissions the defendant also sought to raise for the first time the terms of a taxation determination of April 1993 (TD 93/58) dealing with the question, “under what circumstances is the receipt of a lump sum compensation/settlement payment assessable”. The determination is unremarkable. It is, in substance, a ruling that if the payment is compensation for loss of income only or if a portion of the lump sum payment is “identifiable and quantifiable as income…[as] where the parties either expressly or impliedly agree that a certain portion of the payment relates to a loss of an income nature” the payment is assessable income under s 25(1) of the ITAA, in the first instance as to all of it and in the second as to the identified income. The ruling noted that, in the first instance, “even when the basis of the calculation of the lump sum cannot be determined”, the payment was nevertheless income since, ex hypothesi, if payment is compensation for loss of income it does not matter how, as it happened, it came to be calculated.

8 The defendant submitted that he only became aware of the existence of TD 93/58 on 11 March 1999, although there is no doubt that it had been published, by CCH amongst others, long before the material time and was well and truly in the public arena. He complained that it had been neither mentioned nor disclosed by the Commissioner to him in connection with the dispute. The Full Court of the Federal Court, at all events, held that in the circumstances considered as a whole, it was clearly open to the Tribunal to find that the payment of the settlement sum to the defendant had the character of income on ordinary concepts and that “it was open to the Tribunal to conclude that the dispute between the taxpayer and his joint venture partner did not take the JVA or the terms of settlement outside the contemplated means by which he expected to receive gains”. The Court did not deal in terms with the defendant’s submissions on TD93/58 (although, as it seems to me, the substance of the judgment was a decisive answer to those submissions), perhaps because they did not fall within the parameters of the leave granted to make further submissions.

9 On 23 April 1999, the defendant applied to the High Court of Australia for special leave to appeal from the judgment of the Full Court of the Federal Court. On 9 April 2001 he filed notices of discontinuance of his applications.

10 On 26 May 2000 the defendant applied to the High Court for constitutional writs (prohibition and mandamus) and ancillary relief (certiorari and an extension of time) upon the ground, inter alia, that the plaintiff and his officers had failed to assess the defendant’s income in accordance with TD 93/58. Kirby J refused the defendant’s application for orders nisi. Dealing with the defendant’s contention that the Commissioner and his officers should be required to comply with the ruling, in effect, despite the judgment of the Full Federal Court, Kirby J pointed out that the judgment of the Full Court was valid and binding between the parties until lawfully set aside. The defendant’s argument was thus fundamentally flawed and, accordingly, his Honour held that it was not reasonably arguable. On 25 July 2000 the defendant filed an application for leave to appeal from the judgment of Kirby J but this was discontinued by him on 9 April 2001.

11 On 9 April 2001 the defendant commenced proceedings by way of writ of summons and statement of claim (amended 17 December 1001) in the High Court. His principal contention was that the assessment under challenge was inconsistent with ruling TD 93/58. The plaintiff having applied to strike out the statement of claim, the matter came before Gleeson CJ on 21 May 2002. The amended statement of claim sought the following:

• A declaration that s 25(1) of the ITAA was impliedly repealed by the legislation relating to the self assessment system, in its operation with respect to the amount received by the plaintiff by way of settlement of his Supreme Court action.
• A declaration that the defendant’s conduct in making the assessment was arbitrary and unconstitutional.
• A declaration that the decisions of the AAT and Federal Court were of no legal effect.
• An order restraining the defendant from acting upon or giving effect to the assessment.
• An order setting aside the decisions of the AAT and the Federal Court on the ground that they were procured by the defendant’s equitable fraud.
• Damages, including aggravated and exemplary damages.

12 On 7 May 2002 Gleeson CJ ordered that the defendant’s amended statement of claim be struck out, his summons be dismissed, the action be dismissed and that judgment be entered for the defendant with costs. In the course of his judgment, Gleeson CJ said as follows -

“One of the grounds relied upon before Kirby J and the central contention in the present proceedings in this Court, was an assertion that the assessment…was inconsistent with…TD 93/58, dealing with the circumstances under which the receipt of a lump sum settlement payment will constitute assessable income. I should say at once that, as at present advised, I cannot see that there is any disconformity between the ruling and the assessment. The assessment was based upon the view, upheld by the Administrative Appeals Tribunal and found by the Full Court of the Federal Court not to involve error of law, that the whole of the settlement was income according to ordinary concepts. As the Full Court put it, that fell “to be determined by reference to what the payment was received for”. The ruling appears to me to have been directed to the kind of problem that arises when a settlement relates to claims partly of a revenue and partly of a capital nature. And it states that a settlement sum is assessable income “if the payment is compensation for loss of income only”. Here, on the view upheld by the Full Court, the claims were wholly for lost revenue. The plaintiff disputes that. But he has failed in that argument. If the view of the Tribunal and the Full Court were correct, then it appears to be consistent with the ruling…[There] is a serious doubt as to whether the ruling applied and, if it applied, as to whether there was any disconformity between the ruling and the assessment.
It should also be mentioned that the plaintiff [here, the defendant] did not rely on the ruling in ordering his affairs, or raised the ruling in his notice of objection to the assessment; but he raised it, very late in the piece, before the Full Court. The Full Court did not mention the ruling in its reasons for judgment. Perhaps it simply regarded it as irrelevant. However that may be, the plaintiff discontinued his application for special leave to appeal to this Court. He is bound by the decision of the Full Court, upholding the decision of the Administrative Appeals Tribunal, and the defendant [here, the plaintiff] is entitled to the benefit of that decision, with its implications as to the character of the payment received by the plaintiff, and the account on which that payment was made.”

13 So far as the defendant’s equitable fraud claim was concerned, Gleeson CJ stated –

“The equitable fraud alleged relates to the tax ruling, the representations said to have been involved in it, the failure to bring the ruling to the notice of the plaintiff, and the failure to bring the ruling to the notice of the Tribunal and the Federal Court. In that connection, a number of observations may be made. The ruling was a public ruling. It was never concealed from anybody. The plaintiff himself brought to the notice to the attention of the Full Court of the Federal Court before the Full Court delivered judgment. Although the plaintiff represented himself in this Court, he was represented by Senior Counsel in the Full Court. There was nothing to prevent the plaintiff, at any stage, making whatever use of the ruling he desired. The fact that he only came upon it at a late stage is not a ground for complaint against the defendant. It was not referred to in the notice of objection to the assessment, or relied on before the Administrative Appeals Tribunal. As I have indicated, I would not wish to be taken to suggesting that such reliance would have been of any use to the plaintiff. But to make the absence of reference to the ruling the basis of an allegation of equitable fraud against the defendant goes beyond the bounds of even the most enthusiastic advocacy.”

14 Amongst other thing, Gleeson CJ held that the Federal Court plainly had jurisdiction and concluded that the defendant was merely attempting to re-litigate his liability to income tax by making a collateral challenge to decisions that went against him against a background of having discontinued attempts to appeal against those decisions. His Honour concluded that the defendant’s pleading did not disclose a cause of action and was vexatious and, accordingly, made the order to which I have referred.

15 The defendant’s appeal from the decision of Gleeson CJ was dismissed on 17 June 2003. In the course of dealing with the ground alleging equitable fraud, the Court observed (Glennan v FCT [2003] 31; (2003) 198 ALR 250 at 253-4) –

“[22] The determination restated, with reference to the decisions in McLaurin v FCT (1961) 104 CLR 381 and Allsop v FCT (1965) CLR 341, the circumstances in which``` s25(1) brings in a receipt to the extent that a portion of a lump sum compensation or settlement payment is identifiable as income. The position was reached in argument on the appeal that the determination was but a restatement of the applicable law. The essential point made by the appellant was that the ruling should have been disclosed or specifically brought to his attention.
[23] However, the ruling was never concealed by the commissioner and, if the appellant had wished to utilise it before the AAT, it was discoverable by the exercise of reasonable diligence on his part. Further it is difficult to see how that which did no more than restate a principle of law applicable to a particular outcome could itself have any independent operation upon that outcome. The alleged failure of the commissioner to apply the ruling or to draw the attention of Mr Glennan or the other decision-makers to it could not amount to “equitable fraud”.
[24] Further, the doctrine relied upon and identified as “equitable fraud” was developed in Chancery with an in personam remedy to enjoin the enforcement of judgements obtained in the common law courts. The AAT was not a court exercising the judicial power of the Commonwealth and, as an administrative body, it must at least be doubtful whether there could be any scope for the impeachment of its decisions in this way.”

16 Also on 17 June 2003 the High Court dismissed the defendant’s additional application for a declaration that the judgment and orders pronounced by Kirby J in respect of the application for constitution writs were null and void as constitutionally infirm. (Re Carmody; ex parte Glennan 32; 198 ALR 259).

The proceedings in this Court at first instance

17 On 12 January 2004 the plaintiff filed an amended default statement of claim, in substance alleging the defendant’s liability to income tax for the specified years and his failure to pay it, giving particulars of the way in which the total sum of $4,922,677.75 (as it then stood) was calculated. On 10 August 2004 the plaintiff filed the further amended statement of defence and amended cross claim. Amongst other matters, the defendant denied that the settlement sum was assessable as income under the Public Tax Rulings or the ITAA and asserts, in addition, that the assessment was made and issued contrary to article 4 of the Bill of Rights 1689 and section 5 of the Australian Constitution insofar as those provisions affect the relevant taxation legislation governing the disputed assessment. More generally, the defence alleged that the “assessment is unconstitutional and/or unlawful by reason of its being founded (in part) upon the purported unlawful and arbitrary imposition by the plaintiff of one or more unlawful exactions, penalties and/or interest charges (as pleaded or particularised in the plaintiff’s statement of claim)”.

18 The defendant alleged in his defence and contended in this Court that he was not estopped (in the sense referred to in Port Melbourne Authority v Ansion Pty Limited (1981) 147 CLR 589 and Henderson v Henderson [1843-60] All ER 378 at 382 per Wigram VC) by the course and outcome of the Federal proceedings, which I have briefly summarised above.

19 It is unnecessary for present purposes to set out in detail the matters contained in the defence seeking to give substance to these allegations. Generally, it was alleged that the plaintiff and defendant were in such a lawful relationship that the plaintiff had the duty to disclose the existence of TD 93/58 specifically to the defendant and a duty to act in accordance with it, that the plaintiff’s failure to do so was, in the circumstances “fraudulent, that the plaintiff repudiated its rulings and this repudiation was, amongst other things, tainted by overt dishonesty amounting to fraud attended by moral turpitude on the part of the plaintiff” with the result that the assessment was issued in the knowledge that it was both illegal and unconstitutional and was accordingly not a bona fide assessment. Neither the defence nor the cross-claim gives any particulars from which any of the extreme allegations made by the defendant could be inferred. The pleadings of the defendant refer to the proceedings which I have summarised above and assert –

“The defendant has exhausted all available rights of administrative and judicial review pursuant to TAA, Part IVC, for the purpose or disputing or contesting the subject income tax assessment whereupon pursuant to Bill of Rights 1689, Article 4, (Imperial) and Constitution Act s 5, the defendant became vested with the unfettered right to seek redress before an appropriate superior court of record administrating the [sic] the common law, for the purpose of disputing the constitutional and legal validity of the said assessment”.

20 Upon the grounds pleaded, the plaintiff’s application to strike out the defendant’s defence and cross-claim came before Associate Justice Harrison. Amongst other things, the defendant submitted that the amended defence pleaded a new cause of action of common law fraud but that, although the facts relied on were essentially those earlier referred to as equitable fraud, it was inconvenient to bring those proceedings at the same time as the other causes of action since, it was contended, allegations of this kind must be heard by a jury. The learned Associate Justice (rightly I my view) held that this submission was hopeless.

21 The learned Associate Justice held also that the defendant’s submission that, because the assessment was in excess of jurisdiction and invalid, he was not bound to appeal but was entitled to wait until sued for the tax to dispute his liability (relying on DCT v Walker (1994) 183 CLR 168 and Mooney v DCT (1906) 3 CLR 221) was answered by the judgment of Gleeson CJ in the prior proceedings, where his Honour held that the Federal Court undoubtedly had jurisdiction and, if any other jurisdiction was in doubt, her Honour (also rightly in my view) held it could and should have been raised in those proceedings, relying on Anshun and Henderson. The learned Associate Justice then dismissed the defendant’s final submission that he was entitled to maintain an action under Article 4 of the Bill of Rights where all the statutory rights have been exhausted, concluding that Article 4 of the Bill of Rights does not give a cause of action recognised in Australia to sue servants of the Crown where all other statutory rights in the particular case are exhausted. The Associate Justice went on to say –

“The defendant’s case as pleaded in the amended defence and amended cross-claim are hopeless. It is my view that the amended defence and cross-claim disclose no reasonable cause of action.”

22 It was contended on this appeal that the learned Associate Justice’s judgment did not deal with the substance of the defence and cross-claim and, accordingly, even though it may be that (if her Honour were otherwise correct) it was in order for her to strike out the defence and cross-claim, a judgment in favour of the plaintiff ought not to have been entered. I will deal with this argument in due course.

Grounds of appeal

23 The grounds of appeal were – in defiance of the Rules – set out in the defendant’s affidavit of 5 November 2004. They are extensive. At the hearing, however, Mr Hall of counsel for the defendant confined them to the following:

G.4 The Plaintiff failed to prove his claim against the Defendant and failed to comply with SCR Part 13, Rule 2(1)(a), by reason of the following:-
4.2 the Plaintiff purported to rely solely upon the operation of Income Tax Assessment Act 1936, Section 177(1) (“ITAA, s 2177(1)”) which gives probative evidentiary force only to the following:-
(a) production of the original Notice of Assessment; or
(b) production of a document under the hand [meaning thereby, by his own hand] of the “Commissioner of Taxation”, a “Second Commissioner” or a “Deputy Commissioner”, such document purporting to be a copy of the subject Notice of Assessment.
G.5 To the extent that the Plaintiff relied upon ITAA, Section 177(1), in support of a claim based on the issue of the subject income tax assessment, the production of a document duly conforming with the requirements of the last mentioned provision:-
5.1 is not conclusive evidence of the validity or legality of the said assessment;
and
5.2 does not prevent the taxpayer relying upon appropriate constitutional and/or legal grounds which are not permitted to be raised in a matter arising under TAA, Part IVC.
G11 There is no taxation without the consent of Parliament, which must be embodied in statute and expressed in clear terms. This has been done in the enactment of ITAA S.25(1), pursuant to which the said receipt is not assessable as income [and in accordance with the relevant decision of High Court of Australia, this is patently so – see Public Tax Ruling TD93/58].
GT12 The Plaintiff’s claim is a claim arising under Federal law and is therefore subject to and governed by (inter alia):-
12.1 Commonwealth of Australia Constitution Act , 1900 (Imperial);

12.2 Commonwealth Constitution;
12.3 Bill of Rights 1689 (Imperial) [operating in New South Wales pursuant to the Charter of Justice, 9 George IV, Chapter 83 (confirmed by Imperial Acts Application Act , 1969, Section 5 (NSW);
G13 In defence of the plaintiff’s said claim the Defendant pleaded and relied upon and the matters pleaded by him in paragraphs 1.7 to 1.12 inclusive and paragraph 2 of his said Statement of Defence (“the said constitutional issues”)
G14 In accordance with the long-settled law (as correctly set forth in Public Tax Ruling TD93/59 (“TD93/58”) the said receipt was not assessable as income pursuant to ITAA, s 25(1) (this being the only provision presently relied upon by the Plaintiff).

G15 By reason of the matter set out in paragraph G.14 hereof, the said assessment:-

15.1 contravenes Bill of Rights, 1689, Article 4 (Imperial); and

15.2 constitutes an attempted unlawful exaction.

G18 The Commonwealth Parliament lacks the constitutional competence to make income tax assessments either:-

18.1 uncontestable
18.2 uncontestable, except pursuant to Taxation Administration Act (TAA), 1953, Part IVC”)


G19 Pursuant to TAA, Part IVC, the Federal Court of Australia is not conferred with jurisdiction to determine any issue raised by a taxpayer in disputation of or in contesting a Commonwealth income tax assessment, other than he issue whether or not the subject assessment is “excessive”

G20 The Defendant relies upon his fundamental constitutional right to challenge the legality of the subject income tax assessment. Common law doctrines such as estoppel, res judicata and the “Anshun principle” have no operation when such constitutional issues are submitted for judicial determination and in any6 event, cannot displace the Constitutional and legal obligations of the Crown pursuant to Bill of Rights, 1689, Article 4 The defendant is entitled to raise this constitutional issue at any time.

24 Mr Hall said that the defendant relied “to a lesser extent” on the grounds in G11 to G15 and G18 to G20 because “they are what gave rise to the matters which we seek to agitate as to G4 And G5”.

Is the defendant estopped from litigating these matters?

25 The defendant’s short answer to the apparent obstacle of estoppel in accordance with the principle enunciated in Anshun (supra) is that the issues sought to be litigated by his defence and cross-claim were not litigated in the Federal Court and were not capable of being litigated in that Court. In this regard, Mr Hall relied on s 14ZZO of the TAA 1953, which is to the following effect –

“Grounds of objection and burden of proof
In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision:
(a) the appellant is, unless the court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b) the appellant has the burden of proving that:

(i) if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or

(ii) if the taxation decision concerned is a franking assessment – the assessment is incorrect; or

(iii)in any other case – the taxation decision should not have been made or should have been made differently.”

Mr Hall submits that, in the present case, the jurisdiction of the Federal Court was confined to the question of whether or not the notice of assessment is excessive. Mr Hall submitted that the jurisdiction of the Federal Court assumes that the assessment that is the subject of the appealable objection is a valid and lawful assessment because of the character of the notice of assessment conferred by s177(1) of the ITAA. That provision is in the following terms –

“The production of a notice of assessment, or of a document under the hand of the Commissioner, or a Deputy Commissioner purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act (1953) on review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.”

26 Mr Hall said that the defendant sought by the present proceedings to establish that “the assessment was false” upon the ground that it was based upon a receipt which was not income under s25(1) of the ITAA for three reasons: the first is that the Commissioner did not apply TD93/58 despite being bound to do so by having regard to the first terms of settlement rather than to the second terms of settlement which, it was contended, had annulled the first; secondly, the Commissioner did not apply to the settlement sum the decisions in FC of T v Spedley Securities Limited 88 ATC 4126; (1988) 19 ATR 938 and Allsopp v FCT (1965) 113 CLR 341; (1965) 9 AITR 724, as he was bound to do; and, thirdly, the only issue permitted to be made in proceedings under Part IVC of the TAA was “whether or not the Commissioner’s assessment was excessive” but not whether the assessment was valid or invalid, that is to say, made according to law.

27 As I have pointed out, the fundamental contention of the defendant, as advanced by Mr Hall is plainly without merit. It seems to me to be obvious that that s 14ZZO does not limit the taxpayer to a mere argument about a mode of calculation: if the receipt said to be assessable as income is not, rightly considered, income at all, it follows that the assessment is wholly excessive. In this respect it has only the effect that, if the taxpayer wishes to argue that the assessment is excessive, the burden of proving such an assertion is upon the appellant rather than requiring the Commissioner to establish its correctness.

28 The case for the defendant is, in reality, a simple one. He submits that the Commissioner wrongly characterised the settlement sum as income whereas, in law, it was not. The argument that he could not maintain this case – in whatever form it took – under Part IVC of TAA is simply untenable. The case that is characterised as fraud necessarily depends on establishing, as a starting point, the settlement sum was income, since – as the argument goes – it was so obvious that it was not income that for the Commissioner to conclude otherwise proved fraud. If the settlement sum was income, then ex hypothesi there is no fraud; if the sum was not income, the defendant was not liable to pay the assessment. It follows that, on this formulation, there is no real “fraud” case at all – the allegation is a mere label without content. I deal later with the alleged non-compliance with or non-disclosure of the ruling.

29 It is perhaps desirable to deal in a little more detail with the effect of s177(1) of the ITAA, since this was the subject of argument. In F J Bloeman Pty Limited v FCT (1981) 147 CLR 360 at 375, Mason and Wilson JJ said:

“An explicit and, in our view, correct statement of the effect of s 177(1) was made by Taylor J in McAndrew [v FC of T (1956) 98 CLR 263] at 281-2282. For the reasons there expressed His Honour concluded that ‘s177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground’. He conceded that the word ‘excessive’ in s190(b) was inappropriate. However, he considered that an assessment ‘made in purported but not justifiable exercise of a statutory power’ could properly be described as “excessive” ((1956) 98 CLR at 282).
This interpretation gives expression to the policy which underlines, and is manifest in, the statutory provision. The effect of this policy is that, once the Commissioner takes advantage of s177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Part V.
Although s190(b) places the onus on a taxpayer upon a reference or appeal of proving that the assessment is excessive, it enables him to contest his substantive liability to tax. It is then for the Board upon a reference or the Court on an appeal, within the framework of the taxpayer’s objection, to ascertain whether he is liable to tax and, if so, in what amount. The Part V procedures accordingly protect the taxpayer and enable him to have his liability to tax determined.”

Their Honours dealt (at 375-6) with the appellant’s argument that the taxpayer would not be protected from an abuse by the Commissioner of his considerable powers –

“So much may be conceded, but the Act does not proceed upon the hypothesis that the Commissioner will be motivated in the exercise of his powers by improper or collateral purposes. As Isaacs ACJ observed in FCT v Clarke (1927) 40 CLR 246 at 276, after stating that s39 of the Income Tax Assessment Act 1922-1925 (a provision analogous to s 177 of the Act) made the assessment unchallengeable:
‘The Act so far trusts the Commissioner and does not contemplate, in my opinion, a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury.’
It does not necessarily follow from what we have said that the Act excludes the general jurisdiction of the Supreme Court. Section 177(1) specifically operates by compelling a court, for example the Supreme Court, in the exercise of its jurisdiction to treat a notice of assessment on its production as conclusive evidence that the assessment has been duly made and thereby foreclosing that issue. In theory s177 leaves the Supreme Court with jurisdiction to decide whether an assessment has been duly made in a case in which an appropriate document is not produced.
However the rights of review given to the taxpayer by Part V are comprehensive. Quite evidently it was contemplated that the Commissioner would in every case take advantage of s177(1) and foreclose the exercise of jurisdiction to decide whether an assessment has been duly made. The general tenor of the statutory provisions suggests that a taxpayer wishing to challenge a notice of assessment served upon him will be effectively combined to the Part 5 procedures.”

30 Part V of the ITAA was the predecessor of Part IVC of the TAA.

31 In DCT v Loftus [2002] VSC 68; 49 ATR 131 the taxpayer sought to challenge the validity of assessments on the ground that they were not made bona fide, did not relate to the subject matter of the taxation legislation, were void and invalid and were not in fact assessments as contemplated by the ITAA. Beech J, following Bloeman, held that the court was compelled to treat the “notice of assessment on its production as conclusive evidence that the assessment has been duly made, thereby foreclosing that issue”. His Honour concluded that DCT v Richard WalterPty Limited (1994-1995) 183 CLR 168 (to which I refer below) was confined to the propriety of an attack on the assessment in proceedings brought pursuant to s39B of the Judiciary Act 1903 but did not qualify what was said in Bloeman.

32 The defendant relies on Mooney v The Commissioners of Taxation (NSW) (1905) 3 CLR 221, where the High Court held that the assessment by the Commissioners exceeded their jurisdiction and was invalid, with the consequence that the taxpayer was not bound to appeal to the court of review (under the taxation legislation) but was entitled to wait until sued for the tax and dispute his liability in the action. The conclusiveness of the assessment was held to apply only to matters within the jurisdiction of the Commissioners.

33 In DC of T v Richard WalterPty Limited (1994-1995) 183 CLR 168 Mason CJ, Dawson, Toohey and McHugh JJ held that s177(1) did not purport to deprive the Federal Court of the jurisdiction conferred by s39B(1) of Judiciary Act 1903 but was consistent with the principle expressed by Dixon J in R v Hickman; ex parte Fox and Clinton (1945) 70 CLR 598 at 615 –

“Such a clause is interpreted as meaning that no decision which is in fact given by the body concerned shall be invalidated on the ground that it has not conformed to requirements governing its proceedings or the exercise of its authority or has not confined its acts within the limits laid down by the instrument giving it authority, providing always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body.”

Brennan referred to the Hickman principle as reconciling a privative clause with the provisions prescribing the exercise of a power and giving the clause effect “only if the purported exercise is a bona fide attempt to exercise the power, it relates to the subject matter of the legislation and it is reasonably capable of reference to the power given to the body purporting to exercise it”: 70 CLR at 193-4. His Honour accepted that a purported assessment made in bad faith would forfeit the protection of the privative clause and “would be a nullity” but “an assessment which has been made in a bona fide attempt to exercise the power to make it is not invalid merely on account of a disconformity between the amounts assessed and the amounts properly assessable under the general provisions of the Act”: ibid at 197. Brennan J also pointed out that the taxation legislation, despite the privative clauses, allowed “a taxpayer full opportunity to have the general provisions…affecting tax liability applied”: ibid at 199.

34 It seems to me to be self-evident that the objections, as I have summarised them above, which the defendant raises in his defence and cross-claim to the validity of the Commissioner’s assessment were all fully arguable (if arguable anywhere) by him in the Federal proceedings and that, quite apart from any constraint affecting this Court by virtue of s177(1) of the ITAA, he cannot re-litigate them here.

35 It is therefore unnecessary for me to consider whether the conclusion expressed by Beach J in Loftus as to the scope and applicability of the judgments in Richard Walter and their effect on Bloeman is correct. I note, however, that in Re Pezzano; Ex parte DCT(NSW) (1988-1989) 20 ATR 423 (not litigation under s39B of the Judiciary Act 1903 but the hearing of a bankruptcy petition made by the Deputy Commissioner) Beaumont J said –

“It may be accepted that a colourable assessment or an assessment made with an improper purpose in view would be regarded as an abuse of power and, as in the case of any act of bad faith in public administration, would be declared invalid by a court in the exercise of the ordinary power of judicial review. But the debtor does not, and could not, suggest bad faith here. Rather what is put on his behalf is that the process of reasoning employed by the petitioner was unreasonable in the sense that it lacked a rational foundation, with the consequence, it is said, that the amended assessments were invalid.
I cannot accept this analysis. The question here is not whether the amended assessments were reasonably made or lacked rational foundation. The issue is whether they were, in truth, assessments at all. If they purported to be assessments but were vitiated for abuse of power or bad faith, this court could go behind them. But where, as here, the real debtor’s attack concentrates on the merit, or lack of merit of the decision-making process, this court lacks jurisdiction to interfere. Section 177(1) of the Income Tax Assessment Act 1936 makes the assessment issued in good faith conclusive unless it is set aside in accordance with the appellate procedures laid down in Part V of the Act. In my opinion, the assessments now challenged must be treated as valid in the absence of any allegation of bad faith.”

It is difficult to reconcile this statement with the conclusion expressed in Loftus . It seems to me, however, that Anshun is a sufficient answer to the defendant’s attempt to relitigate the propriety of the assessement in these proceedings.

The question of the Commissioner’s bona fides

36 I have already mentioned the defendant’s attack on the bona fides of the Commissioner and the particulars provided, which amounted to alleged intentional errors of interpretation of the relevant legislation, deliberately disregarding the decisions in Spedley Securities and Allsopp and the dishonest failure to disclose specifically to the defendant or to abide by TD 93/58. As I understand the pleadings, the appellant alleges that the law so self-evidently demonstrates that the settlement sum is not income that the Commissioner must have acted in bad faith to have issued assessment asserting, in effect, that the receipt is income. He also asserts that the Commissioner was bound to consider only the second of the deeds of settlement, since the first was rescinded.

37 It is patently obvious that these matters do not and cannot establish a lack of bona fides. The absurdity of the argument is demonstrated – if it were not already obvious enough – by the fact that, in one way or another, the Commissioner’s conclusion about the proper characterisation of the defendant’s receipt of the defendant’s receipt of the settlement sum was upheld by the Tribunal, the Full Court of the Federal Court and in High Court of Australia. So far as the tax ruling is concerned, it is patent that there was no duty in the Commissioner to disclose it specifically to the defendant and it would not have determined the matter in favour of the defendant at all events. Moreover, its non-production and effect could or should have been raised by him in the Federal proceedings.

38 If it were possible in these proceedings (for enforcement of the assessment) to litigate an alleged “inadmissible purpose” (cf Bloeman 147 CLR at 378; and see Mason CJ in Richard Walter 183 CLR at 187), it must follow that precisely the same case could have been made in the Federal proceedings. It is not tenable, as I see it, to argue that s177(1) has any different effect in the Federal arena to that which it has in the State arena.

39 It may be that, as Gleeson CJ pointed out in the passage quoted above, the defendant could not have litigated the question of “equitable fraud” in his review in the AAT. However, it is clear that, whatever form this claim might take reflecting the allegations essentially made by the defendant and even if it be dressed up as common law fraud, it is so completely devoid of merit as to justify its summary dismissal.

Jurisdiction of the Master (now Associate Justice)

40 The defendant submits that the jurisdiction of a Master of the Court is conferred by the Supreme Court Rules Part 60 rule 1A and not otherwise. So much is conceded by the plaintiff. The defendant however, claims that because he has raised in his defence and cross-claim the application of the Bill of Rights 1689, the Commonwealth Constitution and the Income Tax Assessment Act 1936, the Master had no power or jurisdiction to deal with the plaintiff’s motion for summary judgment. Part 60 paragraph 1A 1(c) gives to a Master jurisdiction to exercise the powers of the Court “in respect of the matters mentioned in Part 3 of Schedule D.” Paragraph 25(f) of Schedule D provides for trial without jury of any “demand for recovery of money or damages, whether liquidated or unliquidated” except specified and irrelevant claims or demands referred to in the other paragraphs of Cl 25. Section 255-5 of the TAA provides that the tax payable by the defendant, being a “tax related liability” is a debt due to the Commonwealth, payable to the Commissioner, and may be recovered after it has become due and payable in a court of competent jurisdiction. It follows that the Master had jurisdiction to consider and determine the plaintiff’s notice of motion with a result that she had the power to make the orders from which appeal is brought.

The order for summary judgment

41 Associate Justice Harrison concluded that the defendant’s pleadings disclosed no reasonable defence and no reasonable cause of action. Her Honour described the defendant’s case as hopeless and vexatious. In my view these conclusions were entirely justified. It follows that the order that defence and cross-claim be struck out was inevitable. The defendant submits, however, that her Honour should not have entered judgment in favour of the plaintiff. The argument proffered in support of this contention was that the defendant, at some unspecified time in the future, might be able to come up with a meritorious defence and that it was unfair to prevent him from litigating such a potential defence. Mr Hall was unable to suggest, let alone articulate, the character of such defence. The statement of the argument is its own refutation.

42 It is inescapable that, in substance, the defendant is seeking to relitigate matters that were either decisively determined against him in the Federal proceedings or should have been raised by him in those proceedings and were not. His defence and cross-claim are vexatious. It was not only right to enter judgment in favour of the plaintiff, it was inevitable that this should occur and it would have been plainly unjust not to do so.

Orders

43 The appeal is dismissed. The defendant is to pay the plaintiff’s costs as agreed or assessed.

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