Madden v Madden

[1996] HCATrans 349

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S73 of 1996

B e t w e e n -

ALEXANDER WILLIAM MADDEN

Applicant

and

JOAN LILIAN MADDEN

First Respondent

FEDERAL COMMISSIONER OF TAXATION

Second Respondent

OFFICIAL TRUSTEE IN BANKRUPTCY

Third Respondent

Application for special leave to appeal

BRENNAN CJ

GAUDRON J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 NOVEMBER 1996, AT 11.07 AM

Copyright in the High Court of Australia

__________________

MR G.J. McVAY:   May it please your Honours, I appear for the applicant.  (instructed by Fox & Staniland)

MR D.M.J. BENNETT:   If the Court pleases, I appear with my learned friend, MR D.B. McGOVERN, for the second respondent.  (instructed by the Australian Government Solicitor)

MR B.J. SKINNER:   May it please your Honours, I appear for the third respondent.  (instructed by Lobban McNally & Harney)

BRENNAN CJ:  Before you proceed, there is the question of the first respondent.  Is the first respondent a party to this application at all?

MR McVAY:   No, your Honour.

BRENNAN CJ:   Or has she been a party to any part of these proceedings?

MR McVAY:   If the Federal Court nor here has any relief ever been sought against the former wife of the applicant, your Honour.  Whilst she made a brief appearance before the court in the very first instance, she has not appeared at any of the proceedings since.  Attempts to locate her and serve her have been futile.

GUMMOW J:   Why is she a necessary or appropriate party?

MR McVAY:   I think it was thought originally, your Honour, that she held some properties in her own name which it was said were really held in trust for the applicant and that they were bought with the proceeds of his drug dealings.  So she was a necessary party simply because she was the registered proprietor of some land.  I understand that land is now, I think, with the Official Trustee.  So she really has no interest, I would submit, any further.

BRENNAN CJ:   Yes, Mr McVay.

MR McVAY:   Your Honours, the position in this case is whether this case can go forward, the issues in it being - or would have been if it had gone forward - whether the content of the Hickman principle, when applied to the facts of this case, would render the assessment issued invalid.

GUMMOW J:   At the end of the day by whichever route, one comes back to the original sequestration order, does one not, and the judgment which founded the bankruptcy notice?

MR McVAY:   Yes. 

GUMMOW J:   That has never been set aside?

MR McVAY:   It has not yet, but that is part of the proceedings, your Honour, and part of the proceedings were that if the assessment, which was the basis, of course, of the default judgment which le++d to the bankruptcy notice, the proceedings were that if that assessment was set aside as invalid, so therefore was the judgment debt invalid, and the bankruptcy proceedings also set aside.

BRENNAN CJ:   But the judgment has not been impugned.  There has been no application to set aside the judgment.

MR McVAY:   No.

BRENNAN CJ:   And the judgment is based on the assessment.

MR McVAY:   It is, but if the assessment ‑ ‑ ‑

BRENNAN CJ:   And the assessment therefore has been judicially determined to be valid and there is no attack upon that determination.

MR McVAY:   There will be, your Honour.

BRENNAN CJ:   It may be.  The appropriate thing to do is to attack the basis on which the judicial assessment has been made, not by some collateral process.

MR McVAY:   With respect, that was not really the issue below.

BRENNAN CJ:   It might not have been the issue, but it is the principle of law that is undoubted. 

MR McVAY:   With respect, your Honour, there can be a collateral attack on that default judgment by way of these proceedings, that is ‑ ‑ ‑

BRENNAN CJ:   How can there?  So long as that judgment stands there is a judicial determination that there was an assessment which created a debt.

MR McVAY:   But if that assessment which formed the basis of the debt is set aside, there will be an application.

BRENNAN CJ:   How can it be set aside when there is a judgment that says that assessment, on service, created a debt?

MR McVAY:   Because we will be saying, your Honour, because that judgment was brought about by an assessment that was issued in bad faith ‑ ‑ ‑

BRENNAN CJ:   And if you succeeded, then your judgment here would stand in stark contrast with the judgment that is already on the books.  So there would be an inconsistency of judgments.

MR McVAY:   It would be.  However, your Honour, there are reasons for that.

BRENNAN CJ:   But there cannot be - there is a basic principle that there cannot be an inconsistency of judgments.  Your first port of call has to be to attack the first judgment.

MR McVAY:   But not necessarily in the order that your Honour suggests.

BRENNAN CJ:   You will have to convince me of that, Mr McVay.

MR McVAY:   Your Honour has caught me a little on the hop because this was not something that was debated ‑ ‑ ‑

BRENNAN CJ:   Perhaps it is the fallacy that has underlain the whole proceedings.

MR McVAY:   Yes.  But, your Honour, there is no time limit or there is no restriction on setting aside a judgment that was perhaps obtained which should never have been obtained; obtained by fraud or obtained by abuse of power or an excess of power.  The object of these proceedings is to show that the judgment was obtained by way of an abuse of power or an excess of power and if that is the case, then there is no restriction on setting aside the judgment and there is no inconsistency because the judgment should never have been entered at all.  So there is no inconsistency because it is not a judgment.

GUMMOW J:   But it is; therefore it is set aside.

MR McVAY:   It is, but it would be set aside ‑ ‑ ‑

GUMMOW J:   It is on the roll of the court.  There it is.

MR McVAY:   It would involve the Court accepting that the judgment never existed, notwithstanding it was entered.

BRENNAN CJ:   That is an assumption that no court can make.

MR McVAY:   It is an assumption that can be made if the applicant is successful in the proceedings that it wants to bring.  It is clear that if a judgment - it would be wrong for a court, with respect, to say that because we have entered a judgment, no matter how it has been obtained, whether by fraud or excess of power or abuse of power, we cannot do anything about that.

BRENNAN CJ:   No, it is not wrong.  It would be wrong for a court to say that.  What the court then says is, “and if you say it has been procured by fraud, come and move in an action to set that judgment aside”.  And if, in that action, the judgment is set aside, then it is tabula rasa.

MR McVAY:   As I recall it though, one of the grounds taken below, one of the claims below, was that the - that is what it was, that the Official Trustee, whom Mr Skinner appears for, because the applicant is a bankrupt, your Honour, he has very limited rights to move to set anything aside.  The application below was that the Official Trustee, pursuant to a section of the Bankruptcy Act which I have now forgotten, do it for him as his trustee.  So if the applicant was successful in arguing that this assessment was issued as an abuse of power of in excess of power and never was an assessment, then it was proper for the Trustee, on behalf of the bankrupt, to do something about it as the possessor of his powers, the possessor of bankrupt’s rights.  So that is what I can say to that, your Honour, that he has no particular rights to attack the judgment because of his bankruptcy and we asked the Trustee to do so.  The trustee refused, so he was joined in these proceedings. 

If the assessment is held to be invalid then it would be, in my respectful submission, incumbent on the Trustee to take steps to have the judgment set aside, which the applicant cannot do himself because he has no standing, as a bankrupt.  So that is why it comes here by this particular route, rather than attacking the judgment itself; because the applicant does not have any standing to do so.  At best, his Trustee can do it for him and he refused.  And he refuses because he does not accept the point that the assessment is invalid.  However, that attitude may change if it is to be held to be invalid.

BRENNAN CJ:   Has an application been made for the Trustee to attack the judgment?

MR McVAY:   Yes.  The Trustee was joined in the proceedings below for the very purposes of obtaining an order against him that he do attack the judgment.  That is my recollection of it and that is why he is a party.

GUMMOW J:   The relief seems to appear at page 11A of the application book, the claimed relief.

MR McVAY:   Yes. 

GUMMOW J:   It does not have paragraphs 1 and 2.

MR McVAY:   So I submit, your Honours, that the presiding judge, the point made he has answered that.  It is not possible for us to attack the judgment in that way.

BRENNAN CJ:   Where is the application as against the Trustee in Bankruptcy to compel him to attack the judgment?

MR McVAY:   Where has that been pleaded, your Honour?

BRENNAN CJ:   Yes, where do I find it?

MR McVAY:   Unfortunatley it is not in the appeal papers and my instructing solicitor does not have the amended statement of claim that was before his Honour Mr Justice Whitlam which sets out the relief that was sought against the Trustee.  I will just ask my friend ‑ I am grateful to Mr Bennett, your Honour.  I will hand up a copy of the amended application which was before his Honour Mr Justice Whitlam and I would ask your Honours to look at pages 3 and 12 of the amended application and the amended statement of claim which sets out the allegations against the Trustee and the orders sought that he take the proceedings to set aside the default judgment.

BRENNAN CJ:   If you can identify for us where that application is to be found here.

MR McVAY:   Mr Bennett just draws to my attention it is not as clear as it should be.  On page 3, your Honours, you will see the reference to 178 of the Bankruptcy Act.  That is a section, as I recall, which allows the Trustee to bring proceedings on behalf of the bankrupt should it be deemed necessary.

BRENNAN CJ:   Yes, we have got that.

GUMMOW J:   We have already got that at page 80 in the application book.

BRENNAN CJ:   Where is the application for an order that the Trustee bring proceedings to set aside the judgment.

MR McVAY:   Your Honour could see I was in some difficulty there, and I might have said that a little bit too widely.  If your Honours go to page 11 of what has been handed up and you will see paragraph 9 there:

The second respondent -

who is the Commissioner -

obtained a default judgment from the Supreme Court.....

10.  The applicant was made bankrupt.....

Then we come over to 12:

12.  The third respondent is the trustee.....

13.  The third respondent has been made aware of the matters contained herein and has been given copies of the affidavits referred to herein.

14.  The third respondent has refused to bring these or other proceedings against the second respondent.

Now, it does not quite set out that we moved to have the default judgment set aside but ‑ ‑ ‑

BRENNAN CJ:   It is not “does not quite”; it just does not.

MR McVAY:   Paragraph 14 is fairly wide, your Honour.  But be that as it may, at this stage of the proceedings ‑ ‑ ‑

GUMMOW J:   Be that as it may, you have got to cope with the matters at page 79 of the application book, that is to say no steps taken all those years ago ‑ ‑ ‑

MR McVAY:   Well, largely explicable by the fact that the applicant was in gaol.

GUMMOW J:   Read on page 79, it deals with that.

MR McVAY:   With respect, your Honour, they are matters that are not really relevant to this application ‑ ‑ ‑

GAUDRON J:   They are critical. 

MR McVAY:   They are explicable, your Honour, by the fact ‑ ‑ ‑

GAUDRON J:   They may be explicable but they are critical.  You just cannot have collateral proceedings to challenge issues which have been determined in a judgment of another court.  The only way to challenge a judgment is by appeal or by motion to have it set aside.  You just cannot do it this way.  That is the point.

MR McVAY:   But, your Honour, that of course, at this stage of the proceedings, which are only interlocutory at this stage, there is nothing to prevent an amendment being made to claim that very relief.  The case has not been underway yet.

BRENNAN CJ:   In the Federal Court?

MR McVAY:   In the Federal Court.

BRENNAN CJ:   To set aside judgment of the Supreme Court?

MR McVAY:   With respect, perhaps I had not thought that one through, but ‑ ‑ ‑

BRENNAN CJ:   It does not take long to think through, Mr McVay.

MR McVAY:   No.  There is nothing to prevent it, though, your Honour, from even perhaps commencing proceedings in the Supreme Court to do just that.

BRENNAN CJ:   Then different considerations apply.

MR McVAY:   That certainly can be done at this stage.  There is no reason why it cannot be done.  But before that can be done, I submit, your Honour, one needs to have a finding that this assessment is invalid and always was because to move the court, it would be necessary first of all to explain the delay, but that is something we would have to do while we are in the Supreme Court; explain the delay and for then to say, “Well, if those reasons for delay are acceptable, the assessment is invalid and always was”.  And so the judge of the Supreme Court should set aside his judgment.  But the applicant cannot do otherwise unless and until his assessment is set aside.  And I have not even begun to address your Honours on that yet.

It arises out of the Richard Walter’s Case, of course, and it is all new territory now, that that case opens up a whole new area of litigation between taxpayer and Commissioner.

GUMMOW J:   I do not think it opens up this one, though.

MR McVAY:   The facts of this case, your Honour, are something that, if it was decided, would be of very much general importance.  Firstly, because of the novelty of the new proposition in Richard Walter, and I understand this is the first case that has come up anywhere near this level, having regard to those principles and, of course, the regular and on-going disputes between Commissioner and taxpayer.  Of course cases, traditional learning in cases like Bloemen, Batagol and Hoffnung and all those cases, they are of very limited use now when an assessment is attacked, very limited use because new rules now apply.  This is a case where - a quite extraordinary case on its facts - where all those issues, all those issues relating to the validity of assessment will be able to be discussed because, on the facts as your Honours have read them, this assessment arose out of a telephone call or the like from a policeman.

BRENNAN CJ:   Mr McVay, you can take us to the facts in the time limited for your doing so if you wish, but I mean you have got this basic major problem.

MR McVAY:   I accept the problem, but it is nothing that cannot be cured by an amendment at this stage.  Nothing has been decided at this stage, and that has been struck out even before a piece of evidence has been given.  The Commissioner has not pleaded ‑ he may have pleaded, but certainly he put on a notice to strike out I think before any pleadings went on.  It is not a matter of being too far down the track to make an amendment of the sort

necessary to have the judgment set aside, to attack it.  But that, of course, cannot be done in the Supreme Court; it will have to go back to the Supreme Court with some sort of the order that the assessment is invalid and some evidence for it to be set aside.  We are not out of time in that course.

Your Honour, I do not want to go to the facts of the case.  You have read them in the submissions.  In my respectful submission, the inconsistency problem does not apply having regard to the fact that if the assessment is invalid there should never have been a judgment and it is not too late now to move to set the default judgment aside.  That is all I have to say.

BRENNAN CJ:   Yes, thank you, Mr McVay.  We need not trouble you, Mr Bennett, or you, Mr Skinner. 

The applicant sought orders in the nature of certiorari against the second respondent on the footing that the assessment of the applicant to tax was made in bad faith and was invalid.  The validity of the assessment was necessary to the recovery of a judgment entered against the applicant and, as that judgment has not been impugned, much less set aside, it is vexatious to seek relief on the footing that the assessment was invalid.

So long as the judgment founded on the notice of assessment stands, it is a bar to proceedings that challenge the validity of the assessment or, as in the case of a claim for damages for misfeasance in public office, to proceedings that depend on the invalidity of the assessment. 

The claim against the third respondent must fail if the claims against the second respondent fail.  An appeal enjoys no prospect of success.  Special leave is therefore refused.

MR BENNETT:   Your Honour, I seek an order for costs.

MR SKINNER:   I also seek costs in respect of the third respondent.

BRENNAN CJ:   What do you have to say, Mr McVay?

MR McVAY:   Nothing.

BRENNAN CJ:   Special leave is refused with costs.

AT 11.29 AM THE MATTER WAS CONCLUDED