Pollack v Deputy Commissioner of Taxation

[1992] HCATrans 118

....

.	'
•	-.~JA

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl47 of 1991

B e t w e e n -

PHILLIP J. POLLACK

Applicant

and

DEPUTY COMMISSIONER OF TAXATION

Respondent

Application for special leave

to appeal

MASON CJ TOOHEY J GAUDRON J

Pollack 1 10/4/92

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 APRIL 1992, AT 11.10 AM

Copyright in the High Court of Australia

MR P.K. SEARLE: If Your Honours please, I appear with my

learned friend, MR R.M. GORDON, for the applicant.

(instructed by Barkell & Peacock)

MR D.M.J. BENNETT, OC:  May it please the Court, I appear

for the respondent with my learned friend,

MR S.J. GAGELER. (instructed by the Australian

Government Solicitor)

MASON CJ: Yes, Mr Searle.

MR SEARLE:  I understand Your Honours have a copy of the

outline of submissions for the applicant.

MASON CJ: Yes, we have a copy of the outline and we have

read it.

MR SEARLE:  As I have outlined at the start of the

submissions, there is a threshold question as to

whether the provisions of the District Court Rules

applies where a judgment creditor is the

Commissioner of Taxation. In these submissions I

propose to call the Act and Rules the constituting

Act as did Your Honour Justice Gaudron in the case

of Harris v Caladine, because there is a

substantial distinction.

GAUDRON J:  Why is there a threshold question?

MR SEARLE: Because the question as to whether the debt is

one which is immediately due and payable

immediately or at a certain future time is one

which depends upon whether the judgment debt is one

in respect of which the District Court Rules apply.

It seems as if it should be fairly obvious, but the

submissions of the applicant are that the judgment
debt is the subject of a stay of enforcement of

judgment pursuant to the District Court Rules.

Those rules lead one to the conclusion that there

due and payable immediately or at a certain future	is a stay of enforcement and that the debt is not
time.

MASON CJ:  It may be profitable to consider whether, on the

assumption that the Act and rules do apply, the

stay of enforcement of the judgment precludes the

debt from being a debt that is payable either

immediately or at some certain future day.

MR SEARLE: Yes, Your Honour.

MASON CJ:  I mean, if you do not succeed on that submission,

or you cannot persuade us that it is sufficiently

arguable to warrant the grant of special leave to

appeal, there is no point in our exploring the

constitutional niceties that arise on the balance

Pollack 2 10/4/92

of your submission or whether we might give

attention to overruling Cigamatic.

MR SEARLE:  I appreciate Your Honour's observations and most

certainly my submissions are clear that one needs

the debt to be both due, as in subsection (1), and

payable either immediately or at a certain future
time. But it also must be one or the other and, in
my submission, for bankruptcy proceedings, it is

not as if there is merely an advisory opinion which

is not going to determi~e the rights of the
parties - for bankruptcy proceedings determining

questions of solvency one must know conclusively

and definitively, in my submission, whether the

debt is one payable immediately and, if it is

payable immediately, certain results follow from

that.

If there were no stay of enforcement of the

judgment, the debt would be payable immediately.

If the debt were one the subject of an installment order, then the debt would be one which is payable

at a certain future time or, perhaps more

accurately, at certain future times; 1 June, 1 July

and so on.

MASON CJ:	But why does it cease to be due and payable immediately merely because there is a stay of
enforcement of the judgment?
MR SEARLE:	Your Honour, in my submission it follows from

the provisions of the rules. If I take Your

Honours to page 24 of the application book Your

Honours can observe the intention behind the rules.

Subrule 1 and then subrule (2) reads:

Subject to this Part, every judgment debt

shall be payable forthwith.

In my submission, there is no relevant distinction

between "payable forthwith" and "payable

immediately", so what the rules connote is that

subject to the Part - that is if there is no stay

of enforcement of the judgment debt, then the

judgment debt is one payable immediately. But if

the rules do apply, and if the court by force of
the rules orders that there is a stay of
enforcement of the judgment debt, then the debt is

not one payable immediately, it is payable, perhaps

by virtue of the installments, for example, at

certain future times, 1 June, 1 July, 1 August.

That is the effect of subrule 1(2).

I should draw Your Honours' attention that

Mr Justice Gummow, at page 43, considered that

subrule 1(2) had the opposite effect, if I could

read from line 10 in His Honour's judgment:

Pollack 10/4/92

In my view, in the present case the

existence of a stay of enforcement pursuant to

subrule 2(8) does not, of itself, and without

more, deprive the judgment debt of its

character of an obligation that is payable

immediately, as indicated in subrule 1(2).

In my submission, the proper construction of

the rules is precisely to the contrary and it is
precisely to the contrary because subrule 1(2) uses
the expression that subject to the Part the

judgment debt shall be payable forthwith.

I also rely on the dissenting judgment of

Mr Justice Beaumont at page 19. Put simply,

His Honour states that it is:

a contradiction in terms to say that, the

judgment debtor was restrained from enforcing

his judgment debt, yet the judgment debtor is

legally bound to pay that debt immediately.

GAUDRON J: Except that the question is what are the

restraints, and if the restraint is, as one would

think, only a restraint on resorting to the

execution processes provided under the rules, then

it does not alter the character of the debt as one

that is payable.

MR SEARLE: 

Your Honour, in my submission the provisions of

subrule 2(8) do not really have the effect of
preventing the use of the court procedures for the
purpose of execution of the judgment debt.

GAUDRON J: 

It would be strange if they meant anything else.

It would be strange if they were intended, for

example, to operate with respect to the powers and

jurisdiction of the Federal Court in relation to

bankruptcy.

MR SEARLE:  They use the expression as a stay of enforcement

of the judgment thereby preventing the judgment

creditor from exercising any legal rights in

relation to enforceability of that judgment. It is

therefore, in my submission, not a judgment payable

immediately. It is a contradiction in terms.

TOOHEY J:  Why do you read it that way? I mean, that is

giving the language of subrule (8) an extraordinary

wide operation.	The subrule is a rule of the
district court.	One might think prima facie it is

concerned with enforcement of the judgment within

the framework of the Act and rules of the district

court, particularly if you look at subrule (8),

paragraph (b) which expressly exempts:

Pollack 10/4/92

a garnishee order to which section 98 of the

Act applies -

You would give those words "stay of enforcement of

the judgment", although they appear in the rules of
the district court, an operation that relates to

the enforcement of the judgment under any

circumstances and in any jurisdiction whatsoever.

MR SEARLE: Generally. As with, in my submission, all stays

of enforcement of judgment, that has the effect of

preventing the judgment creditor from stating, in

any enforceable way whatsoever, to the debtor, "You

shall pay the money forthwith or immediately",

because they do not have to. The court's order is

that there be a stay of enforcement of the

judgment. There is no legally binding obligation

whatsoever to pay the judgment debt once there is a

stay of enforcement of the judgment debt and the

underlying cause of action, of course, is merged in

the judgment debt in accordance with Chamberlain's

case.

So you cannot rely on any alleged income tax,

you cannot rely on an amount of money under the

provisions of the Income Tax Assessment Act because

as this Court stated in Chamberlain's case those

powers are spent, and the debt itself has been

transformed into one which is totally under the

control of and the jurisdiction of the court. It is then the court itself using its judicial power which has stated that enforcement of that debt is

to be stayed.	And that is the only enforceable
right that they have.	The only right that the

Commissioner has or that any creditor has, once the underlying cause of action merges in the judgment debt, is to enforce it, in my submission, pursuant

to the provisions of the court's procedures to
attack someone or to approach someone and say, "You

shall pay this money forthwith", the immediate

response can be, "No, I have a court order on that

judgment debt stating that there is a stay of

enforcement of the judgment."

In my submission, it is in that sense that

Mr Justice Beaumont, in his strong dissent, stated

that it is a contradiction in terms to state that

the debt is payable immediately when there is a

stay of enforcement of the judgment.

MASON CJ: But are you not still brought back, even if you

do accept that the debt is merged in the judgment

debt, to the provision of rule 1(2) which say:

every judgment debt shall be payable

forthwith.

Pollack 5 10/4/92

Now, that is subject to the rules, but then in the application of the rules to this particular

judgment it is subject to the stay of enforcement of the judgment. But that does not mean that the

judgment debt is not due and payable forthwith.	It
means, of course, that the court's method of enforcing the judgment is suspended or stayed, but the debt itself remains payable forthwith.

MR SEARLE:  In my submission, the correct way to approach it

is to state that the debt is due. Looking at

page 27 of the application book, taking

Your Honours to section 44(1) of the Act,

section 44(l)(b)(i) requires the liquidated sum to

be due at law - and that is the first requirement.

In my submission, Your Honour's observations are

directed to that requirement. Then there is a

second, a totally different requirement. That is

that the amount be "payable either immediately or

at a certain future time". Immediately, it must be

one or the other, or at a certain future time.

The rules have the effect of this, looking under subrule 1(2). Either the debt is payable

forthwith or there may be a stay of enforcement of
the judgment in which case it is not payable
forthwith, or the debt is payable pursuant to an
installment order under the rules, in which case

the debt is payable at certain future times in

accordance with the installment order.

If I could draw Your Honour's attention to the learned Chief Justice's judgment in Clyne v Deputy

Commissioner of Taxation, (1981) 150 CLR 1, in

particular at page 15, Your Honour in that case

stated that "due" means:

" ..... legally liable to pay, whether such sums

had become actually payable or not."

Your Honour drew a distinction between due and
payable.	Your Honour will recall that

Mr Justice Gibbs, in the earlier decision of

Mendonca had put forward a proposition which he

retracted in Clyne's case, that income tax, in

effect, becomes due and payable in accordance with

the Act and there is some obligation to pay even

before an assessment. But the distinction was

drawn in Clyne's case and in subsequent cases by

this Court between due, on the one hand, and

payable on the other. In my submission, what one

must do in construing the Bankruptcy Act, which of

course is an Act dealing precisely with one's

ability to pay one's debts as they fall due and

payable, because it involves questions of solvency,

the Bankruptcy Act itself draws a heavy distinction

in subparagraphs (i) and (ii) of section 44(1)(b)

Pollack 6 10/4/92

between debts which are a liquidated sum due, and that would be a judgment debt in respect of which

there was a stay of enforcement on the one hand,

and alternatively, debts which are payable either

immediately or at a certain future time.

Could I draw Your Honours' attention to this

matter as well. The threshold question does

finally determine important questions. If the
decision below of the majority stands, it would
appear that the district court has no power at all
to order this judgment debt to be paid by

installments and that 206 of the Income Tax

Assessment Act has covered the field. What that

means is that this judgment debtor, in order to

exercise the right which he would have been told by

this Court he has to apply to pay by installments,

must apply under 206 of the Income Tax Assessment

Act to the Commissioner.

GAUDRON J: But that was obiter only, given the way that the

matter was decided.

MR SEARLE:  Your Honour, it was not obiter in relation to

the application for special leave to appeal from a

206 decision to this Court, constituted by

Justices Brennan, Dawson and McHugh, in which case

the answer to the special leave application to

review a section 206 decision was that the income

tax had merged in the judgment debt and that
therefore the powers that the Commissioner had

under 206 are totally spent. Now, this person will

be in the same position. This debtor would be in

the same person as Mr Faulkner. He can arrive back

at the High Court seeking special leave to review a

206 decision only to be told that this was obiter

here, in the Full Federal Court's decision here,

and in fact the Commissioner does have no power

under 206 and the field is not covered at all.

GAUDRON J: But the question is not whether there is or is

not power under 206 so much as whether or not there

is power in the registrar under the District Court

Rules.

MR SEARLE: In my submission, Your Honour, they are - - -

GAUDRON J: From the point of view of this case, and that

question does not immediately arise.

MR SEARLE: In my submission, respectfully, it does, because

they are opposite sides of the same coin. The

District Court Registrar, on the reasoning below,

and on the reasoning of Justice Jenkinson in

Mazuran and in Justice O'Bryan in Zarzycki and

Justice Southwell in Homewood, just following

Mazuran and Zarzycki, is all to the effect that 206

Pollack 10/4/92

covers the field. Therefore the District Court

Registrar has no power to order that a debt be paid

by installments. That proposition is, in my humble

submission, patently and obviously wrong.

GAUDRON J: Yes, but the way to challenge that, is it not, is to challenge a registrar's decision in the way indicated in the judgments below.

MR SEARLE:  In my submission, the question arises very very

directly in this proceeding, because before one
gets to the effect of a stay of enforcement of a
judgment one must consider whether a stay of

enforcement of the judgment arises by virtue of the

District Court Rules, by virtue of the constituting

Act, by virtue of a decision exercised by that

court which was within power. It must, in my

submission, be answered, and to go back, one could

issue a writ of mandamus against the registrar and

attempt to arrive straight back in this Court and,

again, state, well Cigamatic is wrong and that it

is flawed and the Commissioner has not covered the

field and section 39(2) does invest federal

judicial power and it does nothing other than

invest federal judicial power in this case.	And
one can refer to the decisions of HCF and The

Commonwealth v The District Court in order to prove

then, in a mandamus proceeding, that the registrar

should have exercised his power to refer the matter

on.

But in my submission the issue already arises

very clearly and one is dealing here with important
questions of the rights of the Commonwealth to

recover all of the money of the Commonwealth. All

of the money. It is not only a question of

$33,000, with respect; it is a question of

something more like $80 billion and the mechanism

whereby the Federal Government has chosen to

recover that money.	Now, in my submission it is
clear beyond argument that the Commonwealth by

virtue of the Judiciary Act in 39(2), 64, 67 and

79, has firstly invested the State court with
federal judicial power and takes it as it is, as

Your Honour Justice Gaudron had observed in Harris v Caladine, (1990-91) 172 CLR 143, that you take

that court as it is and the court therefore has the

power. In my submission, it is fundamentally

incorrect - this is not a case where one could say,

well, the decision below may be attended with

sufficient doubt, with respect. In my submission,

the basis of the decision on the constitutional
Judiciary Act issues, based as it is on the fact

that 206 covers the field, is patently wrong and, as Justice Beaumont says in his dissent, it would

purport to invest in the Commonwealth Commissioner

of Taxation federal judicial power.

Pollack 10/4/92

What the decision means is that the

Commissioner can now go back to the district court

and issue a warrant of execution. The court has no

power to stay execution, apparently. It has no

power - - -

GAUDRON J: If you say that, you can challenge those matters

if the Commissioner goes back to the district

court. I would rather have assumed that having

gone to the Federal Court by way of bankruptcy

petition he had abandoned the remedies that might -

not totally abandoned in the strict sense, but he
had opted for remedies other than those available

in the district court.

MR SEARLE:  Your Honour, in my submission there would be

nothing at all to prevent the Commissioner

utilizing the district court powers of enforcement
of execution to issue a warrant of distress or

execution or a garnishee order or a receiver.

There is nothing - - -

GAUDRON J: It depends what happens to the bankruptcy

petition, does it not?

MR SEARLE: There would be nothing to prevent him, in my

submission, from doing it tomorrow. He could

attend tomorrow at the district court to seek a

garnishee order. It is not as if the Commissioner

does not often exercise his powerful rights under

both. He has got both the legal rights and he can.

But the district court would be left in the

unenviable position, and is in the unenviable

position, of being totally unable to control

whether the debt is going to be enforceable or not,

and therefore whether it should issue any warrant

or a garnishee order.

TOOHEY J:  Mr Searle, there is nothing inconsistent, is

there, in saying that the Commissioner, if he seeks

to invoke the procedures of the district court is

controlled by the operation of the rules, but that

if he seeks to invoke bankruptcy proceedings the

question is a different one, whether there is a
debt due and payable and if there is, well, that is

the end of it.

MR SEARLE:  Your Honour, in relation to the first part of

Your Honour's observation, that is precisely the point I make, that in accordance with longstanding

authority in this Court from Miller's case and

other cases, the Commissioner is bound by the

rules. That is the simple proposition. Now, if he

is - - -

TOOHEY J:  What I put to you, is there any inconsistency in

the two propositions?

Pollack 9 10/4/92

MR SEARLE:  If he is bound by the rules, then the decision

below is wrong and it ought be overturned because

you cannot proceed on a false assumption.

GAUDRON J:  Not the answer to the stated case. The answer

to the stated case is not necessarily wrong on that

account. What may be wrong is what Their Honour in

the majority went on to say, as well as giving the

answer to the stated case.

MR SEARLE: It is not only the one decision. It is not as

if it is only Justice Gummow and Pincus who have

fallen for the same error. It is Justice Jenkinson

in Mazuran and Justice O'Bryan in Zarzycki and it

is Justice Southwell in Homewood. In my submission

that is a matter which must be addressed by this

Court. It is a preliminary matter because one has got to determine, firstly, whether there is a stay

of enforcement of the judgment, whatever it means.

It is a special leave point in itself, in my

submission, Your Honours.

MASON CJ:	But what is the point of our taking it on if our firm conclusion be that you will fail in any event?
MR SEARLE:	Your Honour, in my submission, if that is the

Court's conclusion, then the Court can do that in a very short judgment. It can say that the rules either do or do not apply to the Commissioner, and

that would at least clarify it. Then it can

determine there is a stay of enforcement of

judgment; at least one then knows that in the

bankruptcy proceedings. Then, for the purpose of the bankruptcy proceedings, what is critical is a

determinatio"n of whether the debt is one due and
payable immediately - and the Court can determine

whether it is immediately - or at a certain future

time. That has effect for the court below.

If that is the Court's decision, then at least

one knows quite clearly that one cannot proceed

with a section 206 application to the Commissioner

to seek a right to pay the judgment debt by

installments, even given that this High Court's

decision in Chamberlain and given the special leave

application in Faulkner v Conwell, it should be

clear enough, but one would at least know that, but

one would also know that the District Court Rules

do apply to the Commissioner, and at present that

is uncertain, leading to great uncertainty in

relation to the recovery of the revenue; whether

the rules apply and whether there is a stay of

enforcement of judgment, whatever it means.

MASON CJ:  I follow all that. But if we are of the opinion

that the judgment creditor has the benefit of a

judgment which is immediately due and payable, why

Pollack 10 10/4/92

should we deprive the judgment creditor of the

opportunity of taking proceedings under the

Bankruptcy Act merely to answer these other

questions which will not be determinative of the

point now at issue, because on the assumption I am

putting to you, it would be determined otherwise?

MR SEARLE:  I appreciate Your Honour's point. If this Court

were of the firm view that this debt is one which

is due and payable immediately, then there is still

a stay of execution of judgment of the debt because the District Court Rules apply. There is a stay of enforcement of the debt. It is not a debt for any

purposes which the Commissioner of Taxation - - -

TOOHEY J: But that is not right, Mr Searle, is It? There

is a stay of enforcement of the judgment?

MR SEARLE:  Of the judgment. That is on the assumption that

Chamberlain's case does determine quite

conclusively that the underlying income tax has

merged. But there is a stay of enforcement on the

judgment. There is no underlying debt because it
has merged. For the purposes of the bankruptcy

proceeding, any bankruptcy proceeding, it is

critical in my submission to know whether that stay

of enforcement is in existence because it

determines the question of solvency. If there is a

stay of enforcement by virtue of a valid

application to pay by installments, which is all of

the primary tax and then monthly installments - all
of the primary tax in 14 days and then monthly

installments - then the judgment debtor is able to

swear an affidavit of solvency stating the

application is still in, and then the court has,

for example, ordered the installments or not - if

it has ordered the installments, all of the primary

tax is payable in 14 days - that is a certain

future time, and then the other installments are

due as they fall. That is absolutely critical to

question of solvency.

If there is simply a stay of enforcement in

the interim period, by virtue of the District Court

Rules that is a matter which His Honour in the

bankruptcy court must take into account. At the

present state of the authorities, His Honour in the

bankruptcy court, on a refusal for special leave

today, is not aware, in my submission, clearly of

whether there is a stay of enforcement of the

judgment debt, irrespective of the other important

question - in my submission, I put it as a second

important question - of whether that stay of
enforcement of the judgment meant that the debt was

thereby payable immediately or at a certain future

time.

Pollack 11 10/4/92

Because it does not simply follow from stating

that the debt is payable immediately or at a
certain future time that a sequestration order

would be made, because questions of solvency and

discretion are involved.

If Your Honours please.

MASON CJ:  Thank you, Mr Searle. The Court need not trouble

you, Mr Bennett.

The Court is not persuaded that the decision of the Full Court of the Federal Court that,

assuming that the District Court Act and Rules

applied to bring about a stay of enforcement of the

judgment, the judgment debt was due and payable

immediately or at a certain time in the future for

the purposes of the Bankruptcy Act is attended with

sufficient doubt to warrant the grant of special

leave to appeal.

The application is therefore refused.

MR BENNETT:	I seek costs, if Your Honour pleases.
MASON CJ:	You cannot oppose that, Mr Searle?
MR SEARLE:	Your Honour, I do formally oppose it, because it

is an important matter for the Commissioner and it

was not a case stated which had been sought by the taxpayer. Mr Justice Beaumont himself, of his own

volition, decided to state a case. As it turns

out, it would have been very much to the taxpayer's

favour had Mr Justice Beaumont decided it. It is

an important matter for the Commonwealth. If

Your Honours please.

MASON CJ:	The application is refused with costs.
AT 11.42 AM THE MATTER WAS ADJOURNED SINE DIE

Pollack 12 10/4/92