Deputy Commissioner of Taxation v Liu
[2012] NSWDC 148
•14 September 2012
District Court
New South Wales
Medium Neutral Citation: Deputy Commissioner of Taxation v Liu [2012] NSWDC 148 Hearing dates: 6, 14 September 2012 Decision date: 14 September 2012 Jurisdiction: Civil Before: Gibson DCJ Decision: (1) Defendant's application to reopen his case dismissed.
(2) Judgment for the plaintiff for $750,000.
(3) Defendant pay plaintiff's costs.
(4) Exhibits retained for 28 days.
Catchwords: TAXATION - liability for payment of income tax - evidentiary force of notices of assessment - conclusiveness of notices of assessment - operation of ss 175 and 177(1) Income Tax Assessment Act 1936 (Cth) - Judiciary Act 1903 (Cth) - whether hearing should be adjourned to permit service of s 78B notices - whether the constitutional issue was, or needed to be, pleaded - whether defendant should be granted leave to reopen after the hearing - judgment for the plaintiff Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56 - 62
Income Tax Assessment Act 1936 (Cth), ss 175 and 177
Judiciary Act 1903 (Cth), s 78B
Uniform Civil Procedure Rules 2005 (NSW), r 14.14(2)Cases Cited: AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Attorney-General v Lord Mayor of City of Sheffield (1912) 106 LT 367
Australian Competition and Consumer Commission (ACCC) v CG Berbatis Holdings Pty Ltd (1999) 95 FCR 292
Bright v Sampson & Duncan Enterprises Pty Ltd (1985) 1 NSWLR 346
Chandra v Perpetual Trustee Victoria Limited [2006] NSWSC 1046
Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2003) 216 CLR 161
City of Sydney Council v Satara [2007] NSWCA 148
Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 48 ALR 545
Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473
Deputy Commissioner of Taxation v Haritos [2010] VSC 275
Deputy Commissioner of Taxation v Ho (1996) 131 FLR 188
Deputy Federal Commissioner of Taxation v Cameron (1990) 91 ATC 4056
Deputy Federal Commissioner of Taxation v Niblett (1965) 83 WN (Pt 1) (NSW) 405
Dye v Commonwealth Bank of Australia [2012] NSWCA 220
F J Bloemen Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 360
Gaskin v Ollerenshaw [2010] NSWSC 788
Green v Jones [1979] 2 NSWLR 812
Hanrahan v Ainsworth (1985) 1 NSWLR 370
Kane v Wyllie [2006] NSWSC 710
Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263
Moore v Jack Brabham Holdings Pty Ltd (1986) 7 NSWLR 470
MRTA of WA Inc v Tsakisiris [2007] WAIRComm 1121
Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116
Packer v Meagher [1984] 3 NSWLR 486
R v Hush; Ex parte Devanny (1932) 48 CLR 487
R v Jocobson 1931 AD 466
Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (No 3) [2010] FCA 428
Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471
Vale v Vale [2001] NSWCA 245
VAW (Kurri Kurri) Pty Ltd v Scientific Committee (2003) 58 NSWLR 631
Zisis v Knighton [2008] NSWCA 42Texts Cited: - Category: Principal judgment Parties: Plaintiff: Deputy Commissioner of Taxation
Defendant: Eugene LiuRepresentation: Plaintiff: Ms J Little
Defendant: Mr R Carey
Plaintiff: ATO Legal Services Branch
Defendant: Kennedys (Australasia) Pty Ltd
File Number(s): 2011/200506 Publication restriction: None
Judgment
The plaintiff, by Amended Statement of Claim filed on 2 May 2012, seeks amounts representing income tax payable by the defendant for the years of incoming ended 30 June 2004, 30 June 2005, 30 June 2006, 30 June 2007, 30 June 2008 and 30 June 2009.
These amounts are set out in Exhibit B, the affidavit of Angelo Didone affirmed on 5 September 2012, as follows:
Amount claimed in the statement of claim in respect of income tax for the 2004, 2005, 2006, 2007, 2008 and 2009 income years.
$282,506.26
Plus: GIC pursuant to section 204 of the ITAA36, section 5-10 of the ITTPA97 and section 5-15 of the ITAA97 and Part IIA of the TAA53 Tax calculated up to and including 5 September 2012
$231,632.06
Amount claimed in the statement of claim with respect to penalty for tax shortfall for the years ended 30 June 2004, 30 June 2005, 30 June 2006, 30 June 2007, 30 June 2008 and 30 June 2009
$251,882.75
Plus: GIC pursuant to section 298-25 and Part IIA of the TAA53 calculated up to and including 5 September 2012
$45,159.28
Less: Credits & Payments
$0.00
TOTAL
$811,180.35
The total amount exceeds the jurisdictional limit of the District Court. Accordingly, the plaintiff seeks judgment for the jurisdictional maximum, namely $750,000.00 (s 4(1) District Court Act 1973 (NSW)).
The defendant filed a Defence on 20 February 2012. After the Amended Statement of Claim was filed and served pursuant to leave granted on 27 April 2012, the defendant's Amended Defence was due to be filed and served by 16 May 2012. On 14 May 2012, the defendant requested until 28 May 2012 to file and serve the amended defence. On 22 June 2012, no amended defence having been filed, the defendant sought, and was granted, leave to file and serve his amended defence by 16 July 2012. On 16 July 2012, a further extension to 20 July 2012 was consented to by the plaintiff. An Amended Defence was filed on 20 July 2012.
On the day of the hearing, the defendant sought an adjournment for three reasons:
(a) Unavailability of pro bono counsel;
(b) The need to serve notices under s 78B Judiciary Act 1903 (Cth); and
(c) The intention to rely on a Further Amended Defence.
This application to vacate the hearing date is dealt with in more detail below. I shall first set out the nature of the claim brought by the plaintiff.
The background to these proceedings
The plaintiff issued six notices of assessment, for the financial years ending 30 June 2004 to 30 June 2009, to the defendant, for payment by 31 March 2011. It is not in dispute that the defendant received those notices (see paragraph 3 of the Amended Defence of 20 July 2012). Also served were notices of assessment to pay administrative penalties for the financial years ending 30 June 2004 to 30 June 2009 ("the penalty notices"). Again, service of these documents is not in dispute (see paragraph 8 of the Amended Defence). Following the failure of the defendant to pay the income tax and penalty amounts on or before the due dates contained in those notices, the plaintiff commenced proceedings on 20 June 2011.
Orders were made for the filing of any evidence by the parties. The defendant's evidence was to be served by 10 August 2012. No evidence was served. Three days prior to the hearing, on 3 September 2012, the defendant served a document entitled "Objections to Assessments" on the plaintiff.
The issues raised by the defendant in the defence
In both oral submissions and in the amended defence, as well as in the further written submissions, the defendant asserts error in the calculation of the defendant's income tax.
An issue raised in oral submissions (but which does not appear in the defence) was that no interest was payable for the period prior to the due date on the notices (31 March 2011). This is incorrect. Interest is in fact due and payable from the date on the assessments and in accordance with the calculations set out in Exhibit B.
Challenges to the calculations in the defence also included asserted factual errors, including the claim that the defendant was not an Australian resident during the relevant income tax periods and not liable to pay income tax, and that certain payments received were reimbursements for expenses, and not assessable income, were not the subject of submissions. These challenges were not the subject of any evidence at the hearing and the defendant failed to comply with orders to serve evidence prior to the hearing. After counsel for the plaintiff pointed out in her written submissions that no evidence had been served or tendered at the trial, an application to reopen the case was sent to my chambers late in the afternoon of 13 September 2012. This application is dealt with in a separate section of this judgment.
Counsel for the defendant told me, during the 6 September hearing, that he had had received the brief only the night before, and he was concerned about his ability to deal with these issues. To assist counsel in this regard, I granted leave to the defendant to provide further written submissions on the issue of the calculation of the General Interest Charge (GIC) applied to the outstanding income tax amounts on the basis that the due date was incorrect. I also permitted counsel to provide further submissions on the issue of whether the defence in its present form raised the constitutional argument.
I have now received those written submissions and the submissions of the plaintiff in reply. As they go beyond the subject for which leave was granted, I shall first deal with the issues the subject of oral submissions before me in court.
Sections 175 and 177 of the Income Tax Assessment Act 1936 (Cth)
The principal problem the defendant faces is the conclusive nature of ss 175 and 177 of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936). Sections 175 and 177 provide as follows:
"175 Validity of assessment
The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.
177 Evidence
(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second 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 a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.
(2) The production of a Gazette containing a notice purporting to be issued by the Commissioner shall be conclusive evidence that the notice was so issued.
(3) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a document issued by either the Commissioner, a Second Commissioner, or a Deputy Commissioner, shall be conclusive evidence that the document was so issued.
(4) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced.
(5) To avoid doubt, subsection (4) applies to a copy or an extract of a document that was given to the Commissioner on a data processing device or by way of electronic transmission unless the taxpayer can show that the taxpayer did not authorise the document."
Notices of assessment have been held to have a conclusive evidentiary character, save for Part IVC proceedings, that the amount and all the particulars of assessment are correct: McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 281-282 (per Taylor J); F J Bloemen Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 360 at 376 per Mason and Wilson JJ. Part IVC proceedings are review proceedings in the Administrative Appeals Tribunal and appeals to this court concerning an objection decision. While the defendant has commenced proceedings in the Administrative Decisions Tribunal in the days immediately prior to the hearing of this claim, those proceedings are conceded not to be proceedings under Part IVC.
The plaintiff submits that this means s 177(1) ITAA 1936 conclusively establishes that the amounts sought by the plaintiff are payable, for the reasons explained by Mason and Wilson JJ in F J Bloemen Pty Ltd v Commissioner of Taxation (Cth), supra, at 375:
"... once the Commissioner takes advantage of s 177(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 Pt V."
Although Part V has now been replaced by Part IVC, the content and intent of Part IVC remains the same.
Counsel for the plaintiff draws my attention to the statement of Kaye J in Deputy Federal Commissioner of Taxation v Cameron (1990) 91 ATC 4056 at 1091:
"I have concluded that the Master's exercise of his discretion adjourning the hearing of the plaintiff's summons miscarried because it was based upon an error of law. That error was a failure by the Master to give proper effect to the operation of the provisions of s 177(1) which read as follows: "The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second 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 V on a review or appeal relating to the assessment) that the amount and all the particulars of the assessment are correct."
It is settled law that, by those provisions, a court is compelled to treat a notice of assessment as conclusive evidence that the Commissioner has made an assessment of the amount of tax due to be paid by the taxpayer, and that in making the assessment the Commissioner has complied with the formalities of the Income Tax Assessment Act. In FJ Bloemen Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 360 at 375, Mason and Wilson, JJ described as an explicit and correct statement of the effect of s 177(1) made by Taylor, J in McAndrew v The Federal Commissioner of Taxation (1956) 98 CLR 263 at 281-282 that the section "was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any grounds." Referring to the policy underlying s 177(1), their Honours stated: "The effect of this policy is that, once the Commissioner takes advantage of s 177(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 Pt V.""
This was further explained by Ireland J in Deputy Commissioner of Taxation v Ho (1996) 131 FLR 188 as follows:
"By virtue of s 177(1) of the Income Tax Assessment Act 1936 (Cth) the production of a notice of assessment by the Deputy Commissioner is, except in proceedings on appeal against the assessment, conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct.
Upon production of the notices of assessment in recovery proceedings, s 177(1) operates to preclude the taxpayer from impugning their veracity in those proceedings: McAndrew v FCT (1956) 98 CLR 263 at 281, F J Bloemen Pty Ltd and Simons v FCT (1981) 147 CLR 360 at 375; Deputy Commissioner Of Taxation (Cth) v Jonrich Pty Ltd (1986) 17 ATR 880 at 883, 899-900. The veracity of the assessments can only be impugned in proceedings by way of appeal under Pt4C Divisions 4 and 5 of the Taxation Administration Act 1953 (Cth). It is thus no defence to recovery proceedings that the tax as assessed under the notices is not due: Cywinski v Deputy Commissioner Of Taxation (Cth) (1989) 20 ATR 672 at 681.
The applicant has failed to lodge tax returns for the years the subject of assessment. Accordingly the notices of assessments produced by the Commissioner in these proceedings were default assessments determined by the Commissioner under s 167(c). Counsel for the applicant sought to advance the fact of their being default assessment as pertinent to his motion for a stay. Counsel also sought to distinguish Deputy Commissioner of Taxation v Mackey (1982) 45 ALR 284 upon the basis that the assessments in that case were made under s 167(b) and not s 167(c) as is the case here.
In these proceedings s 177(1) must have the effect, however, of precluding inquiry into the veracity of the assessment relied upon by the Commissioner. The fact that the assessments in question are default assessments under s167 can make no difference in these proceedings nor, in my view, provide a basis for distinguishing Mackey.
It was generally common ground between the parties that the Commissioner would be otherwise entitled to judgement for the amount assessed. The sole question for determination in these proceedings is thus whether the applicant was entitled in the circumstances to a stay of the proceedings instituted by the Commissioner for recovery of the amount assessed or of any judgement obtained in those proceedings."
Again, as counsel for the plaintiff points out in her written submissions (at paragraph 20), the plaintiff is not prevented from suing for recovery of tax debts because the taxpayer has not had objections determined or exhausted review or appeal rights: see Taxation Administration Act 1953 ("TAA 1953"), ss 14ZZM and 14ZZR and Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 48 ALR 545 at 547. The fact that pending objections will not preclude a recovery action was made clear by the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 (per Gummow A-CJ, Heydon, Crennan and Kiefel JJ) when their Honours cited with approval the decision of Asprey J in Deputy Federal Commissioner of Taxation v Niblett (1965) 83 WN (Pt 1) (NSW) 405 at 411. The authorities clearly establish that the policy of the taxation legislation in circumstances such as these should be given effect notwithstanding that the taxpayer's challenge to the assessments in question may ultimately be vindicated in Part IVC proceedings.
The relevant notices are produced as annexures to the affidavit of Mr Didone of 7 May 2012. The plaintiff's submissions before me were that these notices are conclusive evidence of their due making, and of the fact that the amount and all particulars of the assessment are correct. The defendant is therefore liable to pay the tax assessed and shown as due and, pursuant to s 255-45 of Schedule 1 of the TAA 1953, the plaintiff is entitled to rely upon those certificates as evidence of the matters stated therein.
The plaintiff also claims interest. By reason of these tax years predating the enactment of s 5-15 Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"), I must have regard to the transitional proceedings for GIC remaining unpaid as at the date of the new provision coming into force, namely 1 July 2010. The effect of the change to the legislation is that in circumstances where GIC is unpaid as at the date of the new provision coming into force, the plaintiff may rely upon the former provision, the new provision and the transitional provisions, namely s 5-10 ITAA 1997. This change does not affect Part IIA TAA 1953 and the plaintiff is entitled to continue to claim GIC pursuant to this provision. All income debts were in fact payable prior to 1 July 2010 and accordingly the plaintiff claims GIC on these unpaid income tax debts pursuant to s 204 ITAA 1936, s 5-10 Income Tax (Transitional Provisions) Act 1997 (Cth) and s 5-15 ITAA 1997.
The defendant's further submissions
This brings me to a consideration of the additional issues raised by the defendant, who in further written submissions challenges the entitlement of the plaintiff to seek GIC. It is submitted that the plaintiff has not discharged the evidentiary burden that falls upon him to prove the quantum of any Charge for which he says the defendant is liable, for the following reasons:
(a) the plaintiff cannot rely upon the assessments annexed to Mr Didone's affidavit affirmed on 7 May 2012 (Annx. A) to do so;
(b) those assessments do not purport to quantify any Charge, nor could an assessment for the purposes of sections 166, 169 or 174 (or for that matter sectionss 175 or 177) of the 1936 Act do so;
(c) it was open to the plaintiff to issue a notice in relation to the amount of each Charge under s.8AAF of the 1953 Act, or to include such a notice in the assessments at Didone 7.5.12 Annx. A, but he did not do so;
(d) in order to prove the quantum of each Charge, the plaintiff relies upon:
(i) the certificates at Didone 7.5.12 Annx. D and Didone 5.9.12 Annx. B;
(ii) the statements and averments in the Amended Statement of Claim;
(iii) the evidence of Didone 7.5.12 [11]-[13] and Didone 5.9.12 [4]-[6];
(iv) sections 255-45 and 255-50 of the 1953 Act; and
(v) the 'Statement of Account' referred to at Didone 7.5.12 [15] (Annx. C) and the 'report' referred to at Didone 5.9.12 [4] (Annx. A);
(e) sections 255-45 and 255-50 of the 1953 Act provide no more than that the relevant certificates and statements are prima facie evidence of certain matters;
(f) those provisions render the relevant certificates and statements admissible as evidence (Cross on Evidence [35001]), but they do not affect the onus of proof or the evidentiary (as opposed to legal) burden which falls upon the plaintiff (c.f. R v Hush; Ex parte Devanny (1932) 48 CLR 487 at 507-508 per Dixon J; Moore v Jack Brabham Holdings Pty Ltd (1986) 7 NSWLR 470 per Hunt J at 484G);
(g) nor do those provisions say anything about or purport to affect the probative value of the documents or statements to which they apply (c.f. s.177(1));
(h) on their own, the certificates and statements rise no higher than the level of assertion and in the defendant's submission have no probative value so far as a tribunal of fact is concerned;
(i) that tribunal would not be satisfied on the balance of probabilities, on the basis of such evidence alone, that the amount of any Charge for which the Defendant is liable is as claimed; and
(j) the Statement of Account and report generated by Mr Didone and referred to above, do not improve upon that situation for the reasons set out below, nor does the evidence of Mr Didone more generally.
The issues raised by the defendant
I shall first note the following as not being in dispute:
(a) No mathematical challenge is made to the calculated GIC on the penalty amounts;
(b) No objection was taken to the tender of the certificates (see generally Odgers, Uniform Evidence Law (9th Ed, Thomson Reuters) at [1.3.290]);
(c) The defendant's written submissions do not refer to any part of the defence as raising these issues;
(d) There was no cross-examination of Mr Didone.
I also note that the parties are largely in agreement as to the legislative framework with respect to the GIC applied to unpaid income tax (see the defendant's further written submissions at paragraph 4 and the plaintiff's further written submissions at paragraph 10).
Is the plaintiff's evidence sufficient?
The plaintiff relies upon ss 146 and 147 Evidence Act 1995 (NSW). The defendant submits that the plaintiff cannot rely upon s 147 of the Evidence Act 1995 (NSW) to contend for any particular presumption as it is clear from Mr Didone's evidence that he produced both documents for the purposes of this litigation (s 147(3)). While Mr Didone's affidavit was produced for the purposes of litigation (which is why he could have been cross-examined on its contents) and falls outside s 147, the material he annexes details the process and outcome in terms of computer generated documents from the accounting system of the plaintiff. The mere fact that GIC is generated does not mean that litigation is contemplated.
It is evident from these documents on their face how the GIC has been calculated. The submission that the plaintiff needs to tender evidence to explain the origin or basis for the particular interest rate is misconceived. These are matters that could have been raised by cross-examination of Mr Didone. In addition, the conclusive nature of the evidence tendered should not be overlooked.
These certificates and statements are prima facie evidence of the amounts that are due and owing. Counsel for the plaintiff has referred me to R v Jocobson 1931 AD 466 at 478-479 (see also Cross on Evidence at [1605], 7th Edition) where Stratford JA stated:
""Prima facie" evidence in its usual sense, is used to mean prima facie proof of an issue the burden of proving which is upon the party giving that evidence. In the absence of further evidence from the other side, the prima facie proof becomes conclusive proof and the party giving it discharges his onus."
Such evidence is legally conclusive in the absence of further evidence to rebut it (see Cross on Evidence at [7210]).
Counsel for the plaintiff draws my attention to Moore v Jack Brabham Holdings Pty Ltd (1986) 7 NSWLR 470. The legislation construed in this case was the Customs Act (Cth), s 255, which amounted to a statement and averment provision. Hunt J at 484G explained:
"That is because the Customs Act (Cth), s 255, makes averments by the plaintiff in his statement of claim prima facie evidence of the facts alleged. Although this provision makes no difference to the overall onus of proof (the statement to the contrary by Higgins J in Baxter v Ah Way (1909) 10 CLR 212 at 215-216 is, with respect, clearly wrong (see R v Hush; Ex parte Devanny (1932) 48 CLR 487 at 507-508; Exparte Ryan; Re Johnson (1943) 44 SR (NSW) 12 at 17; 61 WN 17 at 20), it does in effect place a factual onus upon the defendant which accentuates the prejudice which he suffers (and which removes the prejudice which the plaintiff might otherwise have suffered) as a consequence of the delay."
I note that this case is also referred to by counsel for the defendant, as authority for the proposition that ss 255-45 and 255-50 TAA 1953 renders the certificates admissible but does not effect the onus of proof or the evidentiary (as opposed to legal) burden falling on the plaintiff. As counsel for the plaintiff points out, in the portion that she had helpfully underlined, Hunt J's finding is to the contrary.
Where prima facie evidence is created by virtue of statutory provisions which are then relied upon to tender the relevant documents, in the absence of further evidence to the contrary, such evidence becomes conclusive proof and the onus is discharged. When this occurs, it may in effect place a factual onus upon the defendant.
Counsel for the defendant has also referred me to R v Hush; Ex parte Devanny (1932) 48 CLR 487 at 507-508. Both R v Hush; Ex parte Devanny, supra, and Moore v Jack Brabham Holdings Pty Ltd, supra, were considered by the High Court in Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2003) 216 CLR 161, where the significance of the averment provisions in s 255 Customs Act 1901 (Cth) and s 144 Excise Act 1901 (Cth) were considered. Hayne J, at [142], noted that while the averment provisions do not place upon the defendant the burden of disproving facts, averments of the custom rules sufficed to discharge its onus of proving those facts. It is then a matter for the judge to say, on the whole of the material, whether the facts are established by the requisite degree of proof. The judge may treat what is properly averred as establishing that degree of proof. I note a similar process of reasoning was undertaken by Mukhtar J in Deputy Commissioner of Taxation v Haritos [2010] VSC 275 at [15] - [16], in rejcting submissions that the assessments were "tentative or provisional" (at [15]).
In finding that the plaintiff has established the onus of proof, I taken into account the fact that no evidence has been filed or tendered by the defendant, that Mr Didone was not cross-examined and that no challenge was made, either by way of defence or the seeking of particulars, to the origin or basis of the interest rate which was applied, how that rate was derived, or the "parameters" of the accounting system.
I am also satisfied that the plaintiff can rely upon not only s 146 Evidence Act 1995 but also upon s 147 Evidence Act 1995, in that while the documents are produced for the purposes of this litigation, the material under challenge, namely the origin or basis for the particular interest rate, how the rate was derived and the "parameters" of the relevant accounting system are not particulars to this litigation, or indeed to any litigation, but part of the business activities of the plaintiff.
Has the constitutional issue has been pleaded in the amended defence?
The defendant's alternate argument, in relation to the constitutionality of ss 175 and 177 ITAA 1936, was that it was unnecessary to plead these, as the defence in its current form actually contains sufficient information to enable the court to deal with those issues. Alternatively, even if these issues were not pleaded, it was enough for the defendant to refer to them in correspondence. Alternatively again, it was enough simply to draw the attention of the court to the constitutionality issue. In each of these circumstances, it is submitted, the court has no option other than to adjourn the proceedings in order to comply with its mandatory obligation to permit service of notices.
I have set out in more detail below, in the section of this judgment relating to my refusal to grant the application to vacate the hearing date, consideration of issues relevant to the proposed defence of lack of constitutional validity of ss 175 and 177. I shall deal here only with the narrow issue raised in the further submissions, namely that the defendant is entitled, on the Amended Defence filed on 20 July 2012, to raise issues relating to the constitutional validity of ss 175 and 177(1) ITAA 1936. When this submission was raised before me, it was in the context of the Court of Appeal's consideration of these issues in Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135 in relation to the obligations of a party, and in particular a defendant, to specifically plead matters that may take an opposing party by surprise.
The first submission by the defendant is that the question of constitutional validity of ss 175 and 177(1) are matters of law, not questions of fact, and do not involve the relation of any fact in issue to a defence, or to a question of law. There is therefore no obligation to plead the defence at all, which is purely a matter of law (further written submissions, paragraph 14). The plaintiff must be taken to know the law.
Alternatively, the defendant submits that the issue had been "flagged" (to use the word adopted by the defendant in written submissions.) to the plaintiff in correspondence prior to the hearing, and there was therefore no basis on conclude that the plaintiff might be taken by surprise by the defendant's reliance upon the constitutional validity of s 175 and s 177.
Further in the alternative, it is submitted that no warning or pleading is necessary if the issue is raised in court, even if that occurs only at the hearing. Counsel for the defendant also relies upon authorities dealing with the application of s 78B which refer to the issue arising "objectively", not simply because a party or even both parties say that it arises (Australian Competition and Consumer Commission (ACCC) v CG Berbatis Holdings Pty Ltd (1999) 95 FCR 292 ("Berbatis") at [12]-[15] per French J; Green v Jones [1979] 2 NSWLR 812 at 818 per Hunt J).
In Berbatis, French J stated at [12]-[15]:
"[12] Subject to the provisions relating to the grant of interlocutory relief (s78B(5)) and the facility to continue proceedings on matters severable from the constitutional matter, the duty of the court not to proceed in a case to which the section applies is unqualified by any residual discretion to proceed - Green v Jones (1979) 39 FLR 428 at 432-433 per Hunt J, albeit that case preceded the enactment of para78B(2)(c) relating to severable matters. Kirby P said in State Bank of NSW at 140:
"... although there is a limited power to continue the hearing in default of notice, s78B is expressed in terms which are unusually emphatic. It is "the duty of the court not to proceed". Thus, it is not for the parties to determine the matter by their agreement. The court's duty arises because of its obligation to protect the interests of the partners in the polity of the Commonwealth."
As his Honour went on to observe, the emphatic language of the section and the strictly limited exceptions to the duty it imposes on the Court, stress the importance attached by Parliament to the proper fulfilment of the duty of notification which should not be narrowly confined.
[13] The rigidity of the duty imposed on the Court by s78B has been the subject of some criticism - Capelvenere v Omega Development Corp Pty Ltd (1983) 5 ATPR 40-386 at 44,546. Concern was there expressed about the possibility that constitutional points could be raised which were patently without substance. It was suggested that even a point recently decided by the High Court in indistinguishable circumstances could be raised again and again. That speculation was at odds with the observation of Hunt J in Green v Jones (supra) at 435, that s78B was not intended "to permit never ending challenges to matters which have already been determined by the High Court particularly recently by that Court". By extrapolation from judicial construction of like language in s40 of the Judiciary Act, relating to removal of causes, a matter should "really and substantially arise under the Constitution" before it attracts the operation of s78B - Re An Application by the Public Service Association of New South Wales (1947) 75 CLR 430 at 433 per Williams J. These cases and the general principles surrounding the application of s78B were discussed by Burchett J in Amrit Lal Narain v Parnell (1989) 9 FCR 479 at 486-489. His Honour said, at 489, and I respectfully agree:
"S78B only operates when the circumstances it postulates are made to appear to the court: it does not operate simply because a party asserts those circumstances. It is clear, from the reference to the possibility of intervention or removal of the cause to the High Court upon the initiative of an Attorney-General, that what the section contemplates is a constitutional question which is a live issue in the proceedings."
His Honour was there dealing with an application for judicial review from a Magistrate's decision to refuse bail to a person the subject of an extradition warrant pending the hearing of the extradition proceedings. A purported constitutional point having been raised, Burchett J said:
"On the basis that the constitutional point depends entirely upon an erroneous construction of the Extradition (Commonwealth Countries) Act, the cause pending in this Court does not "really and substantially" (to use the language of Williams J in the passage cited above) involve a matter arising under the Constitution or involving its interpretation."
[14] S78B does not impose on the Court a duty not to proceed pending the issue of a notice no matter how trivial, unarguable or concluded the constitutional point may be. If the asserted constitutional point is frivolous or vexatious or raised as an abuse of process, it will not attach to the matter in which it is raised the character of a matter arising under the Constitution or involving its interpretation - Nikolic v MGIC Ltd [1999] FCA 849 cf Australian Securities and Investments Commission v White (unrep, Fed Court, 16/7/98, Drummond J).
[15] Where a constitutional question is properly raised or appears, the public interest considerations which informed the enactment of s78B will transcend the private interests involved. See the judgment of Kirby P in State Bank of NSW at 140-141:
"In the unexpected course of litigation, a new and unanticipated matter may arise. However, the Act provides specifically for such an eventuality and does so in terms. Once that occurs, the high public interest in the consistent interpretation of the Constitution, if appropriate at the highest level of the judiciary, necessitates the opportunity being reasonably afforded to the Attorneys-General to consider whether or not to intervene or remove the cause (relevantly) from the State court. The injustices that may arise from delay and adjournment of the proceedings are addressed by the Parliament in s78B(2)(a) (providing for an order as to costs) and s78B(4) (providing for the Attorney-General of the Commonwealth in certain circumstances to authorize payment of an amount in respect of costs arising out of the adjournment). These provisions simply underline the fact that parties engaged in litigation which arises under the Constitution or involves its interpretation necessarily become caught up in disputes the importance of which may transcend their own private interests.""
His Honour went on to say (at [20]):
"[20] The scope of a "matter" in respect of which the Court has jurisdiction is defined by the controversy between the parties, but nothing in the concept of matter as developed in the cases requires that its characterisation as "arising under the Constitution or involving the interpretation of the Constitution" should depend critically upon the particular pleadings, claims or assertions made by the parties. Assertion or non-assertion of a constitutional question is not determinative of the character of the matter. Toohey J said in Re Finlayson; Ex parte Finlayson (1997) 72 ALJR 73 at 74 that:
"In terms of s78B, a cause does not "involve" a matter arising under the Constitution or involving its interpretation merely because someone asserts that it does. That is not to say that the strength or weakness of the proposition is critical. But it must be established that the challenge does involve a matter arising under the Constitution."
In that case the applicant's argument was based on a misunderstanding of the structure of the Family Court involving no more than a consideration of the division of functions that is a feature of any court. The mere assertion that there is a constitutional point, will not establish that the matter is one arising under the Constitution or involving its interpretation. On the other hand the failure to assert the constitutional point does not mean that a matter is not one arising under the Constitution or involving its interpretation."
In other words, if a matter arises under the Constitution, whether it has been pleaded or not, the court must deal with it in accordance with s 78B(1), namely proceed only in accordance with s 78B(2) until the requirements of s 78B(1) are satisfied.
The plaintiff submits (further written submissions, paragraph 25) that the "constitutional issue" is not pleaded and is therefore not a "matter" for the purposes of s 78B. It is not a "justiciable controversy" in that it does not form part of the pleaded defence to which the defendant is bound. Even if the constitutional defence were arguable, the defendant would be precluded from pursuing that defence on the basis that it had not been pleaded and it is therefore not part of the "pending calls" for the purposes of s 78B.
The first question is whether or not a party needs to plead a matter of law. Rule 14.14(2) Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") refers to "matters", prescribing the form of pleading by reference to this word, which counsel for the plaintiff draws to my attention is the same word used in s 78B ("a matter arising under the Constitute or involving its interpretation").
Counsel for the plaintiff submits, and I agree, that any proposition that there is no obligation to plead a matter which is purely a matter of law is "controversial" (written submissions, paragraph 29). It is contrary to the ratio of Kirby v Sanderson Motors Pty Ltd, supra, where the proposed amendment did in fact raise an issue of law in relation to facts already known to both parties.
Counsel for the plaintiff also draws my attention to Zisis v Knighton [2008] NSWCA 42, where an alleged constitutional issue (likewise going to jurisdiction) was raised in final addresses without any amendment to the pleading. The Court of Appeal said at [48]-[50]:
"[48] In the light of this conclusion Mr Mantziaris's submission that the Magistrate ought not to have departed from the general rule that costs follow the event is academic. However as that submission exposed a fundamental misapprehension about the contemporary approach to litigation, it should be considered briefly.
[49] The premise underlying Mr Mantziaris's submission was that the appellants were under no obligation to foreshadow the jurisdiction point to the respondents. This submission failed to take into account the rule that parties must plead specifically any matter which may take the opposite party by surprise: Uniform Civil Procedure Rules (2005) 14.14. Although the proceedings were commenced in 2004, the Amended Defence was filed on 17 November 2005 and, accordingly, having been filed after the commencement of the UCPR on 15 August 2005, was subject to that rule.
[50] Secondly, it failed to recognise the obligation of legal practitioners to ensure that the real issues in proceedings are disposed of in accordance with the over-riding purpose expressed in s 56 of the Civil Procedure Act 2005. Finally, the submission failed to pay regard to the fact that "the ambush theory of litigation was given its quietus by Heydon JA" (with whom Mason P agreed) in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 (at [22]-[30]). Parties are required to "lay their cards on the table": Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 (at [60]) per Ipp JA, (Sheller and Hodgson JJA agreeing)."
There are two matters arising out of these authorities which are also of note. The first is the Court of Appeal's reference in [50] to Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116 (at [22]-[30]), where the court deplored "the ambush theory of litigation" employed by defendants in the District Court. These principles are now endorsed by legislation: ss 56-62 Civil Procedure Act 2005 (NSW). The second is the reference by French J (as His Honour then was) in Berbatis at [13] to the potential of "never ending challenges", such as constitutional issues, being raised "again and again". S 78B notices were served in Haritos to challenge to constitutionality of s 175 and 177 and the Attorneys-General declined to participate, and the challenge was rejected by Mukhtar AsJ. While other issues also arose in Haritos, it was nevertheless an opportunity for the court to consider the constitutionality of s 175 and s 177 which was not taken up. Viewing the way in which the defendant has approached such an important issue as the notification of senior legal officials in every State and Territory of Australia (as well as the history judicial interpretation of s 175 and s 177) through the prism of ss 56 - 62 Civil Procedure Act and Aon, this is an unmeritorious argument.
The requirement for specific pleading is not only to ensure that the opposing party knows the case he has to meet (Kirby v Sanderson Motors Pty Ltd, supra) and to preclude parties from merely traversing allegations where the true case involve some positive assertion of fact or law (Attorney-General v Lord Mayor of City of Sheffield (1912) 106 LT 367) but also to ensure fairness, in the sense of justice being seen to be done. The obligation of parties to give notice so that cases can be prepared and presented in accordance with rules of fairness (Bright v Sampson & Duncan Enterprises Pty Ltd (1985) 1 NSWLR 346) means that the issue should not simply be "flagged". In particular, where a defence as important as a challenge to the constitutionality of legislation of this kind were to be made, there was an obligation not only to plead it but to give notice under the Judiciary Act or, alternatively, given that the plaintiff is a government department with a policy of notifying such matters, to put the plaintiff on notice that it should advise the Attorneys-General of the Commonwealth and the Attorneys-General of the States and Territories of Australia, in accordance with what Ms Little tells me is the plaintiff's practice.
Counsel for the defendant does not identify the manner in which this issue was "flagged". I do note that the defendant wrote to the plaintiff on 14 May 2012 and referred in passing in his email to a "constitutional defense [sic]" in the defence which the defendant personally drafted. The defence currently before the court is in the same terms as the defence drafted by the defendant personally, according to counsel for the defendant, and I can see nothing in the defence in its current form raising this issue.
What the defendant said about that defence was as follows:
"I intend to present a defense [sic] consistent with my defense [sic] to your first claim. Essentially that the assessments were not Nona [sic] fida assessments. The notices even if accurate on their face were not valid. I think that the constitutional defense [sic] I brought up sounds more impressive than it really is; that you cant [sic] just say I owe you a number and then make a court relying only on your number give judgment that is not apealable [sic]. I think it would not be inconsistent with what I had communicated to you and other ATO officers.
I would appreciate very much if you could allow me until May 28, 2012 to file my defense [sic]. With my many other legal issues going on it has been difficult to focus on this tax matter. I assure you that I take the matter seriously and will do my best to defend against what I believe to be an arbitrary and unauthorized exersize [sic] of taxation laws.
I will provide you updates should my defense [sic] evolve into something at least I understand. I dont [sic] think you have anything to worry about in terms of being abushed [sic] at TRial [sic] or me channelling the lawyering of Johnnie Cochran."
I have also read the correspondence attached to the affidavits which are exhibits in these proceedings, as well as the correspondence referred to in the application to reopen. Viewed as a whole, the defendant clearly sees his defence as something which will "evolve" (to use his own word from the email set out above) rather than to show his hand, or to put his cards on the table. The requirement is for defences to be pleaded, not to be kept up one's sleeve.
There are situations where, as a result of changes to legislation, the impact of recent decisions, or the crystallisation of issues at the trial, the judge appreciates that an issue arises requiring notices to be served under s 78B. However, for the reasons set out more fully below, I am satisfied that the constitutional challenge based upon the obiter remarks of Kirby J in futuris do not arise, for reasons similar to those explained by Mukhtar AsJ in Haritos at [14]. Accordingly, whether the defence were properly pleaded, or raised in correspondence, or merely raised in court at this hearing, I am satisfied that the defendant should not be permitted to rely upon it.
The defence to the statement of claim having no merits, the plaintiff is entitled to judgment on the pleadings as they currently stand. I shall now set out the basis upon which the defendant's applications to adjourn the hearing and to reopen his case have been dismissed.
Application to vacate the hearing date
At the opening of the hearing on 6 September, counsel for the defendant made an application to vacate the hearing date on the following bases:
(a) The unavailable of pro bono counsel who had been briefed in the matter for some time;
(b) The defendant proposes to raise issues as to the constitutionality of ss 175 and 177 ITAA 1936 and accordingly proposes to serve s 78B Judiciary Act 1903 (Cth) notices;
(c) The defendant proposed to rely upon a Further Amended Defence which was served on the solicitors for the plaintiff on 5 September 2012.
It was common ground between the parties that this proposed defence would require a vacation of the hearing date as it would raise matters which included the constitutionality of ss 175 and 177 Income Tax Assessment Act 1936 (Cth) and also raised a defence of abuse of process.
The defendant relied upon the affidavit of Rebekah Giles dated 5 September 2012 and his own affidavit of the same date. These affidavits were served upon the plaintiff at the close of business on 5 September 2012, the day before the hearing.
My reasons for rejection of each of these arguments is set out below.
(a) The unavailability of pro bono counsel
These proceedings were set down for hearing on 22 June 2012 for the matter to be heard on 6 September 2012. On that date, both parties were represented by their legal representatives.
On 26 June 2012, the solicitors for the defendant wrote to the solicitors for the plaintiff saying their counsel was unavailable on 6 September 2012. The letter went on to say:
"We have corresponded with Counsel and the Court and have been advised that the following dates are available for a 1 day hearing on 14 September 2012, 20 September 2012 or 21 September 2012.
In the circumstances, we intend to approach the Court to have the hearing date vacated and re-listed for a date within the above.
Please advise as a matter of urgency your availability within these dates."
The solicitor with carriage of the matter for the plaintiff replied to this email promptly the following day, on 27 June 2012, asking:
"Could you please advise counsel's availabilities in the week commencing 27 August 2012?"
No reply was received to this email until 16 July 2012 when the defendant's solicitors wrote to the plaintiff's solicitors saying:
"We refer to the directions hearing on 22 June 2012 and the order made by Judicial Registrar Smith that inter alia the Defendant file and serve his Defence by today.
Unfortunately, due to Counsel's commitments the Defence is yet to be settled.
We apologise for this delay and seek your consent to file and serve the Defence by next Friday, 20 July 2012.
We look forward to hearing from you."
The plaintiff's solicitors replied, on the following day (17 July 2012), stating:
"1. We refer to the above matter and your correspondence dated 16 July 2012 wherein your client requests a modification on the timetable for evidence.
2. We advise that we consent to your request to file and serve your client's defence on or before Friday 20 July 2012, however we note that the DCT will not consent to a further extension on the original timetable for evidence should your client fail to serve this evidence on 20 July 2012.
3. We note your correspondence dated 26 June 2012 and the writer's reply email dated 27 June 2012. Kindly advise if your client is confident that the balance of the orders made on 22 June can be maintained.
4. Please do not hesitate to contact the writer if you wish to discuss the above."
I note an amended defence was filed on 20 July 2012. However, despite the issues raised in paragraph 3 of the plaintiff's solicitors' email of 17 July 2012, it would appear the issue of re-listing the matter for the vacation of the hearing date has not been raised between the parties in correspondence. This can be seen in the final correspondence in this chain of emails which was sent by the defendant's solicitors on 3 September 2012 stating:
"Please find attached a statement of objections to the taxation assessments issued to our client for the financial years 2004-2009.
Would you please indicate whether the ATO is prepared to delay seeking summary judgment against Mr Liu until such time as it has made a determination with respect to Mr Liu's objection.
We look forward to hearing from you as a matter of urgency."
The matter was never re-listed in accordance with the proposal in the letter of 26 June 2012 from the defendant's solicitors. Despite a hearing date having been set on 27 June, no explanation is provided for the failure to raise these matters with the Court between 27 June 2012 and the hearing on 6 September 2012, although the provision of an explanation is not only expected but required: AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 ("AON Risk Services") at [102], [105] and [106].
The defendant has at all relevant times since May retained the services of a large law firm, Kennedys (Australasia) Pty Ltd, and he is represented by counsel in this hearing. As is set out in more detail below, the defendant's legal representatives have had no difficulties in attending to the complexities of these proceedings prior to the hearing.
Reliance is placed upon the fact that some or all of the defendant's lawyers are acting on a pro bono basis. While considerable flexibility should be afforded to lawyers acting on a pro bono basis, this does not extend to providing a separate set of standards for lawyers acting upon such a basis.
Hearings in this court would be vacated due to the unavailability of the counsel of choice (whether pro bono or not) only in exceptional circumstances. This is not one of them.
(b) Service of notices under the Judiciary Act 1903 (Cth)
The defendant sought an adjournment so that notices could be served under s 78B Judiciary Act 1903 (Cth) to give notice to the Attorneys-General of the Commonwealth and of the States of the nature of the matter which would be contained in the proposed Further Amended Defence, namely that the provisions of ss 175 and 177 ITAA 1936 are invalid under the Commonwealth of Australia Constitution Act ("the Constitution").
Section 78B Judiciary Act 1903 (Cth) provides:
"Notice to Attorneys-General
(1) Where a cause pending in a federal court including the High Court or in a court of a State or Territory involves a matter arising under the Constitution or involving its interpretation, it is the duty of the court not to proceed in the cause unless and until the court is satisfied that notice of the cause, specifying the nature of the matter has been given to the Attorneys-General of the Commonwealth and of the States, and a reasonable time has elapsed since the giving of the notice for consideration by the Attorneys-General, of the question of intervention in the proceedings or removal of the cause to the High Court.
(2) For the purposes of subsection (1), a court in which a cause referred to in that subsection is pending:
(a) may adjourn the proceedings in the cause for such time as it thinks necessary and may make such order as to costs in relation to such an adjournment as it thinks fit;
(b) may direct a party to give notice in accordance with that subsection; and
(c) may continue to hear evidence and argument concerning matters severable from any matter arising under the Constitution or involving its interpretation.
(3) For the purposes of subsection (1), a notice in respect of a cause:
(a) shall be taken to have been given to an Attorney-General if steps have been taken that, in the opinion of the court, could reasonably be expected to cause the matters to be notified to be brought to the attention of that Attorney-General; and
(b) is not required to be given to the Attorney-General of the Commonwealth if he or she or the Commonwealth is a party to the cause and is not required to be given to the Attorney-General of a State if he or she or the State is a party to the cause.
(4) The Attorney-General may authorize the payment by the Commonwealth to a party of an amount in respect of costs arising out of the adjournment of a cause by reason of this section.
(5) Nothing in subsection (1) prevents a court from proceeding without delay to hear and determine proceedings, so far as they relate to the grant of urgent relief of an interlocutory nature, where the court thinks it necessary in the interests of justice to do so."
The constitutional issue is based upon Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146 ("Futuris") at [122]-[131] where Kirby J made the following obiter remarks:
"[122] Matters not in issue: Before discussing the outstanding issues, it is appropriate to note two particular questions which, although contingently presented, were not part of the record:
(1) The constitutional validity issue: Whether, to the extent the Commissioner needed to rely upon them, ss 175 and 177(1) of the Act are invalid under the Constitution. This potential issue might arise on the basis that the provisions attempt to render unexaminable by the courts an administrative decision by a federal official imposing a tax, or to render such a decision examinable only under conditions that are inconsistent with the proper application of s 75(v) of the Constitution (and its counterpart, s 39B(1) of the Judiciary Act).
(2) The jurisdictional error issue: Whether, to attract relief under s 75(v) of the Constitution (or s 39B(1) of the Judiciary Act), the applicant must show more than legal error (here, the Commissioner making a legally flawed assessment under the Act) and must demonstrate that any such error took the Commissioner outside his lawful jurisdiction and power.
[123] Neither party raised the foregoing constitutional questions in written or oral submissions. No notices were given as required under the Judiciary Act. However, where fundamental questions as to the operation of the Constitution are necessarily raised in judicial proceedings, it is sometimes essential, subject to procedural fairness, for a court to address the questions even though the parties have elected not to do so.
[124] Paying proper regard to the fundamental principle of the rule of law and to the role of s 75(v) of the Constitution (and s 39B(1) of the Judiciary Act) in defending its objectives, the constitutional validity of ss 175 and 177(1) of the Act may be in doubt. Given recent explanations of the meaning, purpose and application of s 75(v) of the Constitution, it is questionable whether the Federal Parliament could lawfully provide that the "validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with".
[125] The validity of an assessment (like any other legislative, executive or judicial act of a Commonwealth officer) can only be finally determined by a court, not by parliamentary fiat nor by administrative action. Moreover, the effect of non-compliance with a provision of the Act must surely depend upon the particular terms of that provision; the nature, extent and purpose of any non-compliance; and whether in law the non-compliance affects (or does not affect) the validity of what has been done or omitted.
[126] In the generality of its language, s 175 of the Act may be an over-broad provision which could not successfully breathe validity into a purported "assessment" that was not in law an "assessment" as contemplated by the Act. This appears to have been acknowledged by this Court, at least so far as this Court has accepted the disqualifying consequences of assessments that are tentative or provisional, or made with a lack of good faith. In such cases (and, as I am inclined to believe, others) a document that purports to be an "assessment" under the Act, if fundamentally flawed, is not a statutory "assessment" at all. Section 175 could not then, as the case authorities say, "touch it".
[127] The questions that follow this logic are:
(1) What other relevant grounds of invalidity would take a purported assessment outside the power of assessment given to the Commissioner by the Act; and
(2) What then is the purpose and valid effect of ss 175 and 177(1) of the Act given that when validity matters most, namely where it is in doubt, such provisions may not in law stand against the irremovable facility of judicial review guaranteed by the Constitution?
[128] To answer these questions, and to confine ss 175 and 177(1) of the Act to an ambit regarded as tolerable when measured against the provisions of the Constitution, this Court has propounded a discrimen of "jurisdictional error". Thus, ss 175 and 177(1) of the Act will not prevent a judicial determination of invalidity where the making of an assessment involves "jurisdictional error". They may prevent such a determination where the error, even if one of law, is a "non-jurisdictional error". The former type of "error" takes the decision-maker outside or beyond the available jurisdiction or power. The latter is an error made within jurisdiction, and accordingly the decision-maker would still be competent to make it. Protective, privative-type provisions such as ss 175 and 177(1) of the Act are then enlivened and take effect.
[129] I have previously criticised the so-called "jurisdictional error" category despite the support it derives from the current doctrine of this Court. The classification is conclusory. It is very difficult to define and to apply. In recent years it has been substantially discarded by English legal doctrine. Jurisdictional error is nearly impossible to explain to lay people even though the Constitution (including the central provisions in s 75(v)) belongs to them. Most non-lawyers would regard it as a lawyer's fancy.
[130] Whatever the position may have been under the "prerogative" writs before and at 1901, there is no reason why the constitutional idea sustaining the writs expressed in s 75(v) (and s 39B(1) of the Judiciary Act) should not evolve into a broader concept of "legal error". Since 1901, the remedies referred to in s 75(v) have themselves evolved so that we now recognise the discretionary character of all the constitutional remedies. We should likewise accept a parallel evolution and simplification of the grounds for the named constitutional relief. There are few, if any, strict constitutionalist originalists in Australia today.
[131] Because of the state of the record and the arguments of the parties in this appeal, it is appropriate for me to put each of the foregoing constitutional questions to one side. They will not completely go away and the future will look after them. I therefore return to the issues that remain outstanding upon the record and within the current doctrine of "jurisdictional error" and hence to the operation of ss 175 and 177(1) of the Act as interpreted consistently with that doctrine."
A similar application was brought in Deputy Commissioner of Taxation v Haritos [2010] VSC 275 ("Haritos"). In that case, the taxpayer made a challenge under the Constitution pleading, inter alia, that the provisions of ss 175 and 177 of the ITAA 1936 were invalid under the Constitution, and relying upon the obiter statements of Kirby J in Futuris.
Mukhtar AsJ summarised the judgment of the majority in Futuris (which his Honour noted also incidentally dealt with the constitutional issue) and the obiter remarks of Kirby J in Futuris as follows (at [13]-[14]):
"[13] For the Commissioner, it was submitted that the High Court's decision in Commissioner of Taxation v Futuris Corporation Ltd authoritatively, and resoundingly, disposes of the issues against the taxpayer. The judgment of the majority in Futuris stands for or affirms the following propositions, which I think also incidentally deal with the Constitutional points remaining in the defence:
(a) The Commissioner has the general administration of the ITAA, and under s 166 makes an assessment from the returns, and from any other information in his possession. An assessment by the Commissioner identifies the completion of the process by which the provisions of the ITAA relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.
(b) The provisions of Pt IVC of the Administration Act set up a regime for the making of taxation objections, and review, and appeals to the Federal Court. Section 177 of the ITAA operates to change what would otherwise be the operation of the relevant laws of evidence. The presence of Pt IVC means section 177 meets the requirement of the Constitution that a tax may not be made incontestable because to do so would place beyond examination the limits upon legislative power.
(c) When s 175 is read with s 177, the result is that the validity of an assessment is not affected by failure to comply with any provisions of the Act. But a taxpayer with a grievance may object to the assessment in the manner set out in Pt IVC. The effect of s 175 is that errors in the process of assessment do not go to jurisdiction.
(d) There are two situations that may attract a remedy for jurisdictional error. First, s 175 only operates where there has been what answers the statutory description of an "assessment". A tentative or provisional assessment does not answer to that description. Secondly, conscious maladministration of the assessment process may also not produce an "assessment".
(e) An amended assessment is not to be treated as tentative or provisional simply because it might be the subject of a compensatory adjustment in the future or may not entirely survive a proceeding under Pt IVC. An assessment may be tentative or provisional where it is self-described as such or it fails to specify the amount of the taxable income which has been assessed and the tax payable.
(f) The notion of conscious maladministration arises as s 175 should be construed to not bring within the jurisdiction of the Commissioner an assessment which is made with a deliberate failure to comply with the provisions of the Act. That is, it does not encompass deliberate failures to administer the law according to its terms. Such a failure is a manifestation of jurisdictional error. But allegations that statutory powers have been exercised corruptly or with deliberate disregard of the scope of those powers are not likely to be made or upheld.
[14] Justice Kirby in Futuris did not regard the categories of jurisdictional error as confined to the two situations as posited by the majority of the court. His Honour, adopted some Australian academic thinking to include a category of "acting on the mistaken assumption or opinion as to the existence of a certain event, occurrence or fact ... or other requirement, when the act makes the validity of the decision-maker's acts contingent on the actual or objective existence of those things, rather than on the decision-maker's subjective opinion." As his Honour's views went beyond the decision of the majority, those views cannot be regarded as enlarging the content of the law."
Although notices were served upon the Attorneys-General of the Commonwealth, the States, the Northern Territory and the ACT, the court was informed by counsel that no Attorney-General has chosen to intervene (at [5]). Nor was there any application for removal to the High Court of Australia under s 40 Judiciary Act.
In Haritos, the defendant had at least set out in his defence the basis upon which there was a challenge under the Constitution. Not only has the defendant in these proceedings failed the plead the defence, he has come to court on the day of the hearing, in circumstances where he and those who are advising him had been alive to this issue for approximately five months and asks the court to vacate the trial date.
In the course of oral argument I was referred to AON Risk Services, supra, particularly at [102], [105] and [106] as follows:
"[102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment.
...
[105] The primary judge was in error in failing to recognise the extent of the new claims and the effect that amendment would have upon Aon. His Honour was in error in failing to recognise the extent to which the objectives of r 21 would not be met if the amendments were allowed. The known ill-effects of a delayed determination, which informed the purposes and objectives of the Rule, were present. Rule 502(1) read with r 21 did not provide an unfettered discretion to grant leave to amend. The objectives of r 21 were to be pursued in the exercise of the power conferred by r 502(1). The fact that ANU's new claims were arguable was not itself sufficient to permit amendment and could not prevail over the objectives of r 21. A "just" resolution of the proceedings between ANU and Aon required those objectives to be taken into account.
[106] Given the requirements of the Rule and the effects associated with delay, it was incumbent upon ANU to tender an explanation as to why the matter had been allowed to proceed to trial in its existing form. It needed to explain why it was seeking leave to amend at the time of the trial, when the two insurer's defences had identified the issue central to the claim it sought to bring against Aon more than 12 months earlier. None was given. His Honour was in error in accepting that ANU had provided a satisfactory explanation. The statements made by counsel foreshadowing leave to amend were not evidence. The ANU's solicitor's later affidavit did not support them. In addition to the defences, the letters written by Chubb in 2003 showed that ANU was told of the importance of the valuation of the property to the insurers long before the receipt of more recent documentation. ANU's solicitor did not suggest that the defences, raising the same matter in connection with the misrepresentations, were misunderstood in their potential relevance to Aon. He did not say that ANU was first alerted to Aon's possible involvement as a result of what was said in mediation."
The relevant principles in relation to the circumstances in which a court should adjourn a hearing by reason of a challenge to legislation, particularly legislation of longstanding, was dealt with in MRTA of WA Inc v Tsakisiris [2007] WAIRComm 1121 at [63], Ritter AP (with whom Smith SC and Harrison C agreed) observed:
"[63] The issue of vacating a trial date pending the determination of an appeal in another case was recently considered by the New South Wales Court of Appeal in City of Sydney Council v Satara [2007] NSWCA 148. When asked by me, Mr Howlett did not submit there were any errors of law in the reasons of McColl JA (with whom Beazley JA and Tobias JA agreed). It is accepted that the decision is not on all fours with the present case. The court was there dealing with an appeal against an adjournment granted on the basis of an application for special leave to appeal to the High Court in another case which, if special leave was granted, could have an impact upon the relevant law. The general observations of McColl JA are however of assistance. I extract the following five important observations by McColl JA in City of Sydney Council:-
(a) An appeal court will only interfere with a decision to grant or refuse an adjournment in exceptional cases and then only where the discretion has been exercised on a wrong principle or resulted in serious injustice; citing Meggitt Overseas Ltd & Others v Grdovic (1998) 43 NSWLR 527 at 528. ([18]).
(b) The court should deal with the law as it is, rather than speculate about changes in the law; citing Starke J in Ramsay v Aberfoyle Manufacturing Co (Australia) Pty Ltd [1935] HCA 75; (1935) 54 CLR 230 at 253 and other authorities. ([19], [20]).
(c) It is not "ordinarily sufficient to show that an appeal yet to be heard in another case may reach a legal conclusion which could support the claim made by the party seeking the adjournment"; quoting with approval the reasons of Ormiston JA (with whom Callaway JA agreed) in Geelong Football Club Ltd v Clifford [2002] VSCA 212 at paragraph [6]. ([30]).
(d) There were no black and white rules preventing adjournments in appropriate circumstances and in a civil case involving some technical rule of law or the disputed meaning of a particular section, "where the hearing and the resolution of the case will directly depend on the outcome of an appeal in a test case" it would be preferable to await the expected outcome; quoting Ormiston JA again at paragraph [6]. ([30]).
(e) Possible changes in the law are too speculative and it is ordinarily rare that one can foresee that a decision on appeal will necessarily apply although in some circumstances it might be open to a trial judge to adjourn the hearing of a case pending the outcome of an appeal yet to be heard in another case (quoting Ormiston JA in Geelong Football Club at paragraph [7] and citing Meggitt. ([30], [32])."
The fact that a party asserts that a matter arises under the Constitution or involves its interpretation is not, without more, a basis for vacating or adjourning a trial out of abundance of caution. In Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (No 3) [2010] FCA 428, Rares J at [13] and [14] noted:
"[13] Having now had the benefit of argument by the parties and time to reflect on it, I am satisfied that in truth no matter arises under the Constitution, or involves its interpretation, the subject of the s 78B notice in any event. And, that the position of counsel at the time the hearing commenced was correct. Notices were served out of an abundance of caution, as is often the case: see for example the remarks of Priestley JA in State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 4 NSWLR 549 at 560G-561A. As Burchett J said in Amrit Lal Narain v Parnell (1986) 9 FCR 479 at 489, s 78B only operates when the circumstances that it postulates are made to appear to the Court. The section does not operate simply because a party asserts those circumstances, nor does it operate merely because the Court acts out of an abundance of caution in seeking to ensure that the trial does not miscarry for failure to give a notice in case it were required.
[14] The reason s 78B(2)(c) was introduced into the Judiciary Act, is likely to have been due to some remarks made by Fitzgerald J in Capelvenere v Omega Development Corporation Pty Limited (1983) 5 ATPR 40-386 at 44,546 to which French J referred to in Australian Competition Consumer Commission v CG Berbatis Holdings Pty Limited [1999] FCA 1151; (1999) 95 FCR 292 at 297 [13]. The second reading speech of the Minister introducing the amendments to the Judiciary Act, inserting s 78B(2)(c), observed that the amendment would achieve improved operation of that section. As French J observed, the section does not impose a duty on the Court not to proceed pending the issue of the notice no matter how trivial, unarguable or concluded the constitutional point might be: Berbatis 95 FCR at 297 [14]."
Taking all of the above, and ss 56 - 62 Civil Procedure Act 2005 (NSW) into account, the application for adjournment to serve notices for an unpleaded defence is refused. This brings me to the issue of whether the defendant should be granted leave to file a further amended defence.
(c) Application to further amend the Amended Defence
The proposed amendments are as follows:
"Abuse of Process
14 The defendant has filed with the plaintiff a Statement of Objections, dated 3 September 2012, disputing each of the assessments issued to him which are the subject of these proceedings.
15 The plaintiff has declined to agree to stay these proceedings pending the determination of the defendant's objections to the assessment and / or any appeal from any such determination.
Particulars
Correspondence between the solicitors for the defendant and the plaintiff dated 9 August 2012, 10 August 2012, 3 and 4 September 2012.
16 There is no risk of action being taken by the defendant to prevent the collection of any tax payable by the defendant to the plaintiff by dissipating, disposing of or encumbering his assets.
Particulars
The defendant is prepared to give an undertaking to the Court not to dissipate, dispose or encumber any assets in his possession, other than to meet his reasonable living expenses, without first giving the plaintiff 3 days' notice of his intention to do so.
17 In the premises, it is an abuse of process and/or vexatious and oppressive for the plaintiff to seek to recover a debt in these proceedings while the defendant has objected to the assessments and the plaintiff has not yet made a determination with respect to the objections.
18 Pursuant to s 67 of the Civil Procedure Act2005 and/or the Court's inherent jurisdiction, the proceedings should be stayed or dismissed pending the plaintiff's determination of the defendant's objections and any appeal from any such determination.
Constitutionality of Sections 175-177 of the Income Tax Assessment Act 1936
19 The defendant has defences to these proceedings.
Particulars
Paragraphs 1-18 above are repeated.
20 The plaintiff seeks to obtain summary judgment in respect of its claims in the proceedings, relying upon ss 175 and 177 of the Income Tax Assessment Act1936 (Cth).
21 Insofar as ss 175 and 177 of the Income Tax Assessment Act1936 preclude this Court from considering and determining Mr Liu's defences to these proceedings, those provisions are beyond the legislative powers of the Federal Parliament and are invalid.
Particulars
The District Court in these proceedings is exercising federal judicial power pursuant to s 71 of the Australian Constitution. The Federal Parliament does not have power to preclude this Court exercising federal judicial power from considering and determining Mr Liu's defences to the proceedings and to remove the right of this Court to determine whether the defendant owes the amounts stipulated in the assessments issued to the defendant by the plaintiff. Accordingly, this Court does not have jurisdiction to grant summary judgment to the plaintiff without considering Mr Liu's defences to the proceedings or does not have such jurisdiction until such time as the defendant's objections to the assessments and any appeals therefrom have been determined."
The pleading of abuse of process as a substantive defence is novel: Packer v Meagher [1984] 3 NSWLR 486 at 492 ff; Hanrahan v Ainsworth (1985) 1 NSWLR 370. As to the s 175 and s 177 challenge, the majority decision in the High Court in Futuris is to the contrary. As Kirby J's views went beyond the majority, those views cannot be regarded as enlarging the content of the law. The amendment should therefore not be permitted by reason of the hopelessness of the defences pleaded, independently of the fact that it was proposed so late that the hearing would have to be vacated.
Application to reopen the case
After the defendant closed his case and oral submissions were completed, I made timetabling orders for written submissions on two limited issues, requiring the defendant to provide written submissions by Friday 7 September 2012 and the plaintiff to provide submissions in reply by Wednesday 12 September 2012. I stood the matter over for mention to Friday 14 September 2012, indicating that if the parties were able to comply with the timetable it was my intention to hand down judgment.
Late on the afternoon of Thursday 13 September 2012, a draft notice of motion and two supporting affidavits were forwarded to my associate by email. The orders sought in the draft notice of motion were as follows:
(1) That the defendant have leave to re-open its case.
(2) That the defendant have leave to file in court and read the affidavit of Eugene Liu sworn on 13 September 2012 and to rely upon that affidavit as evidence at the hearing.
(3) Such other orders as the court considers appropriate.
This email crossed with an email from the legal representatives for the plaintiff inquiring whether attendance was necessary on 14 September, given that the timetable had been complied with and I had indicated I would in those circumstances hand down judgment.
The affidavit in support of Aaron Bolton refers to correspondence which is not attached. Essentially, it traverses material already contained in the affidavits and recites the circumstances in which it is asserted that the defendant put the plaintiff on notice of a proposed constitutional challenge. Essentially what the affidavit recites is that in light of the point being taken that no evidence was tendered or read by the defendant (affidavit of Mr Bolton sworn 13 September 2012, paragraph 17), the defendant now wishes to take up the opportunity to lead such evidence.
The affidavit of Mr Eugene Liu sworn 13 September 2012 recites factual material which relates to matters raised in his defence. As is set out in the section of this judgment concerning the procedural history of the claim, the defendant was directed to file such affidavit material, and has failed to do so.
The circumstances in which a party may reopen a case are subject of a series of helpful Supreme Court decisions. These are set out in the written submissions handed up in court on 14 September 2012. The court must determine whether "the interests of justice are best served by allowing or rejecting the application" (Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471 per Clarke JA at 476C-478D). The role the Civil Procedure Act principles play in such a determination is explained by Garling J in Gaskin v Ollerenshaw [2010] NSWSC 788 at [13]-[15].
The defendant submits that this evidence was not led as a result of misapprehension by the defendant's lawyers as to the way in which the defendant would conduct its case but that even if a deliberate decision were taken, that is not decisive, citing Urban Transport Authority of New South Wales v Nweiser, supra, at 478E and VAW (Kurri Kurri) Pty Ltd v Scientific Committee (2003) 58 NSWLR 631 at [148].
The defendant has also drawn my attention to the impact of failure to permit reopening of the case, in terms of the significant prejudice to the defendant if he is bankrupted for the amounts claimed. I have given full weight to this submission, but it is insufficient to outweigh the many countervailing arguments for refusing to permit reopening of the case.
The question, when determining whether or not a case should be reopened, is whether the failure to adduce evidence during the trial was for a reason warranting the reopening of the case, such as an oversight, the discovery of new information, misleading conduct by an opponent, a change in legislation or a change in circumstance such as the sudden availability of a previously unavailable witness.
In Vale v Vale [2001] NSWCA 245 at [92], Mason P noted (in relation to a failure to call a witness) the following:
"The goddess of justice may be blindfolded, but she is not blind to the realities of trial tactics (see D A Ipp, "Judicial impartiality and judicial neutrality: Is there a difference?" (2000) Australian Bar Review 212 at p219 - p220)."
Sections 56 - 62 Civil Procedure Act 2005 set out case management principles designed to ensure the administration of justice both before and during court proceedings. Section 61 directs the court to ensure the speedy determination of the real issues between the parties. Section 66 contains a specific provision in relation to applications for adjournment.
Section 66 was explained by the Court of Appeal in City of Sydney Council v Satara [2007] NSWCA 148 at [17] as follows:
"[17] Section 66 of the Civil Procedure Act 2005 empowers the Court, subject to the Rules of Court, at any time and from time to time to adjourn to a specified day any proceedings before it or any aspect of such proceedings. This is a "wide and ample" power to adjourn the hearing of any matter, the principal consideration being what is necessary to do justice between the parties: Sydney City Council v Ke-Su Investments Pty Ltd [1985] 1 NSWLR 246 at 252 per Kirby P; Hinckley & South Leicestershire Permanent Benefit Building Society v Freeman [1941] Ch 32 (at 39) Farwell J ("the court has an inherent power to direct that any matter which comes before it should stand over for a period if the court thinks that that is the proper way to deal with the matter")."
The approach that the court should take, when applying case management provisions of the Civil Procedure Act 2005 is to strike a balance between the competing needs of the parties and determine whether or not on balance justice demands that a party should be given an indulgence: Kane v Wyllie [2006] NSWSC 710; Chandra v Perpetual Trustee Victoria Limited [2006] NSWSC 1046. The ultimate aim of the court is the obtainment of justice.
It cannot be disputed that if leave were granted to reopen, the proceedings would have to be adjourned part heard. Due to my circuit commitments, as well as my other commitments in other proceedings today, this would be an application for an adjournment of some duration.
The plaintiff in these proceedings can point to genuine prejudice, in my view, in that the plaintiff is already seeking the jurisdictional maximum. If there is a delay of any substance, the interest on the sum claimed would be lost. The plaintiff would have to consider transferring these proceedings to the Supreme Court in order to be able to recover interest on the sum claimed. Transfers of action from one court to another can involve a very substantial amount of costs; in the Dye litigation, for example, when defamation proceedings were transferred from the Supreme to the Federal Court, the court estimated that $250,000 of lost costs were involved: Dye v Commonwealth Bank of Australia [2012] NSWCA 220. The problems caused by transfer of proceedings from one court to another, in terms of delay and lost costs, not only to the parties but to the court's administrative system, are issues about which the courts should be vigilant.
However, the real question is not one of prejudice or lack thereof, but of attention to the guidelines under ss 56 - 62 Civil Procedure Act 2005.
Factors considered relevant by the Supreme Court and the Court of Appeal in relation to applications of this kind have included:
(a) The existence of urgency of some kind, such as an expedited hearing date. That is not the case here.
(b) The disadvantage to the party is a litigant in person. That is not the case here.
(c) There has been a failure to comply with the Rules to particularise and plead these matters beforehand. For the reasons explained by Brereton J in Chandra v Perpetual Trustee Victoria Limited, supra, at [28] there would have to be a very substantial failure to comply. That is the case here. There was ample time for the defendant to put on this material beforehand and the decision not to do so appears to have been solely a tactical one.
(d) New evidence requires an adjournment and will lead to the case becoming part heard for a lengthy period. That is the case here. I particularly not that Mr Liu is not available for cross-examination today.
(e) The issue to which the evidence goes. The evidence of the defendant on these issues does not overcome the conclusive nature of ss 175 and 177 ITAA 1936. As is pointed out in the plaintiff's written submissions, even if the evidence had been led, the certificates are conclusive.
(f) Costs issues, such as whether the adjournment can be cured by appropriate order of costs. There is no question of the plaintiff being able to pay the costs in question. He has no assets and has told the court so quite frankly.
However, the principal reason for refusing leave to reopen is that the additional material sought to be relied upon does not go to any issue capable of defeating the plaintiff's claim. As counsel for the plaintiff submitted, if I were to grant leave, she would not cross-examine the defendant about any of these matters, because the effect of ss 175 and 177 is that the certificates are conclusive.
The application to reopen is refused.
Orders
I give judgment for the plaintiff for the jurisdictional maximum as sought. Costs should follow the event.
(1) Defendant's application to reopen his case dismissed.
(2) Judgment for the plaintiff for $750,000.
(3) Defendant pay plaintiff's costs.
(4) Exhibits retained for 28 days.
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Decision last updated: 14 September 2012
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