Glennan v Commissioner of Taxation
[2002] HCATrans 98
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S65 of 2001
B e t w e e n -
MICHAEL JOHN GLENNAN
Plaintiff
and
COMMISSIONER OF TAXATION
Defendant
GLEESON CJ
(In Chambers)
TRANSCRIPT OF PROCEEDINGS
AT SYDNEY ON THURSDAY, 21 MARCH 2002, AT 2.16 PM
(Continued from 30/11/01)
Copyright in the High Court of Australia
MR M.J. GLENNAN appeared in person.
MR D.B. McGOVERN: If the Court pleases, I appear with MR M.J. LEEMING for the Commissioner of Taxation. (instructed by the Australian Government Solicitor)
HIS HONOUR: I just want to be sure I have caught up with all the amendments to the statement of claim. I have here a document entitled “Amended Statement of Claim”, filed 17 December 2001, but I saw reference in the other papers to some additional amendments.
MR GLENNAN: That is correct, your Honour.
HIS HONOUR: Mr Glennan, just have a look at this document of 17 December and tell me what else I need to look at.
MR GLENNAN: Thank you. May I hand that back to your Honour?
HIS HONOUR: Yes.
MR GLENNAN: Your Honour, the only amendments – and I hesitate to use the word “only” – a schedule of amendments to that document was submitted on Christmas Eve by my solicitor to the solicitor for the defendant indicating the delay in doing so was occasioned by the fact that I had or taken the opportunity to confer with senior counsel.
HIS HONOUR: But has that got on to the file?
MR GLENNAN: It has only got on to the file in the last day or so by virtue of the filing of an affidavit. In fact, I think I filed it late yesterday.
HIS HONOUR: Well, I had better try and locate that.
MR GLENNAN: I do apologise to the Court for the late filing of that document. It is an affidavit of myself sworn on 20 March 2002.
HIS HONOUR: Yes, I have two affidavits of yours, one of 19 March and one of 20 March.
MR GLENNAN: Yes, your Honour. The relevant one is the one of 20 March.
HIS HONOUR: I have that.
MR GLENNAN: Your Honour, whilst dealing with that – well, first of all, perhaps to stick right to the main point: annexure B ‑ ‑ ‑
HIS HONOUR: Yes, I see that.
MR GLENNAN: ‑ ‑ ‑ is the schedule that I have just referred to as having been sent on Christmas Eve to the Australian Government Solicitor. We had foreshadowed at that stage that we would be seeking the leave of the Court to incorporate those amendments into the document filed on, I think it was 17 December.
HIS HONOUR: Well then, is it convenient to both parties that I should deal with the present applications on the basis that the relevant statement of claim is the amended statement of claim filed on 17 December 2001, as proposed to be further amended by annexure B to the affidavit of Mr Glennan of 20 March 2002?
MR GLENNAN: That is correct, your Honour. There is one unfortunate caveat to that which I think I can quickly fix up. Due to an oversight, page 7 of that schedule was omitted.
HIS HONOUR: Page 7 of annexure B?
MR GLENNAN: Of annexure B. So I have, overnight, prepared a fresh copy of the affidavit. It has not been re‑sworn but it does contain the missing page.
HIS HONOUR: All right. What I will do for convenience is actually attach that to the amended statement of claim filed on 17 December 2001, and I will read that, both documents together.
MR GLENNAN: Yes, if you would be so kind, your Honour.
HIS HONOUR: Now, it seems to me, subject to any submissions the parties might want to make to the contrary, that the most convenient way to proceed is for me to hear Mr McGovern first on his application; for me to then hear Mr Glennan both on his answer to Mr McGovern’s application about the pleading and Mr Glennan’s application about the particulars, and then to hear Mr McGovern in reply on the pleading and in answer to Mr Glennan’s submission on the particulars.
MR GLENNAN: Yes. If I may just mention that the document that was filed, I think, on the 19th, an advance copy of that was duly served by 5 o’clock on 14 December which was the deadline of your Honour’s order. So, we have made a conscientious attempt – I have made a conscientious
attempt, with Mr Dunne’s assistance, to comply with that order and I will be making further submissions on that later.
HIS HONOUR: All right. Well now, before we hear submissions in accordance with the procedures that I have just outlined, we had better get the evidentiary material in order. Both sides want to rely on some affidavits, and I will get you both to identify those affidavits. Mr McGovern.
MR McGOVERN: Yes, your Honour, the summons that we move on is a summons filed 16 August 2001, and the affidavit in support is the affidavit of Mr Denis Patrick Stokes, sworn 16 August 2001.
HIS HONOUR: Have you any objection to that affidavit, Mr Glennan?
MR GLENNAN: No, your Honour.
HIS HONOUR: I have read that affidavit. Now, Mr Glennan, you have some evidence I think you want to rely on.
MR GLENNAN: Yes, if I may, your Honour. In opposition to the instant summons I principally rely on my affidavit sworn and filed yesterday.
HIS HONOUR: That is the affidavit of 20 March 2002?
MR GLENNAN: Yes, subject to the adjustments that I have just attempted to make from the Bar table today.
HIS HONOUR: Is there any objection to that, Mr McGovern?
MR McGOVERN: Your Honour, there are a number of objections to the affidavit which really fall into the one category. There are a number of parts of the affidavit which are really submissions. The ‑ ‑ ‑
HIS HONOUR: What is the problem about that? I can read a submission as well as I can read an affidavit, can I not?
MR McGOVERN: If your Honour takes it as a submission, then I am content with that course.
HIS HONOUR: I am not disposed to reject any part of this affidavit on the ground that it is argumentative. I will just consider the argument on its merits.
MR McGOVERN: If the Court pleases.
MR GLENNAN: Your Honour, that is the principal evidence. I just would glance at the affidavit that I filed on the 19th.
HIS HONOUR: Do you want to read that? I have read the affidavit of 20 March.
MR GLENNAN: I just want to verify for myself that there is nothing in that that is germane to the principal matter. I do not think there is.
HIS HONOUR: Would you not protect your position best by reading that affidavit anyway?
MR GLENNAN: Well, yes. Does your Honour wish me to read them formally?
HIS HONOUR: No, no. If you say that you rely on the affidavit of 19 March 2002 ‑ ‑ ‑
MR GLENNAN: Yes, yes.
HIS HONOUR: ‑ ‑ ‑ I will ask Mr McGovern whether there is any objection to it. Have you any objection to that affidavit, Mr McGovern?
MR McGOVERN: No, your Honour.
HIS HONOUR: I have read that affidavit.
MR GLENNAN: Very well. Those are the two affidavits that I rely on and subject to tendering the relevant public tax rulings that I rely on, which I would respectfully submit fall into an evidentiary character in this case ‑ ‑ ‑
HIS HONOUR: Why do you not tender those now then.
MR GLENNAN: Yes, if I may, your Honour. Now, your Honour, I have here a list of authorities – two list of authorities. I apologise that ‑ ‑ ‑
HIS HONOUR: Do not worry about those at the moment.
MR GLENNAN: But the tax rulings are indexed are in here, your Honour.
HIS HONOUR: All right. Well, you want me to treat the tax rulings that are in your bundle of authorities as material that I take notice of?
MR GLENNAN: I certainly do, if the Court would please, yes.
HIS HONOUR: All right. Are you happy with that, Mr McGovern?
MR McGOVERN: Yes, your Honour.
HIS HONOUR: Very well, I will do that.
MR GLENNAN: So, there is the public tax rulings which are listed at the top of the index on the front of that bundle. They are tabs 10, 11, 12 and 13. That completes the evidentiary material, your Honour.
HIS HONOUR: Thank you. Yes, Mr McGovern.
MR McGOVERN: Your Honour, could I inquire, is there a bundle of authorities and legislative material which was previously provided by our side?
HIS HONOUR: Yes.
MR McGOVERN: Thank you, your Honour.
MR GLENNAN: If I could just interrupt, your Honour. I omitted to provide the Court with an exhibit to my principal affidavit.
HIS HONOUR: That is the Taxpayers’ Charter.
MR GLENNAN: Yes.
HIS HONOUR: I would like to have a copy of that for myself, Mr Glennan.
MR GLENNAN: I beg your pardon, your Honour?
HIS HONOUR: It does not matter. We all need one of those, Mr Glennan.
MR GLENNAN: Your Honour, I only have the two copies for the Court, plus my own copy. If a further copy of that material is required, I could provide it within 24 hours.
HIS HONOUR: That is all right. Yes, Mr McGovern.
MR McGOVERN: Your Honour, we have previously filed some written submissions which I rely upon, as I also rely upon the submissions that we have most recently filed in support of our claim to have permanently stayed, dismissed or struck out the amended pleading. Our primary submission, your Honour, is that the consequence of the discontinuance by the plaintiff of his applications for special leave is that he is bound by the decision of the Full Court of the Federal Court affirming the decision of the Administrative Appeals Tribunal and our submission is that both the original pleading and the amended pleading really attempts to relitigate issues that were squarely decided against him and, accordingly, the proposed amended statement of claim itself constitutes an abuse of process, as did the original statement of claim.
HIS HONOUR: Do I understand you to be arguing, amongst other things, that these proceedings represent a collateral challenge to the decision of the Full Court of the Federal Court?
MR McGOVERN: Yes, your Honour, yes, and an impermissible collateral challenge in the circumstances because what the plaintiff must necessarily do, as it seems he attempts to do in the amended pleading, is to circumvent the authority, if I may put it that way, of the Full Federal Court decision by asserting that there is an allegation of fraud. The pleading which attempts to circumvent the Full Court decision, in our respectful submission, really falls in limine because the problem with the pleading is immediately confronted in paragraph 4 where the plaintiff asserts, contrary to the Federal Court decision, that the amount in question is of a capital nature. In paragraph 9, he asserts that there is a failure to disclose the public ruling and that that failure to disclose constitutes equitable fraud.
HIS HONOUR: Failure by whom to disclose?
MR McGOVERN: Failure by the Commissioner to disclose the public ruling.
HIS HONOUR: But I thought I was told by Mr Glennan on the last occasion that he disclosed the public ruling to the Full Court of the Federal Court before it gave its decision.
MR McGOVERN: Yes, your Honour, and we rely upon that. We say how could the principles relating to setting aside judgments for fraud possibly apply when, firstly, one is dealing with a public ruling, so that obviously, in its terms, it must be a discoverable fact, if I may put it that way; secondly, that Mr Glennan expressly indicated, as we have reproduced in the submissions, part of the transcript of the previous argument before your Honour which shows that he was aware of the public ruling prior to the determination by the Full Court of its decision; and, thirdly, that he, on his case, put the matter before the Full Court.
HIS HONOUR: Where do I must conveniently find the ruling to which the Full Court was referred by Mr Glennan and about which he is now complaining?
MR McGOVERN: If your Honour has our bundle of documents, it is tab 14. It is the very last document, your Honour. Does your Honour see it, “TD 93/58”?
HIS HONOUR: But as I understand it, the Full Court of the Federal Court held that the whole of the amount paid to Mr Glennan was income according to ordinary concepts.
MR McGOVERN: Yes, your Honour.
HIS HONOUR: I do not understand what this public ruling has to do with that?
MR McGOVERN: No. Well, nothing, on our submission.
HIS HONOUR: I can understand the relevance of the issue addressed by this public ruling if a lump sum is paid which might consist partly of capital and partly of income.
MR McGOVERN: Yes.
HIS HONOUR: I will have to ask Mr Glennan this in due course, but just at the moment I cannot understand what this ruling has to do where a lump sum compensation or settlement payment is made which is wholly income according to ordinary concepts.
MR McGOVERN: Yes. Well, that is one of our points, your Honour. We say that the tax ruling itself would only be relevant if it displaced the way in which the ordinary tax law would apply.
HIS HONOUR: More accurately, I would have thought, the tax ruling addresses a problem which simply does not arise if it is possible to say of the whole of an amount paid by way of settlement that it is income according to ordinary concepts.
MR McGOVERN: That is so, yes, your Honour. Well, we would embrace that proposition.
HIS HONOUR: Which, presumably, is the reason the Full Court did not mention it in its reasons for judgment.
MR McGOVERN: Certainly, if one turns back to tab 1 of our bundle of papers and to the Full Court judgment, if your Honour looks at page 555 point 7, in paragraph 71, that was really the conclusion of the Full Court. The Full Court affirmed the AAT’s decision saying that it was “open to the AAT” to conclude that the amount in question “had the character of income” according to “ordinary concepts”.
HIS HONOUR: Is it an accurate statement of the decision of the Full Court that it concluded that the decision of the AAT that the whole of this amount was income according to ordinary concepts ‑ ‑ ‑
MR McGOVERN: Yes, your Honour.
HIS HONOUR: ‑ ‑ ‑ and fell within section 25(1) of the Income Tax Assessment Act, was not shown to have involved an error of law?
MR McGOVERN: That is so, yes. Your Honour, on that basis the public ruling is itself simply irrelevant to any determination or even a collateral challenge to the decision of the Full Court could not be successful in reliance upon that tax ruling because of the fact that it expresses exactly the same statement of principle on assessability as the Full Court found in its determination.
HIS HONOUR: Incidentally, I think there must be a small error in the transcript of the proceedings of the last occasion. I will ask both you and Mr Glennan about this. On page 6, at line 218, Mr Glennan is recorded as saying that he:
was not aware of the existence of Allsop’s Case, McLaurin’s Case and Spedley’s Case.
Is that an accurate transcript of what was said?
MR GLENNAN: To my recollection, it is, your Honour.
HIS HONOUR: You did not know about those authorities?
MR GLENNAN: No, your Honour, not when I was completing my tax return.
HIS HONOUR: All right, thank you. Yes, Mr McGovern.
MR McGOVERN: Your Honour, my submission is that the plaintiff does recognise the difficulties associated with the Full Court decision by pleading in paragraph 9.10 and 9.11 the assertion that the defendant failed to disclose the public ruling, and I have said that it was a public ruling. It seems to have been common ground that the plaintiff knew about it. It was disclosed to the Federal Court and, in those circumstances, we say that the threshold test for assailing a judgment on the grounds of fraud simply cannot be made out, that is to say that the facts in question were discovered or discoverable prior to the determination by the Full Court.
We then go on to say that even if it were necessary to consider the matter further, that firstly, the matters that have fallen from the Court in the course of argument are germane, namely, that the tax ruling itself is simply not relevant in the sense that the Full Court has determined that the whole of the amount was assessable income according to ordinary concepts. There is no disconformity with the public ruling and the way in which the tax law applies.
The second thing we say which is addressed in our written submission is that the taxation ruling in question applies in relation to a ruling system which came into existence after 1 July 1992 as a companion provision or as a companion series of provisions dealing with self‑assessment, and in section 12(2), which we have reproduced at tab 12 of our bundle of documents, if I can just take your Honour to that provision very briefly, your Honour will see on the second page of tab 12 the amending Act, section 12(1) and subsection (2) says:
In spite of section 14ZAAH of the Principal Act as amended by this Act, a public ruling does not apply to any arrangement within the meaning of section 14ZAAA of that Act as so amended that began to be carried out before 1 July 1992 or, if the commencement of this Act is later, that commencement.
So, the ruling only would apply to arrangements that come into existence after 1 July 1992. “Arrangement” is very widely described or defined. It includes a contract or “agreement”, and section 14ZAAH which does provide that public rulings can apply to “past, present or future” arrangements must, plainly, in our submission, be read in the context of section 12(2), and the idea or the policy reasons surrounding the public rulings provisions that they go hand in hand with the Self Assessment regime and therefore do not apply to pre‑1 July 1992 contracts.
HIS HONOUR: Mr McGovern, I would just like you to explain to me the way this public ruling system works.
MR McGOVERN: Yes, your Honour.
HIS HONOUR: Forget about the question of whether or not there is any disconformity between the public ruling and the decision of the Full Court of the Federal Court and forget about the point you have just made concerning the time of the commencement of the application of the public ruling system. Suppose you had a case, other than the present case in which it appeared to the Full Court of the Federal Court that an applicable public ruling was contrary to a submission that the Commissioner was making to the Federal Court. What would be the obligations of the Federal Court in those circumstances?
MR McGOVERN: Your Honour, the obligations of the Federal Court would depend, firstly, upon the question of whether the Federal Court was dealing with the matter as a first instance decision‑maker or whether it was taking the matter on appeal from the Administrative Appeals Tribunal. May I explain? Under the first situation, if I may put it that way, the Federal Court exercising original jurisdiction, the Federal Court would need to consider the objection of the taxpayer to determine whether or not the objection of the taxpayer raised the question of the public ruling expressly and then, depending upon whether or not the objection raised that question expressly, that would define the parameters of the dispute between the Commissioner and the taxpayer which would be the subject of the determination by the court.
HIS HONOUR: Is the taxpayer only entitled to call in aid a public ruling that the taxpayer relied on?
MR McGOVERN: In my submission, yes, your Honour.
HIS HONOUR: Now, let us suppose that the taxpayer in his objection says, (a), “I relied on this public ruling” and, (b), “The public ruling is inconsistent with the argument the Commissioner must rely on to sustain this assessment.”
MR McGOVERN: Yes, your Honour.
HIS HONOUR: And let us suppose the Federal Court says, “Well, we think you are right. We don’t agree with the public ruling. We agree with the argument the Commissioner is now putting to the court, but we think you are right.” What is the consequence of that?
MR McGOVERN: The Commissioner would be bound to act in accordance with the public ruling and the court would deal with the matter on the basis of the public ruling because that would be advantageous to the taxpayer in those circumstances. The Commissioner is bound to assess in accordance with what the legislation calls the “ruled way” as opposed to what the actual legal position may be.
A similar sort of problem, in a sense, arose in the case before the High Court in The Commissioner of Taxation v Payne where the taxpayer asserted that he wished to rely upon a public ruling and, on a view of the public ruling, although it was unnecessary for the Court to ultimately decide the matter, the public ruling appeared to be more generous to the taxpayer than – well, in fact, it was obviously more generous to the taxpayer than the way in which the law would apply. So, the Commissioner is bound to assess in accordance with the public ruling.
HIS HONOUR: Now, suppose a slightly different case. Suppose the taxpayer had not referred to the public ruling in his objection to the assessment and had only found out about the public ruling during the pendency of the proceedings in the Federal Court and then sought to rely on the public ruling. What would the consequence of that be?
MR McGOVERN: Again, your Honour, I have to draw a distinction, I think, between the situation that arises where one goes on appeal from the AAT. May I explain? In the Administrative Appeals Tribunal, the tribunal has commonly asserted to do over again what the Commissioner had previously done: to stand in the shoes of the Commissioner to deal with the matter administratively.
What the AAT actually does, of course, is to do or exercise that function but within the confines again of the objection. So that it is conditioned by the terms of the objection. So, what would happen is that if the matter is not raised by the taxpayer in the objection and the AAT determines the matter on the basis of the argument not having been addressed, and the matter then went to the Full Court or the Federal Court at first instance on an appeal under section 44 of the AAT Act, the conundrum that would arise is that the court would be asked to consider whether the tribunal erred in law when the decision‑maker at first instance had not even had the matter brought to the decision‑maker’s attention and it was outside the express terms of the objection.
In that situation, the result would be, in our submission, as the Full Court determined the matter in the circumstances of the present case when it dealt with the contention that was raised by counsel for the plaintiff. There was an argument that was sought to be advanced by counsel then representing the plaintiff to contend that the amount in question was a lump sum which was of a capital nature, that having not been a matter which was ever raised before the tribunal, and the Full Court ‑ ‑ ‑
HIS HONOUR: And, by hypothesis, was not referred to in the notice of objection.
MR McGOVERN: That is so. In those circumstances, the Full Court came to the determination that the matter could not be raised because within the confines of the appeal process, under Part IVC of the Tax
Administration Act, the tribunal could not have erred in law in failing to consider the matter.
HIS HONOUR: Can you tell me one other thing by way of background information, Mr McGovern? Is the position still the same as it used to be, that is to say the taxpayer’s liability to pay the tax is not postponed or defeated by the pendency of a dispute between a taxpayer and the Commissioner about the assessment?
MR McGOVERN: That is so, your Honour. It can be sued for and recovered notwithstanding the pendency of the appeal but the regime in place involves a successful taxpayer then being able to receive the tax paid plus interest under the interest on overpayments are ‑ ‑ ‑
HIS HONOUR: Yes. Although in practice an arrangement might be made that if the taxpayer pays half the tax recovery proceedings will not be pursued, or whatever the case may be, the legal right of the Commissioner to sue for the tax depends upon the fact of the assessment.
MR McGOVERN: Yes.
HIS HONOUR: And, theoretically, and I think sometimes even in practice, a taxpayer could be sued and even made bankrupt while there is a pending dispute about the assessment.
MR McGOVERN: Yes. That happened in a case that I can just bring to mind Re Verma 84 ATC, I think it was, where Mr Verma, I think, had been involved in some form of a scheme and that the Commissioner’s definition of “a scheme” sometimes has a pejorative ring to it and, in those circumstances, he did not regard himself as administratively bound to not take all remedial steps to recover the tax, but sometimes otherwise if there is a genuine dispute and the Commissioner does reach an accommodation with the taxpayer, but his statutory right is to recover the tax notwithstanding.
HIS HONOUR: All right, thank you. I will hear what Mr Glennan has to say, Mr McGovern.
MR McGOVERN: If the Court please.
HIS HONOUR: Yes, Mr Glennan.
MR GLENNAN: Your Honour, firstly it would be my respectful submission that unless there is evidentiary material submitted and relied upon by the defendant for the purposes of this summons that the pleading, as proposed to be amended and as we are conducting the case on the basis your Honour has outlined, should be taken as a correct statement of the material facts.
HIS HONOUR: Mr Glennan, may I ask you this, because I want to get to the heart of your complaint, am I right in thinking that although you have raised here and on other occasions procedural issues, questions of jurisdiction, even constitutional issues, the essence of your complaint or grievance in this matter is that there is a disconformity between the decision of the Full Court of the Federal Court, in turn upholding the decision of the AAT, and the public ruling to which reference has earlier been made?
MR GLENNAN: Yes, your Honour.
HIS HONOUR: Then I would like you to explain to me, please, what the disconformity is.
MR GLENNAN: Yes, your Honour. Your Honour, if your Honour would turn to tab 12 of my folder of authorities, which discloses TD 93/58, before I come to the specific terms of this document I would like to state what has probably already been stated, but I would like to emphasise it, that this public tax ruling – and I do not think there is any dispute that although it is called “TD” it is, I think, not disputed that it has the status of a public tax ruling – is promulgated pursuant to a very elaborate legislative Code.
Unless one has a general knowledge of the Code, or the relevant provisions of the Code, one is not able to properly put any public tax ruling in its proper context and I would be seeking the Court’s permission to make some submissions as briefly as possible as to the material provisions of the Code as a whole and relate those to what I claim to be the operation of public tax ruling TD 93/58.
But before I make the general submissions dealing with the specifics of this document, one of the main texts of the document that I rely on, as the taxpayer, is about one third of the way down the first page. There is, in very large block letters, “Taxation Determination”. It is the next two lines that I wish to focus on. They are:
Income tax: under what circumstances is the receipt of a lump sum compensation/settlement payment assessable?
HIS HONOUR: Now, unguided by this determination, and uninstructed by any other authority, if anyone had asked me that question I would have answered it by saying the most obvious circumstance in which the receipt of a lump sum payment is assessable is if the whole of it is income according to ordinary concepts. If someone had asked me the question when I was a barrister, that is the answer I would have given. Is that different from the ruling?
MR GLENNAN: Yes, your Honour, to this limited extent, that the Commissioner, having posed such an enormously broad question which clearly contemplates the operation of section 25(1), which is the sole remaining section that the Federal Court has held me to be assessable under, certainly that is caught by the opening question. Then the Commissioner – bearing in mind this document is drafted by the Commissioner and no one else – he then says it is assessable in two circumstances and he gives specific examples in paragraphs 1 and 2 as to those circumstances and then he falls basically silent except for peripheral comments in paragraphs 3 and 4 with some mundane examples and basically signs off:
Commissioner of Taxation
1/4/93
Now, your Honour, it is my submission that a fair reading of this document as a whole is that the Commissioner, acting bona fide, has said, “If a taxpayer receives a lump sum compensation or settlement, I will treat it as assessable for the purposes of section 25(1) in the following circumstances”, and the inference is, which I will be asking this Court to draw, “but that is the extent to which I will assess such a lump sum”.
The inference from this document, and I would respectfully submit it is a plain inference, is that if such a lump sum does not fall within paragraphs 1 and 2, the Commissioner will not treat it as assessable under section 25(1).
HIS HONOUR: Now, could you just state in summary form the basis on which the AAT and the Full Court of the Federal Court concluded that the payment to you was income according to ordinary concepts?
MR GLENNAN: Yes, your Honour, certainly. Doing the best I can from recollection and I am sure Mr McGovern will correct me if I am wrong, there was a difference of approach between the AAT and the Federal Court at first instance and then there was a further difference of approach by the Full Federal Court.
Dealing with the AAT first: they held that the fact, which, I think, even to this day is not in dispute, the sum of money, the lump sum was paid pursuant to terms of settlement. The AAT said, “In our view, that is not a material consideration because the amount was ‑ as far as we’re concerned, we will treat this amount as having been paid between the agreement, which was litigated and gave rise to the terms of settlement and we will ‑ ‑ ‑
HIS HONOUR: But what was there about the agreement that gave the stamp of income to this payment?
MR GLENNAN: They found that I entered into the agreement as a conventional business enterprise with the intention of making a profit.
HIS HONOUR: And that there was a breach of the agreement. You claimed that there was a breach – you were suing ‑ ‑ ‑
MR GLENNAN: No. The AAT did not find there was a breach of the agreement at all.
HIS HONOUR: What was your cause of action?
MR GLENNAN: That there was a breach of the agreement, namely, refusal to pay.
HIS HONOUR: All right. If the agreement was entered into for the purpose of earning income and there was a breach of the agreement, why was not payment by way of damages for breach of the agreement compensation for loss of income?
MR GLENNAN: Your Honour, the pleading, which is about 25 to 30 pages long, contains mixed causes of action. The parties who were the parties to the terms of settlement were not identical with the parties who were sued and it is not possible to treat, in my submission, the lump sum paid pursuant to the terms of settlement on the same footing as if that had been a due payment pursuant to the agreement.
HIS HONOUR: I understand that is your argument and that is the argument that was unsuccessful.
MR GLENNAN: Yes.
HIS HONOUR: But what I am endeavouring to understand is why the argument that prevailed against you – and I realise you say it should not have prevailed against you, but what I want to understand is why the argument that prevailed against you is inconsistent with this ruling.
MR GLENNAN: If I could answer it this way. When I was considering appealing against the disallowance of my objection and I was fully aware of TD 93/58 before deciding whether to go to the AAT or the Federal Court, number one, I would have gone to the Federal Court. Number two, having gone to the Federal Court, I would have simply tendered the tax ruling and said, “On the face of this document the Commissioner is bound by this document, firstly. Secondly, he has assessed contrary to the document and has disregarded the fact that he’s bound by it. Pursuant to the document the lump sum is not assessable pursuant to section 25(1) and, therefore, I must be successful in these proceedings.”
If the Federal Court at first instance agreed that the construction that I have submitted to your Honour now is correct, the court would have presumably found that pursuant to this tax ruling, the Commissioner was bound by it, firstly. Secondly, he was not at liberty to tax, for the purposes of 25(1), except in the circumstances outlined in the public tax ruling, otherwise the public tax ruling serves no public benefit or use.
If the Full Court made such findings, which I certainly would have submitted would be the correct findings, then I would have been successful in my case. I might add, interestingly enough, that I was successful in my case by a different legal mechanism or different legal reasoning, but that is how I would have argued my case and I would submit, probably successfully, if I had had the ruling in front of me and if the ruling had been in front of Mr Justice Foster.
I would just like to make the final point that if my submission – if any court or lawyer were to come to the conclusion that the construction that I am submitting is the appropriate construction is incorrect so far as this public tax ruling is concerned, then the public tax ruling has no use. It has no public purpose because the Commissioner can say, “In a particular case you don’t fall within paragraphs 1 and 2, but you fall within other areas of the operation of section 25(1) which I consider are fully assessable as income and I am assessing you”.
HIS HONOUR: I would have thought that in any construction of this Tax Determination you would have to understand the problem to which it is addressed and I would have thought, if I had just read it afresh, that it was addressed to a well‑known problem, that is the problem that arises where a lump sum compensation or settlement payment is made to a litigant in circumstances where it is not possible to say either the whole of it is income or the whole of it is capital. That is the problem, is it not, in cases like Allsop.
MR GLENNAN: That is one of, probably, the two main situations. Yes. May I just elaborate a little by general reference to the Code, the legislative Code, the relevant extracts of which I have attempted to compile and place under tab 5. I only wish to refer to one part of that, not the whole lot at this stage. The part that I wish to refer to is on page 2118 of tab 5. At line 33 there is a block heading “Reasonably arguable”. Now that section 222C(1) falls within a new part that has been put into the Act – Part 7 I believe it is and that section says:
For the purposes of this Part:
(a) the correctness of the treatment of the application of a law; or
(b) another matter;
is reasonably arguable if, having regard to the relevant authorities and the matter in relation to which the law is applied or the other matter, it would be concluded that what is argued for is about as likely as not correct.
Now, just pausing there, your Honour, that section is Parliament’s prescription of a law which the Commissioner is required to take into account for purposes of imposing penalty tax, as I understand it, not for the purpose of assessing tax but if one reads the Treasurer’s explanatory memorandum, one finds that he expresses the view when commending the Bill for this Act to the House that the legislative Code is primarily for the benefit of the taxpayer. It is not for the benefit of the Commissioner. It is to enable ordinary taxpayers who do not possess law degrees, who have, perhaps, no education or slight education, to pick up a public tax ruling if they become aware of it, to read it and construe it and then file their income tax return accordingly.
If the Commissioner, just to take a hypothetical example not related to me, were to say, “This taxpayer has got it wrong. He’s assessable for a particular transaction but, nevertheless, he’s adopted a reasonably arguable interpretation of a relevant public tax rule” and this section, as I understand it, then says the Commissioner is to exercise leniency in imposing penalties. But the Treasurer, whilst not confining himself to the question of penalties, emphasised that the Self Assessment Code as a whole is to introduce certainty into the law, to relieve administrative burden on the Commissioner and try and make it certain, primarily for the taxpayer, but certainly for both parties, the Commissioner and the taxpayer.
Now, in the light of that background to this Code I then take the Court back to the public tax ruling TD 93/58 and the key opening words:
under what circumstances is the receipt of a lump sum compensation/settlement payment assessable?
HIS HONOUR: Have you a copy handy of the decision of the Full Court of the Federal Court, Mr Glennan?
MR GLENNAN: Your Honour, I have not but it is in Mr McGovern’s list of authorities. There is a copy.
HIS HONOUR: I wanted to ask you – I have it myself ‑ ‑ ‑
MR GLENNAN: Could I have that then, please? I do not have a copy of it. Thank you very much. Yes, your Honour.
HIS HONOUR: Now, the amount that was treated as assessable income is referred to in this judgment as “the sum”.
MR GLENNAN: What page is your Honour reading from?
HIS HONOUR: Well, I am not reading from any particular page yet.
MR GLENNAN: Sorry.
HIS HONOUR: Am I right in thinking that the amount that was treated as assessable income is what was referred to in these reasons for judgment as “the sum”?
MR GLENNAN: I believe so. Yes, your Honour.
HIS HONOUR: Yes. Now, it appears from page 543 of 90 FCR that the question is whether the AAT erred in finding that “the sum” was taxable under section 25(1). What was the consideration for the payment of “the sum”? Where do I find that described in the judgment? Is it on page 540, paragraph 2?
MR GLENNAN: Page 540, paragraph 2, yes. So, your Honour’s question again, please?
HIS HONOUR: I am trying to identify the consideration for “the sum” and I find that in paragraph 2, do I not?
MR GLENNAN: Does your Honour mean the original consideration?
HIS HONOUR: No.
MR GLENNAN: Or the actual consideration?
HIS HONOUR: No. The sum – just read paragraph 2.
MR GLENNAN: Yes. He “received the sum of” so much, “paid to him” by certain companies.
The Sum was paid pursuant to terms of settlement resolving proceedings which the taxpayer had instituted in the Supreme Court . . . against seven defendants ‑ ‑ ‑
HIS HONOUR: Yes:
In those proceedings, the taxpayer had sought orders, inter alia, requiring the payment of moneys said to be due under the terms of a –
JVA.
MR GLENNAN: Yes, your Honour.
HIS HONOUR: So, you were suing for moneys that you said were owed to you under the JVA and the case was settled on the basis that they would pay you the sum.
MR GLENNAN: It was, but may I add that there were multiple causes of action. I was not simply suing for a debt. I was suing on a whole range of other causes of action, including passing off, misappropriation of property and a whole range of causes of action were within that document.
HIS HONOUR: Now, go over to page 555 of the report.
MR GLENNAN: Yes, your Honour, I have 555.
HIS HONOUR: Paragraph 71.
MR GLENNAN: Yes, your Honour.
HIS HONOUR: Last sentence of paragraph 71.
MR GLENNAN: Yes, your Honour.
HIS HONOUR: In paragraph 71, they say there are only two possible explanations for the payment and they reject the second possible explanation or they point out that the AAT rejected it, which was that it was a:
consideration for the sale of proprietary rights –
Well now, what I want to ask you is this?
MR GLENNAN: Yes.
HIS HONOUR: Once you reject the conclusion that the sum was consideration for the sale of property rights, what was it except compensation for loss of income?
MR GLENNAN: Well, your Honour, first of all I am not legally at liberty to conduct an appeal from this judgment but may I say, with the utmost respect to the Federal Court, that in virtually the whole of paragraph 71, the court, with respect, got it completely and totally wrong.
HIS HONOUR: Yes. Well, you were at liberty to conduct an appeal and you tried to conduct an appeal and you abandoned your appeal and that is the problem.
MR GLENNAN: Well, your Honour, I would submit that I, in the circumstances, am entitled to do that but that is for your Honour to adjudge and rule on not ‑ ‑ ‑
HIS HONOUR: What I want to understand, Mr Glennan, is this. I am trying to understand that this disconformity that you say exists between the decision of the Full Court of the Federal Court and the ruling, which is a different question from whether or not the decision of the Federal Court is right, the decision stands and it stands partly because you abandoned an attempt to appeal against it.
MR GLENNAN: That is correct, your Honour.
HIS HONOUR: So, assuming the decision is right, or accepting the fact that the decision stands, where is the disconformity with the ruling?
MR GLENNAN: Well, it is actually, if I may say so, highlighted by paragraph 71 because if one were to read paragraph 71 and nothing else, one would be completely oblivious to the fact that the tax disputed receipt was not paid pursuant to any joint venture agreement. It was paid pursuant to a compromise of legal proceedings and it is trite law that that constitutes a completely new agreement. It is in Halsbury’s. The cause of action or the right of action, singular or multiple, upon which the proceedings are founded is completely supplanted by the terms of the compromise. That is straight out of Halsbury’s. It is trite law.
Looking at this paragraph 71 one would be oblivious to that, and, of course, that is the fundamental issue. This was paid pursuant to terms of settlement, bona fides terms of settlement, and according to the public tax ruling in the interpretation that I have put to the Court today, the Commissioner has effectively and legally said, “I will treat the matter as assessable in those circumstances and not otherwise” and, therefore, had the Commissioner applied that construction to this public tax ruling he would have assessed me for nil on that lump sum settlement.
HIS HONOUR: Now, Mr Glennan, in your statement of claim, in your amended statement of claim, you have asserted that the Full Court of the Federal Court overlooked the ruling.
MR GLENNAN: Yes, your Honour.
HIS HONOUR: What is the basis for that assertion?
MR GLENNAN: Your Honour, may I come to my affidavit and if your Honour would be kind enough to examine the second version, the photocopy version I handed up, on page 5, when I originally saw this there was a slight mistake. In paragraph 28.4 ‑ ‑ ‑
HIS HONOUR: Sorry. Just a minute.
MR GLENNAN: On page 5.
HIS HONOUR: Yes.
MR GLENNAN: In paragraph 28.4, as originally sworn I think it said “on 18 March”. It should read, “After 16 March”. The reason why that is critical is that if one proceeds to examine annexure C to this affidavit, which is a court order of the Federal Court, one will see that it is dated 16 March 1999 and in that order, whilst it allows me to add two specified documents to the appeal book in paragraph 2, in paragraph 1 it allows me to reply to some submissions of the Commissioner, but it indicates that in paragraph 2:
However, the addition –
of the documents to the appeal book –
should not be taken to mean that further submissions will be received by the Court on those documents.
So, a very great restriction was imposed in relation to documents that I considered to be extremely important. I was not permitted to make submissions on them, and I have deposed in this affidavit that the Federal Court, when making that order ‑ and if I might refer to the actual paragraph of my affidavit, in paragraph 17 on page 3:
I say and the fact is that at the time of making the “order” last referred to –
and that is the order, annexure C to this affidavit –
the (Full) Federal Court made it quite clear –
two matters –
17.1 that the Court would not permit me [the then Appellant taxpayer (and Respondent)] to raise any new issue in relation to the said four appeals;
17.2 that publication of the Court’s reserved judgment in the said four appeals, was imminent.
The judgment was handed down on 26 March, approximately 10 to 12 days later.
Now, your Honour, I have also sworn, and this, I concede, is a matter of legal interpretation, but I have sworn in this affidavit that the circumstances in which this order, annexure C, was made, the text of the order together with the circumstances and the remarks made en passant made it perfectly clear that the Federal Court would not entertain any fresh issue being raised in the case.
Of course, if I had then said, “Well, I want to raise an issue concerning public tax ruling TD 93/58”, the court would have said, “Not on your life. We’ve closed the door on you, Mr Glennan. We’ve given you leave to file certain documents in the appeal book and that is the end of your case until we hand down our reserved judgment.” I, perhaps somewhat boldly, when I made the submissions that the court authorised me to make in paragraph 1 of that order, I appended at the back, or in the middle or at some stage, I appended TD 93/58 and made lengthy submissions on it and the court has remained to this day – the Full Court has remained to this day silent as to the existence of TD 93/58 and as to my submissions thereon.
I do not cavil at the decision of the court to say to me, through my counsel, “Mr Glennan will not be allowed to raise any new issues in these proceedings.” That is a matter for the court to conduct its own process as it sees fit. But what I do say is that having made those remarks and made the order which is set out in this affidavit, annexure C, that there was no way I could then thereafter bring to the court’s attention this public tax ruling. I attempted to do so because I considered I owed a duty to myself to do it, but that did not necessarily and apparently did not accord with the court’s view of the case before it, that it has been already argued, that judgment had been reserved, a motion had been heard for the admission of certain additional documents to the appeal book and the court then figuratively speaking brought down the guillotine and said, “Nothing further is going into this case.”
So, for the defendant through his counsel in this Court to say, “Well, Mr Glennan disclosed this ruling to the Federal Court. He did it himself.”, your Honour, that is a total, with respect, distortion of what occurred. I have sworn material facts in this document. I do not resile from them and I would submit that looking at those facts there is no way that I could have disclosed this. If I had wanted to tell the court that two plus two equalled four, they would not have allowed me to introduce that to the case once this order had been made on 16 March 1999.
So, your Honour, with the utmost respect to the defendant, the defendant’s claim that this document was disclosed by me to the Federal Court, appropriately disclosed, I would suggest borders on the frivolous, and I will say no more about that. So, your Honour, I will just pause there – are there any other matters of elucidation that your Honour would seek from me before I move onto other matters?
HIS HONOUR: No, thank you.
MR GLENNAN: Thank you, your Honour. Your Honour, I opened my observation or submissions by saying or submitting that for the purposes of a motion – a summons to strike out of this character, the matters formally pleaded in a statement of claim are assumed to be correct. If they are not correct, they have to be contradicted or refuted by evidence. I am not aware of any evidence that has been filed on behalf of the Commissioner that refutes the material facts that I have pleaded.
Your Honour, there is one aspect of this case that might at first instance appear extraordinary, but if your Honour would be kind enough to look at the transcript of the High Court under tab 23 of my bundle of documents, you will see there a transcript of a case The Commissioner of Taxation of the Commonwealth of Australia v CSR Limited before the High Court on 23 November last year. The Commissioner was represented by counsel and applied for special leave to appeal against a judgment of the Full Federal Court. I would simply wish to take your Honour to the final page of that transcript, page 11, and the opening paragraph. Justice McHugh says:
The only point in this application that would warrant a grant of special leave is the contention of the applicant –
that is the Commissioner of Taxation –
that this Court should reconsider the correctness of the Court’s decisions in McLaurin v The Federal Commissioner of Taxation and Allsop v the Federal Commissioner of Taxation –
For the purposes of that case, your Honour, the Commissioner through his counsel invited the Court – or, in fact, advised the Court that if leave to appeal was granted the Commissioner would be contending that those cases were wrongly decided.
Now, your Honour, a very similar thought process, in my submission, must have gone through either the Commissioner or the relevant officer’s mind when they were assessing the tax disputed amount in my case. I am submitting that on the balance of probabilities the Commissioner was then of the view that McLaurin’s Case and Allsop Case were wrong and that was the reason why he assessed me, knowing that I had got a lump sum settlement pursuant to terms of settlement, because the cases upon which that public tax ruling is based are McLaurin’s Case and Allsop’s Case. How do I know that? Because they are referred to at the bottom of the tax ruling, under tab 12. He used the case references, including Spedley’s Case.
Now, your Honour, the Commissioner has the luxury, and had the luxury in my case, of being able to do that and ostensibly do it successfully, because I had no knowledge of the cases, nor of the public tax ruling. I was simply going on advice from my accountant and using my own judgment that this amount was a lump sum paid to a terms of settlement and was on that basis a capital payment completely and totally, and that is the basis upon which I filed my tax return, annexing all the relevant documents, including the statement of claim and the terms of settlement from the original Supreme Court proceedings pursuant to which I, of course, was ultimately paid this lump sum of money.
So, your Honour, it is not fanciful – I withdraw that. Mr McGovern today has submitted that the public tax ruling that I am relying upon is simply a statement of the law in any event. Well, your Honour, when one looks at this case of Commissioner of Taxation v CSR, one can see that the Commissioner on that occasion did not concur in the correctness of these key Court decisions, both of which, of course, are from the High Court of Australia.
So where the Commissioner has issued something of the order of 5,000 to 6,000 public tax rulings, in most cases if the Commissioner wishes to treat the foundation of a public tax ruling as not applying to a particular taxpayer, he will get away with it because the taxpayer is not aware of the public tax ruling and he almost succeeded in this case. It was a mere fluke that I discovered this document, as I have sworn in evidence, on 11 March and disclosed it to the Federal Court on 18 March – a very rapid disclosure and a discharge of my duty to the court to bring it to its attention at the earliest possible moment.
Your Honour, I do not wish to add anything further about the public tax ruling but I would wish to make some submissions, as briefly as possible, with respect to a key element of the Self‑Assessment Code which, in my submission, my opponent’s submissions today are patently erroneous on a key point. Mr McGovern, my learned friend, has referred to section 12(2) of the Self‑Assessment Act, which is in my bundle of documents under tab 5 and it is in the statutory Code at page 2097. Now, your Honour, that particular section, which I would like to read out, is between lines 27 and 30 on page 2097 and it says:
In spite of section 14ZAAH of the Principal Act –
the principal Act being the Income Tax Assessment Act 1936, as I understand it –
as amended by this Act, a public ruling does not apply to any arrangement within the meaning of section 14AZZZ of that Act as so amended that began to be carried out before 1 July 1992 or, if the commencement of this Act is later, that commencement.
Now, Mr McGovern has submitted that the effect of that section means that public tax ruling TD 93/58 does not have any operation with respect to the subject tax disputed amount because it involved the transaction or something that began to be carried out before 1 July 1992. Now, your Honour, I have made written submissions on this point directly refuting the Commissioner’s argument and I would like to refer to them, if I may.
Firstly, the Commissioner – well, the submissions that I have made are set out on pages 3 and 4 of my written submissions dated 20 March ‑ if your Honour may wish to have a look at that‑ paragraphs 4 and 5 on page 3 and continuing from the second paragraph on page 4 down to the top of page 5. Firstly, if I may deal with the case that the Commissioner has relied upon, Victoria Co Ltd v Deputy Commissioner of Taxation. I have submitted that that case was correctly decided and the reason for so submitting, with respect, is that the first contract which was considered in that case was a foreign exchange borrowing in Japanese yen and the Court referred to – in fact, I think there was evidence given – of a second purchase of foreign some two years later to repay the original debt on the basis that the first contract required an arrangement to be entered into, namely, a further foreign exchange transaction to discharge the debt. Clearly the subject public tax ruling did not apply before 1 July 1992, and that is why that decision is correct.
It also explains when one refers to section 14ZAAB of the new Code, which if I may take your Honour to that section – it is at the top of page 2086, which is headed up “Contracts for arrangements”:
“14ZAAB. For the purposes of this Part, if a contract requiring an arrangement is entered into, the arrangement is taken to begin to be carried out.
Now, those key words “the arrangement is taken to begin to be carried out” pick up the same phraseology in section 12 that I had originally referred you to and, in fact, that Mr McGovern relies upon.
HIS HONOUR: Now, what is the contract requiring the arrangement to be entered into here?
MR GLENNAN: There is not one. That is the reason that section 12 does not apply. In my case there was only one contract, which was the terms of settlement. The terms of settlement did not require any further contract to be entered into. The terms of settlement effectively said – and they are in evidence I believe before the Court; if they are not, they can certainly be tendered – said, “We are going to pay you a lump sum contingent on one of two things happening and when those things happen you’ll get your cheque, and you’ll get your cheque when the first contingency happens.” So when the first contingency happened, a cheque was produced.
HIS HONOUR: Now, when was the settlement entered into?
MR GLENNAN: The terms of settlement, from memory, are dated 27 June 1988 and the moneys were received on or about 1 or 2 July, a few days later. So in relation to the terms of settlement, there was no requirement for an arrangement to be entered into. The only arrangement that was entered into was the actual terms of settlement itself.
HIS HONOUR: And when was the payment made?
MR GLENNAN: The payment was made about three or four days later.
HIS HONOUR: Thank you. Well, then coming back to section 12 on page 2097 ‑ ‑ ‑
MR GLENNAN: Yes, your Honour.
HIS HONOUR: ‑ ‑ ‑ why did not this arrangement begin to be carried out before 1 July 1992?
MR GLENNAN: Because the terms of settlement for the purposes of this Code did not constitute a contract requiring an arrangement to be entered into in terms of section 14ZAAB.
HIS HONOUR: But that seems to assume that section 14ZAAB provides the only means by which you can determine whether an arrangement began to be carried out.
MR GLENNAN: That is exactly my submission, your Honour, that section 12(2) only operates via the mechanism of section 14ZAAB and may I add that the construction that I am now submitting to your Honour is explicitly stated in unambiguous terms by the Treasurer in the explanatory memorandum to Parliament.
HIS HONOUR: Where do I see that?
MR GLENNAN: Your Honour, that is set out under tab 14. “House of Representatives, Taxation Laws Amendment (Self Assessment) Bill 1992, Explanatory Memorandum (Circulated by the authority of the Treasurer” ‑ ‑ ‑
HIS HONOUR: Yes. Where do I see the relevant part?
MR GLENNAN: Yes, your Honour. Now, the relevant part – and there are two or three relevant parts – just flipping through the pages – and, your Honour, the first relevant part is on page 28 under the heading “Meaning of ‘binding’”. That is a general statement – no, your Honour, there is a more specific one than that. May I just skip over that one. The next one which is – well, there is a paragraph on page 30 under the heading “Date of effect for Public Rulings” which I submit is relevant, and if your Honour would note the last paragraph on page 30 – yes, it is the opening line:
Public Rulings about arrangements will generally apply to past as well as new arrangements. This is because a Public Ruling states the Commissioner’s interpretation of the law and, subject to legislative change, that law is taken to have always applied.
HIS HONOUR: The next sentence.
MR GLENNAN: The next segment ‑ ‑ ‑
HIS HONOUR: Next sentence.
MR GLENNAN: The next sentence:
The exception to the general rule is where a ruling states that it only applies to arrangements commenced after a particular date.
This ruling says the exact opposite. This ruling on its face says – and if I may quote the third sentence in line 4 from the top of page 1 of the ruling, it says:
Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue.
And there is no dispute that this ruling has not been revoked. It is still a current ruling. So, your Honour, the Treasurer has gone to some lengths to explain to the Parliament when commending this Bill that the normal position will be that public tax rulings will have both a past, present and future operation unless the Commissioner stipulates otherwise and, of course, the Treasurer does make allowance for the fact that section 12(2) has a role to play but it is obviously a very limited role and the role that it plays, in my contention, is limited by section 14ZAAB – a very limited role. But may I also say that, in my respectful submission, that limited role was correctly interpreted and correctly applied by the Full Federal Court in the case that the Commissioner has quoted, but it does not support his contention in my case. It is irrelevant, completely irrelevant.
Now, your Honour, if the ruling has – if your Honour comes to the conclusion it has both a past, present and future operation, your Honour will no doubt reach a conclusion as to what is the proper interpretation of the ruling: is it Mr Glennan’s interpretation or is it the Commissioner’s? I would also like to point out, with respect, that in the same explanatory memorandum that I have just been referring to the Treasurer has said on page 12, in the last few lines on the bottom of that page:
As the Commissioner will be bound by the ruling –
ie, a public tax ruling –
the tax that would be payable by a taxpayer will be reduced to reflect the ruling or rulings. Questions of conflict are resolved by providing the taxpayer with the greatest benefit consistent with all the relevant rulings.
And the actual sections of the Act are then quoted and, of course, the section that I have to rely on to be successful in this case is section 170BA. That is a fundamental section to determining whether or not I am going to be successful in these proceedings. Perhaps I should take your Honour briefly to that section. It is set out in the Code under tab 5 again at page 2106. That is where section 170BA – no, that is the wrong section, I think. It relates to withholding tax. Yes, it is the correct section. It is the effect of a public ruling on tax other than withholding tax, and there are a number of criteria – one could even call them “hurdles”, if one wished, that a taxpayer has to jump over to get the benefit of section 170BA.
I claim that I can successfully overcome those hurdles and there is one key section that – there is I think a major point of difference between the Commissioner’s position and my position and that relates to the statutory provision on page 2107. It is subsection (3) of the new section 170BA – in fact, (3)(b), and it says – it requires that the:
law applies to a person in relation to that arrangement in a different way –
from the ruled way, ie, from the public tax ruling. Now, your Honour, I would just like to say briefly that it is my submission that the Commissioner must have come to the conclusion when making the original assessment that McLaurin’s Case and Allsop’s Case and Spedley’s Case did not apply to my situation and that was the reason why the public tax ruling did not apply.
HIS HONOUR: Mr Glennan, there was nothing in your notice of objection about the public ruling.
MR GLENNAN: No.
HIS HONOUR: You heard Mr McGovern make some submissions to me earlier about the way this public ruling system operates in relation to the review process. Do you disagree with anything he put to me about those?
MR GLENNAN: Yes, I do, your Honour. First of all, your Honour has just reminded me there is one authority that I wish to rely on which is not in my list authorities and I ask leave to add it to my list of authorities, and that is Teoh’s Case in the High Court of Australia which your Honour may recall involved an international treaty to which Australia had provisionally become a party but it had not been considered by the Parliament and had not been introduced into domestic law. The then High Court found as a fact that Mr Teoh and his children – child or children – were completely unaware of the limited ratification of the International Convention for the Protection of Children.
The Court held the fact that Mr Teoh was ignorant of Australia’s provisional ratification of that Convention was utterly irrelevant and Mr Teoh was entitled to rely on it, even though he was unaware of it and, in my submission, the rationale of that case applies here. I was not aware of the public tax ruling but it does not – in my view, the basis of the reasoning in that case does not prevent me relying upon it and saying that the Commissioner was bound by it and should have applied it. So I do respectfully ask or request the Court in coming to its decision in this matter to take into consideration the views expressed in Teoh’s Case.
But one of the points that – and it has been raised directly by your Honour – I do not know how relevant it is to my case or to the present summons but your Honour has invited me to say if I disagree with any part of Mr McGovern’s submissions and with the Court’s permission I will do so. I have contended for some years now after receiving the benefit of the judgment of the Federal Court in its original jurisdiction the decision of Mr Justice Foster that his Honour erred essentially in one respect only and that was in ordering that the matter be remitted to the AAT.
His Honour, in my submission, correctly found the material facts. In my submission, his Honour correctly found that the amount in question was not taxable under section 25(1) of the Income Tax Assessment Act for reasons different from those argued today. But where I depart from Mr McGovern’s submissions today is as follows. Mr McGovern has submitted to this Court that when one appeals from the AAT, which is an administrative tribunal, to the original jurisdiction of the Federal Court of Australia pursuant to the relevant provision, which is section 44, I believe, 44(1) of the AAT Act, that this Court – I beg your pardon, that the Federal Court in its original jurisdiction has limited jurisdiction as set out in section 44(1), ie, to consider a question of law raised by way of appeal.
Now, your Honour, it is my submission that that submission by Mr McGovern is completely erroneous and I have attempted to raise it before the Federal Court but the opportunity did not come about to argue the matter at all. It is my submission that a Chapter III court such as the Federal Court in its original jurisdiction has the same comprehensive jurisdiction as was held to apply in the first Oil Company Case in 1929, I think it was. In other words, there may be an appeal on a point of law by Parliament but when the matter comes before a Chapter III court its jurisdiction is Chapter III jurisdiction in toto and it cannot be limited or restricted in any way by the Federal Parliament.
HIS HONOUR: Now, Mr Glennan, it has been submitted against you that this amended statement of claim is a collateral challenge to the decision of the Full Court of the Federal Court. It is also submitted against you, as I understand it, that it is also a collateral challenge to that part of the decision of Justice Kirby given on 27 June 2000 which deals with the public tax ruling. You will find the reasons commencing at paragraph [28] of Justice Kirby’s decision.
MR GLENNAN: Well, your Honour, as I understand it, his Honour made no finding on that matter.
HIS HONOUR: What he said at paragraph [29] was this:
The fundamental flaw in the applicant’s argument on this ground concerns whether the Commissioner and his officers could ever be subject to a lawful duty to perform their functions . . . in a way that would contradict their undoubted duty to comply with a judgment which has been formally entered by the Full Court of the Federal Court –
In other words, what he said was, “You have this assessment, the amount of which you are bound to pay. You have sought to challenge the assessment in the orthodox way through the AAT and the Federal Court and that challenged has failed.”
MR GLENNAN: Yes.
HIS HONOUR: And, as I understand what Justice Kirby decided in relation to the public tax ruling, he said there is now an order of the Federal Court and it would be inconsistent with that order of the Federal Court to conclude at this stage that the Commissioner was bound or entitled to do anything other than act in conformity with the order of the Federal Court.
MR GLENNAN: Well, your Honour, with respect, I would like to make the following submissions. First of all, his Honour Justice Kirby I think I would – I think I should concede that while the Full Federal Court decision remains on the record and not – as an effective judgment of an Australian superior court the Commissioner is bound by it. I think that is irrefutable. Where I depart and, with respect, submit his Honour Justice Kirby was wrong, with the utmost respect, is this. There are a number of aspects of his Honour’s judgment which, in my submission, are extraordinary and are directly in conflict with reported Full Court decisions of this Court.
I have not prepared myself in detail to argue those issues before your Honour but I am certainly prepared to do so briefly and in broad generalities. Firstly, it is my submission that when an applicant for an order nisi or a constitutional writ comes before a Justice of this Court, or, indeed, a justice of the Federal Court of Australia, and the Court finds a prima facie case has been made out, the Court then ipso facto is functus officio. In fact, it is not a court at all. Really it is simply a Justice sitting in Chambers. And that is what Justice Kirby originally found.
In fact, his Honour Justice Kirby ordered me and my legal advisers to prepare short minutes of order for constitutional writs during the lunch hour, which we did. When the matter came back at 2.15, Mr McGovern, as was his perfect right, asked permission to make further submissions and the Court allowed that. My submission is that in the Court allowing those further submissions committed an egregious error. The Court was functus officio at that point, other than giving effect to the short minutes of order.
His Honour made a second egregious error, in my respectful submission. His Honour took into consideration, when considering the application for orders nisi, that there were pending in this Court applications for leave to appeal. That course of conduct by his Honour is flatly contradicted by the Full High Court of Australia, led by his Honour Chief Justice Barwick, in the Western Australian Football Case where his Honour Justice Barwick held that the fact that there might be an appeal or an application for leave to appeal to the High Court running parallel is utterly irrelevant and should not be taken into consideration by the High Court on an application for constitutional writs.
So, your Honour, whilst I cannot give the actual references to the case or the identical name of the case, the principles are plain. His Honour Justice Kirby made egregious errors in that case. The case is reported in the Law Reports and, in my respectful submission, contains incorrect statements of law on these matters and gives the impression that if someone applies for an order nisi they had better come along prepared to argue the full case or else, and this Court is bound by the procedures for constitutional writs that operated in the High Court of Justice in London in 1901 because the Federal Parliament cannot define the jurisdiction of this Court under the Constitution and those procedures can never be changed, but Justice Kirby apparently thought otherwise and the procedures that I was subjected to have not the faintest resemblance with the procedures for constitutional writs operating in London in 1901 – not the faintest resemblance.
So, your Honour, that is what I have to say about Justice Kirby’s judgment, with respect – and perhaps on a point of specificity, where his Honour said, “Mr Glennan, if so advised, can raise this matter concerning the public tax ruling when his appeals are heard or when his application for leave to appeal is heard”, that is a total misconception of the jurisdiction of his Honour when considering an application for orders nisi. His Honour was bound in law by the judgments of this Full Court to pay no regard whatsoever to any collateral proceedings in this Court.
If your Honour wishes me to cite chapter and verse and word for word, I will be able to do so by 9 o’clock tomorrow morning, but I have read the Western Australian Football Case and it is imprinted on my brain. That is what this Court decided. The views expressed by Chief Justice Barwick were supported by the majority of the other Judges and that is the law in Australia as it applies today, as I understand it, and that is my submission.
So, your Honour, I think that is about all I need to say about cavilling or challenging the judgment of Justice Kirby. I submit simply that I am perfectly entitled to bring these proceedings and if the inference is drawn that this is a collateral challenge to the judgment of Justice Kirby on my applications for constitutional writs, so be it, but, in my submission, that is not a relevant consideration.
Coming to the Full Federal Court’s judgments, a similar but not identical position applies. Your Honour, there is nothing peculiar in this context about the decision of the Full Federal Court. If it was the decision of Mr Justice Foster at first instance, the same principles would apply. If had found against me and ordered judgment be entered for the Commissioner, that judgment would have stood and the Commissioner would be perfectly entitled to rely on it, unless it was challenged on grounds of either fraud or equitable fraud.
The jurisdiction of this Court which I seek to invoke is the subject of a learned article which is appended in my documents under tab 16 “Judgments Fraudulently Obtained” published in the University of Tasmania Law Review in 1995. I acknowledge that is not an authority – Mr G. Dal Pont does not bind this Court, but if the Court would allow me, I would like to adopt his article as part of my submissions in this case. Your Honour, I would like to add that in pleading my case I have attempted to follow the guidelines set out in Mr Dal Pont’s article where he sets out how a person should attempt to set aside a judgment if he claims it has been vitiated by either fraud or equitable fraud. In this case I am content to rely on equitable fraud.
Mr McGovern says I did not comply with Wentworth’s Case. Well, your Honour, this is an area of law which is still being developed, as I am sure your Honour is cognisant. Your Honour has written a learned article on the subject which I have taken the liberty of appending, “Innovations in Contract”, tab 15. Your Honour has written an article explaining how the law has been developed to the time that that article was published, 1993 I think it was.
There is a recent decision of this Court on the subject in general, Giumelli v Giumelli, which is under tab 8, which of course has endorsed the judgment of his Honour Justice Deane and another Justice of this Court in Commonwealth v Verwayen. So, your Honour, this is an area of law which is the subject of ongoing development but it has certainly been developed to the extent that where a party promises – makes a legal promise to someone and then reinforces it with inducements to the other party to believe that he will honour that promise, the cases up to this point, including Giumelli’s Case, which was decided as recently as 1998, have held that those types of promises reinforced with those types of inducements should be recognised and enforced by the courts of equity.
So it is the equitable jurisdiction that I am seeking to invoke here with respect to the judgment of the Full Federal Court and for reasons that are explained in detail in the article under tab 19, “A ‘Revolutionary’ Approach to Unlawful Taxation”, by David Wilde, he submits in that article that where a taxpayer – this is published in the British Tax Review of 1995 – that where a taxpayer has exhausted all conventional remedies to challenge an income tax assessment and has failed, if he claims to have an arguable case that the assessment was made without the authority of Parliament, he is entitled to then seek to challenge the matter in an independent legal proceeding and elaborate reasons are given and they founded, of course, on article 4 of the Bill of Rights of 1689.
To reinforce that article I would like to refer to the section from Halsbury’s Laws of England, Fourth Edition, Volume 8(2) paragraph 202, page 199, which is at tab 21. It is quite a short passage, paragraph 202. If I may just quickly read a brief section of it:
The Queen is a necessary party to the enactment of statutes and this is reflected in the wording of the enacting formula. A bill does not become law until it has received the Royal Assent.
I will then drop down a bit to the last sentence in 202:
Moreover, the Crown cannot by proclamation or otherwise make or unmake any law on its own authority apart from Parliament –
the exceptions stated do not apply and it is my submission that a public tax ruling, where it is binding on the Commissioner, operates – well, where it is binding on the Commissioner and has the effect, if honoured, of operating in a different way to the principal Act, the Income Tax Assessment Act, then that public tax ruling is tantamount to a limited repeal of the relevant Commonwealth law and when the Commissioner publishes a public tax ruling he is doing so as the delegate of Parliament pursuant to the Self‑Assessment Act. He is doing it quite lawfully and he has full authority to do it. But if he then, having published a tax ruling which is binding on him, due to inadvertence or otherwise, assesses contrary to a binding tax ruling, then it is my submission that what the Commissioner has then done is to purport to levy income tax without the authority of Parliament, because a public tax ruling is an instrument for the purposes of the Acts Interpretation Act.
It may not be a disallowable instrument, but it is certainly an instrument, and operates as an implied repeal to a limited extent, in this case, of section 25(1) pursuant to section 8A of Acts Interpretation Act. The section of the Acts Interpretation Act which leads to this construction is primarily found in Part XI, which is tabbed under tab 3 of my documents, section 46, which says:
(1) Where an Act confers upon any authority power to make, grant or issue an instrument –
any instrument –
(including rules, regulation or by‑laws), then –
and then certain consequences flow. So, your Honour, it is my submission that that public tax ruling constitutes a law of the Commonwealth authorised by Parliament. The consequences of disregarding, for whatever reason, inadvertent or otherwise, and then issuing an assessment directly contrary to a binding tax ruling are that the Commissioner is then committing a breach of the Bill of Rights of 1689, article 4. He is purporting to levy income tax without the authority of Parliament and that is what I have pleaded in this case.
Your Honour, I would just in conclusion like to refer to two cases which are in my authorities: Attorney‑General of the Duchy of Lancaster v London and North Western Railway, which is under tab 9. It is a very short judgment. Your Honour, reading from the headnote – this is from the High Court of Justice in England:
Applications under Order xxv, rule 4, to strike out pleadings or stay proceedings on the ground that the pleadings disclose no reasonable cause of action or defence, are not intended to supply the place of dermurrers, except in frivolous cases, and the Court will not entertain such an application if the pleading raises an important point of law.
An application to strike out a statement of claim or stay proceedings may be made by the Defendant in a proper case before filing his defence.
An application to strike out a pleading can only be made where it can be shewn that the pleading discloses no cause of action or defence on the face of it without extrinsic evidence.
And the judgments in that case which are short and succinct back that up. At the conclusion of the judgment, A.L. Smith LJ says as follows:
In this case it is manifest that you must go to extrinsic evidence to shew that the pleading is bad, and directly it comes to that, the rule does not apply.
Your Honour, what Mr McGovern appears, in essence, to be claiming is that my statement of claim, whether amended or not in the manner proposed, is an abuse of the process of the Court. Where he has purported to be particular, I have submitted his arguments, with respect, are in error and I will not go over that ground again.
Your Honour, the final case I want to refer to is Bowles v Bank of England, which is under tab 22. That was a case in which the taxpayer, Mr Bowles, had subscribed for bonds or securities issued by the Bank of England. Parliament was in the process of putting through a law altering the taxation arrangements on interest on those bonds but the law had not come into operation and before the law commenced to operate the Bank of England purported to deduct certain moneys on account of the forthcoming tax law which was not at that stage operational and Mr Bowles sued the Bank of England.
The Attorney‑General for the United Kingdom was invited to appear, I think as amicus curiae. The judge said this is a test case for all the hundreds and hundreds, if not thousands, of people in Mr Bowles’ position. Either the Attorney‑General or the Bank of England said, “We are arguing here over some £65. Would your Honour permit us to pay the money into court and resolve the matter?” And, of course, if that money had been accepted by the court, there would have been no test case, and the court said, “No, this is a test case. The amount involved is not material. There are thousands of people involved in this case and we won’t allow you to pay the £65, whatever it is, into court. This case will proceed to a hearing because of its public importance.”
Your Honour, I would submit that those considerations apply to this case. I am not anxious to be a crusader or a martyr. I am simply trying to defend my own personal legal rights as best I can, but the fact is, and I have sworn in my affidavit, that this case affects the majority of the ordinary taxpayers of Australia.
HIS HONOUR: Now, Mr Glennan, what do you want to say about the particulars application that you have?
MR GLENNAN: About what, sir?
HIS HONOUR: Your application for particulars.
MR GLENNAN: Your Honour, according the CCH Tax Reporter, issues have arisen before various federal courts, including the Full High Court, about particulars and the High Court of Australia in particular has held that unless there is some cogent or unusual reason why particulars of a tax assessment should not be provided, the normal rule is that if a request for particulars is couched in reasonable form and appears to be a bona fide request, that those particulars should be supplied, and one could hardly imagine the Court coming to any other conclusion.
Sometimes particulars might be requested earlier, sometimes they might be requested late, sometimes not at all. The Commissioner might say, “Well, we are prepared to supply the particulars, but not right now.” The Commissioner in this case has said, “Your proceedings are an abuse of the process of the Court, therefore, we are not going to supply the particulars.” Your Honour, with respect, if your Honour comes to the conclusion that my pleading either in its current state, or with such further amendments as the Court may direct or request, should be allowed to proceed further towards a hearing, I am asking for an immediate order for those particulars because I may wish to amend my pleading.
I have sworn that I need the information to refine some elements of my pleading and I reiterate that material from my affidavit. The reason given by the Commissioner, in my respectful submission, which is in the annexure to my – I think it is the affidavit of 19 March, in my respectful submission, is not a reason at all and based on the established authorities from the High Court of Australia it should follow almost as a matter of course that I should be provided with those particulars provided that the primary summons issued by the defendant is, of course, dismissed. If it is upheld, well, the question of particulars obviously has no application or relevance.
HIS HONOUR: All right, thank you.
MR GLENNAN: Thank you, your Honour.
HIS HONOUR: Is there anything you want to add to your written submissions, Mr McGovern?
MR McGOVERN: No, your Honour.
HIS HONOUR: Well, I will reserve my decision in this matter.
MR GLENNAN: If the Court pleases.
HIS HONOUR: We will adjourn.
AT 4.11 PM THE MATTER WAS ADJOURNED
Key Legal Topics
Areas of Law
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Tax Law
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Administrative Law
Legal Concepts
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Judicial Review
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Procedural Fairness
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Statutory Construction
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Appeal
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