FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Grimaldi (No. 9) [2009] FCA 1404

TAXATION – whether judgments may be obtained against more than one party where concurrent or alternative notices of assessment have been issued to two parties

Federal Court of Australia Act 1976 s 31A

Taxation Administration Act 1953 (Cth) Parts IIA and IVC, ss 14ZL-14ZZS, ss 255-1, 255-5, 255-45, 260-5 and 298-25 of Schedule 1

Income Tax Assessment Act 1936 (Cth) ss 166, 174, 175, 175A, 177(1), 201 and 204

Income Tax Act 1986 (Cth) ss 5(1) and 7

Income Tax Rates Act 1986 (Cth) s 12(1)

Income Tax Regulations 1936 (Cth)Reg 172(2)

Commissioner of Taxation v Grimaldi (No. 5) [2009] FCA 765 referred to

Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 referred to

The Deputy Commissioner of Taxation of the Commonwealth of Australia v Moorebank Proprietary Limited (1988) 165 CLR 55 cited

Blair v Curran (1939) 62 CLR 464 cited

In re Waring. Westminster Bank v Burton-Butler [1948] Ch 221 referred to

Berkeley v Berkeley [1946] A.C. 555 referred to

Ramsay v Pigram (1968) 118 CLR 271 considered

Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 cited

Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 204 ALR 722 cited

Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10 cited

Deputy Commissioner of Taxation (Vic) v Held (1988) 19 ATR 852 considered and distinguished

Held v Deputy Commissioner of Taxation (Vic) (1988) 19 ATR 1213 referred to

Deputy Federal Commissioner of Taxation v Mackey (1982) 82 ATC 4571 cited

Trustee of the Balmain Trust v FC of T (1998) 99 ATC 5334 cited

McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 cited

F. J. Bloemen Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 360 referred to

Webb v Commissioner of Taxation (No 2) (1993) 47 FCR 394 referred to

Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Limited (1995) 183 CLR 168 cited

Syngenta Crop Protection Pty Ltd (ACN 002 933 717) v Commissioner of Taxation (2005) 61 ATR 186 referred to

Commission of Taxation of the Commonwealth of Australia v Futuris Corporation Limited (2008) 237 CLR 146 cited

Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 referred to

Handley, Honourable Mr Justice KR, Spencer Bower, Turner and Handley: The Doctrine of Res Judicata (3rd Ed, Butterworths, 1996)

Handley, Honourable Mr Justice KR, “Res Judicata: General Principles and Recent Developments” (1999) 18 Australian Bar Review 214

Pagone, GT, “The Significance of Assessments” (1990) Australian Tax Review 88  

COMMISSIONER OF TAXATION v PHILLIP GRIMALDI, GARRY BONACCORSO, IFTC BROKING SERVICES LTD, MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND, JAMES DARROCH WALLACE and JOSEPHINE MARY WALLACE

NSD 407 of 2009

GRAHAM J

27 NOVEMBER 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  Judgment be given for the applicant against the fourth respondent in the sum of $25,909,612.54.

2.                  The fourth respondent pay the applicant’s costs in respect of prayer for relief 6 in the applicant’s amended notice of motion filed 6 October 2009.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

Background

1                     By a Notice of Motion filed 24 June 2009 the applicant sought summary judgment in accordance with s 31A of the Federal Court of Australia Act 1976 (Cth) (‘the Federal Court Act’) against the first, second, third and fourth respondents.

2                     On 13 July 2009 judgment was given for the applicant against the first respondent in the sum of $36,341,461.73, for the applicant against the second respondent in the sum of $3,552,577.81 and for the applicant against the third respondent in the sum of $3,664,366.20.  The judgment against the third respondent was made by consent but without admissions and without prejudice to the rights of the third respondent under Part IVC of the Taxation Administration Act 1953 (Cth) (‘the Administration Act’).  The judgments against the first and second respondents were made following a finding by the Court that neither the first respondent nor the second respondent had any reasonable prospect of successfully defending those parts of the proceeding which recorded the claims of the applicant upon them as found in paragraphs 3 and 4 of the Notice of Motion filed 24 June 2009 or the updated claims which took into account interest up to 8 July 2009 (see Commissioner of Taxation v Grimaldi (No. 5) [2009] FCA 765 (‘Grimaldi (No. 5)’).

3                     At [26] in Grimaldi No 5 Graham J said:

‘26       By a Notice of Motion filed 24 June 2009 the applicant has sought summary judgment against the first, second, third and fourth respondents.  Upon the motion coming on for hearing on 13 July 2009, senior counsel for the applicant informed the Court that summary judgment was not presently sought against the fourth respondent.  He further indicated that consent orders were in contemplation as between the applicant and the third respondent.  In the circumstances the hearing of the Notice of Motion proceeded on the basis that relief was sought against the first respondent generally in accordance with paragraph 3 of the Notice of Motion, against the second respondent generally in accordance with paragraph 4 and against the third respondent generally in accordance with paragraph 5. … Following the conclusion of the hearing of the motion, but before the delivery of these reasons, that part of the proceeding as between the applicant and the third respondent was settled with appropriate orders being made in accordance with Short Minutes of Order signed by the solicitors for the respective parties.  …’

The claim against the fourth respondent

4                     Pursuant to an order made on 21 September 2009, an Amended Notice of Motion was filed by the applicant on 6 October 2009 which sought summary judgment for the applicant against the fourth respondent in the amount of $25,561,078.93 together with further general interest charged pursuant to s 204 of the Income Tax Assessment Act 1936 (Cth) (‘the 1936 Act’), s 298-25 and Part IIA of the Administration Act from 6 October 2009 to payment or judgment.  That prayer for relief in the Amended Notice of Motion came before the Court on 25 November 2009.  An Acting Director in the Australian Public Service employed in the Debt section of the Australian Taxation Office at Melbourne in the State of Victoria, Mr Aris Zafiriou swore an affidavit on 24 November 2009 in which he deposed to the fourth respondent’s outstanding liabilities totalling $25,909,612.54 at close of business on 22 November 2009.  It is in respect of the applicant’s claim against the fourth respondent for that amount that summary judgment is presently sought.

The right of the applicant to judgments founded upon concurrent or alternative assessments

5                     The quantum of the applicant’s claim is not disputed by the fourth respondent.  The only issue tendered for consideration on the present application is whether the applicant is entitled to judgment for the said amount in circumstances where he already has judgment against the first respondent for $36,341,461.73. 

6                     Whilst the very right or cause of action claimed or put in suit in the claim against the first respondent may have passed into judgment, so that it is merged and no longer has an independent existence, the right or cause of action claimed or put in suit in the applicant’s claim against the fourth respondent is a different right or cause of action.  Its independent existence has not been destroyed (cf Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510-511).  The applicant’s right or cause of action against the fourth respondent has not passed into judgment.  It retains its independent existence.

7                     Whilst there will inevitably be cases in which it would be oppressive for the Commissioner to seek to enforce payment of the full amount due under a number of notices of assessment issued by the Commissioner on an alternative basis to different taxpayers in respect of the same income, such a possibility does not preclude the Commissioner from securing judgments against different taxpayers in respect of the same income.  What would be oppressive would be for the Commissioner to seek to execute such judgments so as to enforce payment of the full amount due under the several judgment debts.  Double recovery by the Commissioner would be oppressive (see The Deputy Commissioner of Taxation of the Commonwealth of Australia v Moorebank Proprietary Limited (1988) 165 CLR 55 (‘Moorebank’) at 67).

8                     A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies (per Dixon J, as his Honour then was, in Blair v Curran (1939) 62 CLR 464 at 531).

9                     Res judicata estoppels operate for, or against, not only the parties, but those who are privy to them in blood, title or interest.  ‘Privy’ includes any person who succeeds to the rights or liabilities of the party upon death or insolvency, or who is otherwise identified in estate or interest (see Handley, Honourable Mr Justice KR, Spencer Bower, Turner and Handley: The Doctrine of Res Judicata (3rd Ed, Butterworths, 1996) (‘Spencer Bower, Turner and Handley’) at para 231).

In Anglo-Australian law, res judicata estoppels must be mutual, and are not available for or against strangers (see Handley, Honourable Mr Justice KR, “Res Judicata: General Principles and Recent Developments” (1999) 18 Australian Bar Review 214 at 216-217).

10                  In In re Waring. Westminster Bank v Burton-Butler [1948] Ch 221 (‘In re Waring’) the Court had been called upon to decide the entitlement of one of two annuitants named in the will of the late John Arkle Waring.  A summons had been issued to determine whether, in setting up the relevant annuity fund, provision should be made for the tax-free annuities for which the will provided at their face value or on an after tax basis.  Only one of the two tax-free annuitants was a party to the application.  A representative order was sought but refused in circumstances where the other tax-free annuitant was abroad in an enemy occupied country.  The effect of the decision of the Court of Appeal was that the annuity fund should be established on the basis that the entitlements were to be determined subject to the imposition of taxation by virtue of s 25 of the Finance Act 1941 (UK).

11                  In a later case, Berkeley v Berkeley [1946] A.C. 555 (‘Berkeley v Berkeley’), the House of Lords overruled the decision of the Court of Appeal in the proceedings to which Mr Burton-Butler had been a party.  In In re Waring  the trustees of the will of the late Mr Waring proceeded to ask whether the tax-free annuities for which the will provided ought to be paid in full or be subject to the deduction provided by s 20 of the Finance (No. 2)  Act 1945 (UK), which had amended s 25 of the 1941 Act.

Jenkins J held that he was constrained to hold so far as Mr Burton-Butler was concerned that the quantum of his annuity must be treated as irretrievably fixed by the decision of the Court of Appeal.  However, his Honour found that Mrs Burton-Butler, who had not been a party to the earlier proceeding, was in a different position.  His Honour held that the decision of the Court of Appeal could not affect her rights in any way and she was entitled to claim retrospectively the full amount of her annuity calculated in accordance with the law as decided by the House of Lords in Berkeley v Berkeley. 

12                  In Ramsay v Pigram (1968) 118 CLR 271 the High Court held that the nominal defendant, representing the government of New South Wales when sued by Mr Pigram for damages for negligence alleged against a New South Wales police officer whose vehicle collided with that of Mr Pigram who suffered personal injury, could not rely upon estoppels said to arise from findings in proceedings brought by the police officer for negligence against Mr Pigram in which the issues had been negligence on the part of Mr Pigram and contributory negligence on the part of the police officer.  The jury in that case had found a general verdict for the police officer.  The High Court held that there was no privative interest between the nominal defendant and the police officer which entitled the nominal defendant to rely upon the findings in the police officer’s action.

13                  In my opinion there was no privative interest between the first and fourth respondents in this case. 

14                  The rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which has merged into judgment in a prior proceeding (per Gibbs CJ, Mason and Aickin JJ in Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 (‘Anshun’) at 597).

15                  For res judicata to operate the later proceeding must raise the same cause of action, except where the prior judgment was in rem, and the parties to the two proceedings must be the same or privies of the same parties (per Lindgren J in Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 204 ALR 722 at [43]).

The judgment of Lindgren J dealt with three separate matters.  His Honour’s orders in two of those matters were the subject of an appeal to a Full Court.  One such appeal was dismissed and the other was allowed.  However, there was no suggestion that his Honour had erred in stating the relevant principles in relation to res judicata as noted above. 

The Full Court, comprising Emmett, Conti and Selway JJ, (see Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10) said at [36]:

‘36       The doctrines of res judicata and issue estoppel are founded on the broad rules of public policy expressed in the maxims nemo debet bis vexari pro una et eadem causa (‘a person ought not to be vexed twice for one and the same cause’) and interest reipublicae ut sit finis litium (‘it is in the interests of the State that there be an end to litigation’).  It would be an abuse of process to allow parties to litigate repeatedly matters that have been finally determined by the Court.  Also, quite apart from any psychological detriment that might flow from an individual having to undertake litigation of the same issue a second time, the State has an interest in ensuring that, once an issue has been determined according to law and all rights of appeal have been exhausted, that should be an end of the matter.  The resources of the community ought not to be expended in the litigation, more than once, of the same issue.’

16                  In Anshun Brennan J, as his Honour then was, said at 610-612:

‘Imprecision in the meaning of cause of action tends to uncertainty in defining the ambit of the rule that a judgment bars subsequent proceedings between the same parties on the same cause of action.  The foundation of the rule, whether it be termed res judicata, or cause of action estoppel or judgment recovered, is the merging of the cause of action in the judgment.  In reference to res judicata, Dixon J said in Blair v Curran:  “the very right or cause of action claimed or put in suit has … passed into judgment, so that it is merged and has no longer an independent existence …”

If cause of action is taken to mean a right, the rule is stated in terms of the passing of the right into judgment, and the rule precludes a party bound by the judgment from maintaining against another party bound by it any subsequent proceeding to recover a judgment giving a remedy to enforce or to compensate for an infringement of that right.  The rule does not preclude litigation seeking a remedy to which a party is entitled in virtue of a different right from that which was first put in suit provided that the facts which support the right sued upon in the second action are not the same facts as those supporting the right which passed into the first judgment …

If cause of action is taken to mean the facts which support a right to judgment, the rule of res judicata bars an action for relief founded upon the same facts as those upon which an earlier judgment was recovered, though the right sued upon in the second action is different from the right which passed into or was negated by the earlier judgment. ….

When the same facts support rights to different remedies against the same defendant, the plaintiff cannot recover a judgment giving a remedy in respect of more than one right … He may pursue his remedies concurrently in the same action, but he is put to his election before judgment as to which remedy he shall have.  And when judgment is entered, all of the rights which he might have claimed in that litigation are merged in the judgment. …

The party entitled to relief cannot improve his position by bringing separate actions.  Though he may elect between inconsistent remedies pursued in the one action, or between the actions to be pursued in order to recover a judgment giving the remedy he chooses, the merger in the judgment first recovered of a right to another remedy takes effect by operation of law.  When those rights (or causes of action) are extinguished, no further litigation may be pursued to recover a second judgment upon them.’

(footnotes omitted)

17                  The cause of action relied upon by the applicant in respect of his claim against the first respondent is not, however, the same cause of action as that relied upon by the applicant in his claim against the fourth respondent.  They arise out of different notices of assessment and the statutory implications arising from the service thereof on the different respondents.

18                  Whilst the situation may be somewhat anomalous, decisions on income tax, land tax and rating assessments constitute an established exception to the general rules as to res judicata (see Spencer Bower, Turner and Handley at paragraphs 297 et seq).

19                  In Deputy Commissioner of Taxation (Vic) v Held (1988) 19 ATR 852 (‘Held’) at 855 A.C. King J said:

‘… I think that the Deputy Commissioner is not entitled to judgment on alternative assessments at the one time but that he is entitled to proceed to judgment on his assessment of the defendant without releasing the other person assessed; however he cannot proceed to judgment on the other assessment unless he repays any tax recovered under the judgment in this case. …’

20                  The fourth respondent relies heavily upon this passage from his Honour’s reasons for judgment.

21                  The matter before A.C. King J in the Victorian Supreme Court was an appeal from an order of a master giving leave to sign final judgment in an action asking for judgment for a debt due to the Commonwealth of Australia and payable to and recoverable by the Deputy Commissioner under the 1936 Act.  His Honour dismissed the appeal and refused to order a stay of its execution. 

22                  There was an appeal in respect of the refusal by his Honour of a stay, which was dismissed (see Held v Deputy Commissioner of Taxation (Vic) (1988) 19 ATR 1213).

23                  In Held it had been contended by senior counsel for the defendant that the Deputy Commissioner had issued inconsistent assessments in respect of the same tax in respect of the 1981 tax year and that he was not entitled to proceed to judgment on one assessment without withdrawing the other.  The submission was entirely inconsistent with more recent High Court authority.  An ‘adjusted assessment’ had been issued to Cornix Anna Nominees Pty Limited as trustee for the Held No. 2 Trust.  A.C. King J rejected the taxpayer’s submission, finding that the Deputy Commissioner could proceed to judgment on his assessment of the defendant, without releasing Cornix Anna Nominees Pty Limited as trustee of the Held No. 2 Trust. 

His Honour’s observation that the Deputy Commissioner was ‘not entitled to judgment on alternative assessments at the one time’ was clearly obiter dicta as judgment had not been sought contemporaneously against both the defendant and also Cornix Anna Nominees Pty Limited as trustee for the Held No. 2 Trust.

24                  Had it been necessary for me to do so, I would, respectfully have held that A.C. King J’s observation that the Deputy Commissioner was not entitled to judgment on alternative assessments at the one time was plainly wrong.  For his Honour to reach such a conclusion it would have been necessary for him to have considered in detail the principles that have been referred to above in relation to res judicata, which he did not do.

25                  In an article written by G T Pagone and published in the June 1990 issue of the Australian Tax Review the author, now Justice Pagone of the Victorian Supreme Court, said at pp103-4:

‘Whether the Commissioner can rely upon the evidentiary conclusiveness afforded by s.177(1) when there are two inconsistent assessments has been raised in several decisions with contrary results. …

Whether s 177(1) confers evidentiary conclusiveness … must still be regarded as unresolved. … The solution may be in preventing double recovery as an abuse of power.’

26                  In Deputy Federal Commissioner of Taxation v Mackey (1982) 82 ATC 4571 the Court of Appeal in New South Wales addressed a stay of proceedings that had been ordered.  The appeal was allowed and the stay relevantly set aside.  It had not been argued by the Deputy Commissioner that s 201 of the 1936 Act deprived the Court of an appropriate discretion to grant a stay of proceedings or of execution. 

At 4574 Moffitt P said:

‘The policy of sec.201 is that when an assessment has been made, the Deputy Commissioner has a right to have the tax paid, despite the pendency of an appeal.  While hardship to the taxpayer and the merits of the appeal are relevant matters, other considerations are involved, including the Commissioner’s right to have the tax assessed paid.’

At 4575 Hutley JA said:

‘The Commissioner starts off with rights under sec.201 and the taxpayer is seeking on special bases to have a special discretion exercised in his favour.  It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so.  It is an open-ended discretion.

But there are only two cases where it is clear the court should exercise that discretion.  First the comparatively rare case where the Commissioner abuses his position, for example by assessing and endeavouring to collect tax in defiance of a decision of the High Court or other Superior court precisely in point.  Second, in cases of extreme personal hardship to a taxpayer called upon to pay.  The obligation to pay which has been cast upon him by law is not a hardship of itself and the mitigation of the effect of inflation and the burden of interest is a matter for the legislature, not for the Court.’

Also at 4575 Glass JA said:

‘I consider that the effect of the legislative direction in sec.201 when modified by the Court’s recognised power to stay proceedings in the exercise of its discretion have a combined effect of a different kind.  If the metaphor is to be retained, the needle stands in the Commissioner’s favour close to one hundred and it requires a weighty case to be presented by the taxpayer in order to depress it below the halfway mark. …’

27                  In Trustee of the Balmain Trust v FC of T (1998) 99 ATC 5334 assessments had been issued by the Commissioner to Banalij Pty Ltd as trustee of ‘the Balmain Trust’ and also to a Mr Colin Ward who had until 1988 served as trustee of the trust.  The Commissioner formed the view that assessments should issue for rental income from the property identified as 62 Darling Street, Balmain which had been purchased in the name of Mr Ward on 17 December 1982 and for additional tax for non-disclosure of income.  The transfer to Mr Ward was dated 22 February 1983 but was not lodged for registration until early 1988.  As Davies J said at 5336:

‘Being undecided as to whether or not a trust existed during the relevant years, the Commissioner issued two sets of assessments.  One set of assessments assessed Mr Ward to tax on the rental income on the footing that it was derived by him during the years of income.  The other assessments assessed the Trustee for the Balmain Trust under s 99A of the [1936 Act].’

At 5341 Davies J observed that the assessments against the trustee of the Balmain Trust and against Mr Ward had been issued as alternative assessments.  At 5342 Davies J said:

‘… Alternative assessments may be issued where the Commissioner is uncertain as to which taxpayer is liable.  The obligation then is on each taxpayer who has been assessed to satisfy the onus of proof cast upon a taxpayer by s 14ZZK of the Administration Act[where in that case there had been an application for review of the Commissioner’s decision by the Administrative Appeals Tribunal] to show that the assessment was excessive.  It would be wrong, of course, for the Commissioner to recover two amounts of tax.  The Commissioner should ensure that there is no double recovery of tax.  As Brennan J said, that is an obligation which the courts would enforce, although I assume that they would never need to do so.’

28                  Plainly, alternative or concurrent assessments are permissible and judgments founded upon such assessments are also permissible.  As Davies J observed one might expect the courts to intervene to ensure that alternative assessments and judgments based thereon would not lead to double recovery by the Commissioner.

29                  By s 5(1) of the Income Tax Act 1986 (Cth) income tax was imposed in accordance with the Income Tax Act 1986 and at the relevant rates declared by the Income Tax Rates Act 1986 (Cth). 

30                  Section 7 of the Income Tax Act 1986 (Cth) levied the income tax imposed by s 5(1) as follows:

‘7         The tax imposed by subsection 5(1) is levied, and shall be paid, for the financial year commencing on 1 July 1986 and for all subsequent financial years until the Parliament otherwise provides.’

31                  Under s 12(1) of the Income Tax Rates Act 1986 (Cth) the relevant rates of tax were as set out in Schedule 7 to that Act.  That schedule has been amended to record the prevailing rates from time to time.

32                  At all material times s 166 of the 1936 Act has made provision for the Commissioner to make assessments of the amount of the taxable income of a taxpayer and of the tax payable thereon and s 174 has made provision for the Commissioner to serve notices of assessment in writing upon persons liable to pay the tax the subject of the assessments.

33                  In s 255-1 of Schedule 1 to the Administration Act a ‘tax-related liability’ was defined as ‘a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable’). 

Section 255-5 of Schedule 1 to the Administration Act made provision for the recovery of tax-related liabilities that were due and payable as follows:

‘255-5(1)         An amount of a tax-related liability that is due and payable:

(a)       is a debt due to the Commonwealth; and

(b)       is payable to the Commissioner

(2)       The Commissioner, a Second Commissioner or a Deputy Commissioner may sue in his or her official name in a court of competent jurisdiction to recover an amount of a tax–related liability that remains unpaid after it has become due and payable. 

Note:   The tables in section 250-10 set out each provision that specifies when an amount of a tax-related liability becomes due and payable.  The Commissioner may vary that time under Subdivision 255-B.’

34                  In respect of income tax s 204 of the 1936 Act relevantly provided:

‘204(1)    Subject to the provisions of this Part, the tax payable by a taxpayer … becomes due and payable:

(a)        if the taxpayer’s return of income is lodged on or before the due date for lodgment – on the later of:

(i)    21 days after the due date for lodgment for that return specified in the Gazette under section 161 for the year of income; or

(ii)   21 days after a notice of assessment is given to the taxpayer; or

(b)        in any other case – 21 days after the due date for lodgement.

…

(2)   An amount of tax that a taxpayer is liable to pay because the Commissioner amends the taxpayer’s assessment is due and payable on the 21^st day after the day on which the Commissioner gives the taxpayer notice of the amended assessment.

…

35                  Section 204(3) of the 1936 Act provided for the imposition of the general interest charge.  Other provisions were made in respect of the due time for payment of penalties and the general interest charge in the 1936 Act and in the Taxation Administration Act.

36                  Section 175 of the 1936 Act provided:

‘175     The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.’

37                  Section 177(1) of the 1936 Act provided for notices of assessment to have a conclusive evidentiary character both in respect of the due making of the assessment and that the amount and all the particulars of the assessment were correct.  Section 177(1) provided:

‘177(1)            The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.’

38                  Under regulation 172(2) of the Income Tax Regulations 1936 (Cth)a certificate, notice or other document bearing the printed name of a person who was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner was deemed to have been duly signed by that person unless it was proved that the document was issued without authority.

39                  The present proceedings are not proceedings under Part IVC of the Administration Act.

40                  Section 175A of the 1936 Act provided for taxpayers who were dissatisfied with assessments made in relation to them to object against the relevant assessment ‘in the manner set out in Part IVC of the Administration Act’.

41                  As at May/September 2009, the period within which the relevant Notices of Assessment in this case were issued, Part IVC of the Administration Act commenced with s 14ZL and concluded with s 14ZZS.  The Part consisted of five Divisions which bore the headings:

Division 1 – Introduction

Division 2 – Interpretative Provisions

Division 3 – Taxation Objections

Division 4 – AAT Review of Objection Decisions and Extension of Time Refusal Decisions

Division 5 – Federal Court Appeals Against Objection Decisions

42                  Section 14ZL(1) of the Administration Act provided a connection between Part IVC of the Administration Act and s 175A of the 1936 Act.  It relevantly provided:

‘14ZL(1)          This Part applies if a provision of an Act … provides that a person who is dissatisfied with an assessment, determination, notice or decision … may object against it in the manner set out in this Part.’

Part IVC proceeded to provide for the review by the Administrative Appeals Tribunal of decisions by the Commissioner in relation to certain taxation objections and requests for extension of time and for appeals to this Court against decisions by the Commissioner in relation to certain taxation objections.

43                  In McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 (‘McAndrew’) at 280-282 Taylor J said of s 177(1):

‘The purpose of that sub-section [s 177(1)], is, subject to an important qualification, to make the production of a notice of assessment in judicial proceedings conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct.  The qualification is that upon proceedings on appeal against the assessment, the production of the assessment does not constitute conclusive evidence that the amount and all the particulars of the assessment are correct.  It will be seen that the sub-section contains two limbs and that the second limb applies only in proceedings which are not appeals of the character specified.  In all other proceedings both limbs apply.  But although doubts may exist as to what is comprised in each limb, the existence of these doubts in no way requires a modification of the view previously expressed.

…

There seems no doubt that s.177 (1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground and, accordingly, there is every reason for thinking that the second limb in s.177 (1) covers all grounds upon which an assessment may be challenged other than those covered by the first limb. …

In my view s.170 (1) (sic) should be understood as precluding a taxpayer in proceedings other than an appeal (or a reference [now a review]) under the Act from challenging an assessment on any ground. …’

44                  In F. J. Bloemen Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 360 at 375, Mason and Wilson JJ cited with approval the observations of Taylor J in McAndrew.

45                  In Webb v Commissioner of Taxation (No 2) (1993) 47 FCR 394 at 400 Hill J said:

‘… the giving to the taxpayer of a notice which stipulates the taxable income and the tax payable referable to that taxable income in the year (a positive figure) will be a notice of assessment attracting the provisions of the objection and appeals procedure and s 177.’

His Honour then continued at 400-401 by saying:

‘My view is consistent with the decision of Hunt J in Deputy Commissioner of Taxation (Cth) v Clyne (1982) 60 FLR 45 and that of Enderby J in Commonwealth v Opiel (1986) 86 ATC 5,013.  The former case is not greatly different from the present.  In that case Mr Clyne, who had received a notice of assessment showing a credit for provisional tax, sought to argue that the giving of that credit constituted an admission by the Commissioner that payment had been made for that amount or that a claim was no longer made in respect of that amount, or alternatively that the provisions of s 177 rendered there conclusive evidence that the amount was no longer claimed by the Commissioner.  This somewhat audacious argument was rejected by Hunt J who regarded the particulars of assessment referred to in s 177 of the Act as constituting merely the two ingredients taxable income and the tax assessed with respect to that taxable income.   The other material on the notice, including the credit, were, his Honour thought, particulars of the notice but not particulars of the assessment.  The decision of Hunt J was followed by Enderby J in Opiel in holding that details of a refund stated in the assessment to be due to a taxpayer did not attract the conclusive evidentiary protection of s 177.’

See also Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Limited (1995) 183 CLR 168 (‘Richard Walter’).

46                  In Richard Walter, Mason CJ took the view that the relevant provisions of the 1936 Act did no more than require the making of an assessment, due compliance with the statutory provisions not being essential to the validity of the assessment (at 187).  His Honour said at 187 – 188:

‘The central element of the legislative regime is the making of an assessment by the Commissioner which ascertains the taxpayer’s liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantive liability to tax.’

47                  Mason CJ said of s 175 of the 1936 Act at 187:

‘That provision is of critical importance because it indicates that compliance with any of the provisions of the Act is not essential to validity.’

Earlier at 186 his Honour said:

‘The effect of s 177(1) … is to condition the exercise of jurisdiction upon production of the notice of assessment or a copy of it so that it is treated as valid, otherwise than in Pt IVC proceedings.’

(footnote omitted)

At 187 His Honour said:

‘Viewed in the light of s 175, s 177(1) is a provision which gives effect to the substantive expression of intention in the earlier section.  The reference to “due making” of the assessment in s 177(1) reflects the content of s 175.’

48                  Mason CJ observed at 187 that the paramount purpose of the 1936 Act was to ascertain the liability of taxpayers to tax and that the Act, with that object in view, set up a legislative regime whereby the Commissioner assessed the taxpayer to tax, the taxpayer being liable to pay the amount stated in the notice of assessment, subject to a reference to the Administrative Appeals Tribunals or an appeal under Part IVC to the Federal Court.  His Honour said at 187:

‘In such an appeal, it is for the taxpayer to show that the assessment is excessive.’

(See also per Gyles J in Syngenta Crop Protection Pty Ltd (ACN 002 933 717) v Commissioner of Taxation (2005) 61 ATR 186 at [12]).

49                  It will be appreciated that Part IVC of the Administration Act gives the taxpayer the option to seek review of reviewable objection decisions, as defined in s 14ZQ, in the Administrative Appeals Tribunal, or to appeal to the Federal Court against an appealable objection decision, as defined in that section (see s 14ZZ of the Administration Act).  In relation to applications for review, s 14ZZK of the Administration Act dealt with the issue of grounds of objection and burden of proof as follows:

‘14ZZK           On an application for review of a reviewable objection decision:

(a)       the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

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

(i)         if the taxation decision concerned is an assessment … the assessment is excessive; …’

50                  In Richard Walter, Mason CJ found that the first limb of s 177(1) of the 1936 Act was effective to preclude a challenge by a taxpayer, in proceedings in the Federal Court under s 39B of the Judiciary Act 1903 (Cth), to the validity of an assessment where the Commissioner had included the same amounts in the taxable income of more than one taxpayer.  His Honour said at 188:

‘Section 177 gives effect to the substantive provisions of the Act, in particular s 175, the effect of which is to ensure that the validity of an assessment does not depend upon compliance with any of the particular provisions of the [1936] Act or considerations of purpose.  On this view, s 177(1) is consistent with the Hickman principle.’

51                  In Richard Walter Brennan J, as his Honour then was, observed at 199:

‘The jurisdiction of the Federal Court on appeal from, or of the Administrative Appeals Tribunal on review of, a decision on an objection extends to every issue which affects the amounts ultimately included in the taxable income or tax liability of a taxpayer.  If any of these issues be resolved in favour of the taxpayer, an amendment of the assessment so as to reduce the taxable income or the tax liability of the taxpayer must follow.  The width of that jurisdiction and the evident purpose of the Act to channel all issues as to the true tax liability of the taxpayer into the objection, review and appeal procedures found the clearest implication that exceptions to the broadest literal application of s 175 must be narrowly confined and a corresponding operation must be attributed to s 177(1).’ 

(Footnotes omitted)

52                  In Commission of Taxation of the Commonwealth of Australia v Futuris Corporation Limited (2008) 237 CLR 146 Gummow, Hayne, Heydon and Crennan JJ said with respect to the relationship between ss 175 and 177(1), at [64]-[65]:

‘64       The evident policy reflected in the terms of s 177(1) is the facilitation of proceedings for the recovery of tax which are instituted by the Commissioner under s 209 of the Act in a court of competent jurisdiction. Corresponding provision is made elsewhere in the Act for the recovery of other amounts. The action for recovery is facilitated by the "conclusive evidence" provision in s 177(1). That sub-section, as the Commissioner correctly submitted, is not a privative clause in the ordinary use of that term. It does not purport to oust the (necessarily federal) jurisdiction conferred upon any other court in matters arising under the Act. To the contrary, it recognises that there may be Pt IVC proceedings and in those proceedings the "conclusive evidence" provision does not apply.

65        In recovery proceedings s 177(1) operates to change what otherwise would be the operation of the relevant laws of evidence. But, given the presence of Pt IVC, s 177(1) does not operate to impose an incontestable tax or otherwise fall foul of the principles which were considered in Nicholas v The Queen and which respect usurpation of the federal judicial power by deeming to exist an ultimate fact.’

(foonotes omitted)

53                  It is immaterial to the validity of the power to assess one taxpayer to tax that the Commissioner believes it possible that another taxpayer is liable to tax in respect of the same particular income.  If uncertainty as to the taxpayer liable were to sterilise the Commissioner’s power to make an assessment or if the power could be exercised only when the Commissioner is satisfied on the balance of probabilities that one taxpayer, rather than another, is liable, the uncertainties which are the inevitable companions of complex commercial transactions would substantially erode the Commissioner’s ability to recover tax and would, contrary to the intent of s 177(1) of the 1936 Act, open the way to litigating liability to tax outside the objection, review and appeal procedures (per Brennan J in Richard Walter at 201).

54                  The fact that a tax liability remains outstanding against two taxpayers pending the ascertainment of the taxpayer truly liable is no bar to the exercise of the power to assess both to tax in respect of the same income. As Dixon J, as his Honour then was, observed in Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 at 207 when upholding the validity of an assessment to tax against a second person while the first person’s assessment remained on foot and unamended ‘it was not unnatural that [the Commissioner] should delay relieving one of two persons whom he considered culpable until the liability of the other was established’.  The co-existence of tax liabilities in two or more taxpayers in respect of the same income is, as Dixon J observed at 207, attended with difficulty.  Sometimes the difficulty will be removed by the objection, review and appeal procedures where the taxpayer will establish the facts in order to establish that the assessment is excessive (per Brennan J in Richard Walter at 201).

55                  The raising of concurrent assessments of two or more taxpayers to tax in respect of the same item of income has not hitherto been regarded as beyond the powers of the Commissioner.  The appropriateness of alternative assessment to tax of two taxpayers in respect of the same item of income was recognised in a dictum of the High Court in Moorebank at 67.  The courts, if not the Commissioner, can diminish the difficulty of concurrent assessments by ensuring that there is no double recovery of tax (per Brennan J in Richard Walter at 201-202).

56                  The co-existence of tax liabilities arising from concurrent assessments is entirely consistent with the operation of s 177(1).  If the Commissioner employs s 177(1) in a proceeding to recover tax from taxpayer A, the liability of that taxpayer cannot be avoided by pointing to an outstanding assessment against taxpayer B.  Section 177(1) operates as between the Commissioner and the taxpayer served with the notice of assessment in a proceeding between them and the notice of assessment issued to another taxpayer does not qualify or affect the operation of s 177(1) (per Brennan J in Richard Walter at 202).

Application of the principles to this case

57                  The applicant’s claim against the fourth respondent in this case was founded upon eight separate notices, copies of which were annexures ‘A’. ‘B’, ‘C’, ‘D’, ‘E’, ‘F’, ‘G’ and ‘H’ to the affidavit of Aris Zafiriou sworn 6 October 2009.  They were:

(a)        Notice of Amended Assessment for the year ending 30 June 2006 issued 6 May 2009 and directed to Webtel Management Super Fund;

(b)        Notice of Amended Assessment for the year ending 30 June 2007 issued 6 May 2009 and directed to Webtel Management Super Fund;

(c)        Notice of Assessment for the year ending 30 June 2008 issued 6 May 2009 and directed to Webtel Management Super Fund;

(d)        Notice of Assessment and liability to pay penalty issued 19 May 2009 to Webtel Management Super Fund in respect of the 2006 and 2007 income years;

(e)        Notice of Assessment and liability to pay penalty issued 27 May 2009 to Webtel Management Super Fund in respect of the 2008 income year;

(f)         Notice of Amended Assessment for the year ending 30 June 2006 issued 20 August 2009 and directed to Webtel Management Super Fund;

(g)        Notice of Amended Assessment for the year ending 30 June 2007 issued 28 August 2009 and directed to Webtel Management Super Fund; and

(h)        Notice of Amended Assessment for the year ended 30 June 2008 issued 1 September 2009 and directed to the Webtel Management Super Fund.

58                  On 5 October 2009 a Deputy Commissioner of Taxation of the Commonwealth of Australia issued a certificate under s 255-45 of Schedule 1 to the Administration Act certifying that notice of the several assessments were or were taken to have been served on the fourth respondent as trustee for Webtel Management Super Fund under a taxation law and that as at 5 October 2009 the sum of $25,561,078.93 was a debt due and payable to the Commonwealth by the fourth respondent as trustee for Webtel Management Super Fund in relation to the tax related liability referred to in the certificate.

59                  A further certificate under s 255-45 of Schedule 1 to the Administration Act was issued by a Deputy Commissioner of Taxation of the Commonwealth of Australia on 24 November 2009 certifying that notice of the several assessments were or were taken to have been served on the fourth respondent as trustee for Webtel Management Super Fund under a taxation law and that as at 22 November 2009, the sum of $25,909,612.54 was a debt due and payable to the Commonwealth by the fourth respondent as trustee for Webtel Management Super Fund in relation to the tax related liability referred to in the certificate.

60                  Exhibits NM1 and NM2 on the hearing of the applicant’s Amended Notice of Motion filed 6 October 2009 were a letter to the first respondent headed ‘Audit of your tax affairs’ dated 24 April 2009 and a letter to the fourth respondent dated 11 May 2009 headed ‘Audit of MGG Capital Pty Ltd as trustee for Webtel Management Super Fund’ respectively.  When considered with ‘APPENDIX C – SUMMARY OF NET TRUST INCOME’ to the letter to the first respondent and ‘APPENDIX A – SUMMARY OF TAXABLE INCOME OF THE WEBTEL MANAGEMENT SUPER FUND’ to the letter to the fourth respondent, it became apparent that in each case the same figures appeared under the heading ‘Iron InvestmenTs Ltd/IFTC BROKING SERVICE FOR PHILLIP GRIMALDI (Share Trader)’ and ‘IRON INVESTMENTS LTD/IFTC BROKING SERVICE FOR IRON INVESTMENTS (Share Trader)’.  The final line in the Appendix C and the final comparable line in the Appendix A indicated that the Commissioner asserted that ‘NET INCOME OF TRUST’ was, in respect of the year ended 30 June 2006, $1,419,705.73, in respect of the year ended 30 June 2007, $8,565,126.08 and in respect of the year ended 30 June 2008, $32,001,831.97 (shown as $32,001,831.53 in the Appendix A).

61                  In respect of Appendix A to the letter to the fourth respondent as trustee for Webtel Management Super Fund there were additional entries under the headings ‘MGG CAPITAL PTY LTD atf WMSF, MGG CAPITAL PTY LTd atf WMSF–through Ord Minnett–2008’ and ‘OTHER INCOME’.  The resultant total taxable income for the Webtel Management Super Fund was $1,603,791.21 in respect of the year ended 30 June 2006, $9,348,105.10 in respect of the year ended 30 June 2007 and $36,444,383.00 in respect of the year ended 30 June 2008.

62                  It will be apparent from a comparison of Appendix C to the letter to the first respondent (Exhibit NM1) that the figures therein were repeated in full in Appendix A to the letter to the fourth respondent (Exhibit NM2) with a minor difference of 44 cents and with other income being added in the case of the fourth respondent.

63                  In his letter to the first respondent the Commissioner wrote:

‘The Commissioner intends to issue alternative assessments in relation to the assessable income from the sale of MMX [Murchison Metals Limited] shares and options and share trading activity of Iron due to uncertainty concerning the relevant legal and equitable interests.

It is open to the Commissioner to issue separate assessments to both you and these other entities covering the same amounts having the effect of bringing the share and option trading proceeds to tax in each instance. 

In the circumstances of this case, the Commissioner considers that there is a reasonable basis upon which each respective taxpayer’s assessable income includes the proceeds from the share and option trading activity such that separate assessments in each instance may be issued.

Furthermore, the Commissioner acknowledges that it is not intended there will be double recovery of tax.’

64                  Similar words were included in the letter from the Commissioner to the fourth respondent (Exhibit NM2).  The bona fides of the Commissioner in proceeding as he has in relation to the first and fourth defendants are not in issue.

65                  It would appear that on 27 April 2009 the Deputy Commissioner served a garnishee notice on Westpac Banking Corporation under s 260-5 of Schedule 1 to the Administration Act requiring the payment of money owed by the Bank to the first respondent, to the Commissioner of Taxation.  There is no evidence as to any monies that may have been paid to the Commissioner pursuant to that notice.

66                  In my opinion the right of the Commissioner to recover the tax the subject of the notices of assessment or notices of amended assessment referred to in the certificates directed to the fourth respondent are not founded upon the same right or cause of action that entitled the applicant to obtain judgment against the first respondent.  The existence of the judgment for the applicant against the first respondent does not estop the applicant from securing a judgment against the fourth respondent. 

67                  In my opinion the fourth respondent has no reasonable prospect of successfully defending that part of the proceeding which records the claim of the applicant upon the fourth respondent as found in paragraph 6 of the Amended Notice of Motion filed 6 October 2009 or, indeed, the updated claim which takes into account interest up to 22 November 2009.  Whilst it has been necessary to give detailed consideration to the legal issue which has been tendered by the fourth respondent on the hearing of this application under s 31A of the Federal Court Act, that issue has been fully argued and decided against the fourth respondent. Accordingly, the Court should give judgment for the applicant against the fourth respondent as sought.

Associate:

Dated:         27 November 2009