FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296

THE COURT ORDERS THAT:

1.    The applicant be granted leave to amend the notice of motion dated 8 October 2010 to substitute the amount of $6,532,792.77 for the amount of $2,091,319.86 in paragraph 1 of the notice of motion.

2.    There be judgment for the applicant against the respondent, the Hua Wang Bank Berhad, in the amount of $6,600,368.54.

3.    Save for the orders made at the hearing on 9 November 2010, the respondent’s motion, notice of which is dated 8 November 2010, be otherwise dismissed.

4.    The respondent’s motion, notice of which is dated 16 November 2010, be dismissed.

5.    The respondent pay the applicant’s costs of the respondent’s two motions and of the applicant’s motion, notice of which is dated 8 October 2010.

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 Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

INTRODUCTION

1    On 12 August 2010, a Deputy Commissioner of Taxation (‘the Deputy Commissioner’) instituted proceedings in this Court against Hua Wang Bank Berhad (‘the Bank’) and others for, amongst other things, the recovery of unpaid income tax and penalties. The Deputy Commissioner now applies for summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (‘the FCA Act’). By motion, notice of which is dated 8 October 2010, the Deputy Commissioner seeks judgment against the Bank in the amount of $6,532,792.77 (by amendment with leave), together with a general interest charge pursuant to s 204 of the Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’), and s 298-25 and Part IIA of the Taxation Administration Act 1953 (Cth) (‘TAA 1953’), from 7 October 2010 to the date of judgment.

2    For the reasons set out below, I would order that there be judgment for the Deputy Commissioner.

3    Also before the Court is the Bank’s notice of motion dated 8 November 2010, seeking the following orders:

1.    That the time for service of this notice of motion be abridged and the motion be heard instanter; and

2.    That the Applicant’s motion for judgment in this proceeding be stayed until after the issue of objection decisions in respect of the tax objections lodged by the Respondent; or

3.    In the event judgment is given in this proceedings, that execution of said judgment be stayed until after the issue of objection decisions in respect of the tax objections lodged by the Respondent.

4    As may be seen, the Bank filed its notice of motion only the day before the hearing on 9 November 2010, and its supporting affidavits were still being filed on the day of that hearing. The Deputy Commissioner nonetheless consented to the abridgment of time for service and the hearing of the motion at the time the Bank sought. Accordingly, at the hearing, I ordered that the time for service of the Bank’s notice of motion dated 8 November 2010 be abridged and the motion be heard instanter.

5    For the reasons set out hereafter, save for the order just mentioned, I would dismiss the Bank’s stay motion.

Application to be excused

6    It is convenient to note at this point that I declined the Bank’s request to be excused attendance from the hearing of the Deputy Commissioner’s summary judgment claim. The Bank submitted that, if judgment against it were entered, then, if the Bank’s challenges to the assessments were to succeed in whole or part, the judgment could not be set aside otherwise than as provided by O 35 r 7(2) of the Federal Court Rules (‘the Rules’). Since the Deputy Commissioner indicated that, even if the Bank were to succeed in its challenges to the assessments under Part IVC of the TAA 1953, the Deputy Commissioner would not consent to setting aside a judgment obtained in these proceedings in reliance on the assessments. Thus, at no point would it be open to the Bank to avail itself of O 35 r 7(2)(f) (which provides for a consensual setting aside of judgment). The Bank therefore sought to bring itself within O 35 r 7(2)(a), seeking to be excused from attending that part of the hearing at which the Deputy Commissioner addressed the court in support of the summary judgment motion. Order 35 r 7(2)(a) provides that the court may set aside a judgment after it has been entered where it has been made in the absence of a party.

7    In substance, at the beginning of the hearing on 9 November 2010 on the Deputy Commissioner’s summary judgment motion, the Bank proposed that, once orders had been made in its favour abridging the time for service, the Bank would address its stay motion first, and argument on that motion would ensue. The Bank further proposed that, at the close of argument on the stay, the Deputy Commissioner might move for summary judgment (if that proved appropriate). At this point, however, the Bank (and the other taxpayer respondents appearing that day) proposed that the court excuse the Bank (and the other taxpayer respondents) from the proceeding “to preserve the respondents’ right under O 35 r 7 to have any summary judgment set aside” under O 35 r 7(2)(a). The Deputy Commissioner agreed with the order of argument that the Bank proposed, but did not support the proposition that the Bank be excused when it came to argument on the summary judgment motion.

8    My reasons for refusing the Bank’s application to be excused from the hearing of the summary judgment motion on 9 November 2010 were as follows. The Bank has filed a notice of conditional appearance on 31 August 2010 and, by virtue of O 9 r 6(1) of the Rules, this appearance, though conditional, has effect for all purposes as an unconditional appearance, there having been no application under O 9 r 7. As explained below, I doubt that the Bank’s proposed course would achieve the Bank’s stated end; and there can be a misuse of a court’s procedure where that procedure is used “in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people”: see Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536 (Lord Diplock). It is unnecessary to say whether the Bank’s proposal would constitute a relevant misuse. Rather, it suffices to acknowledge the possibility and that the Bank would be unlikely to achieve its desired end by its foreshadowed course.

9    The authorities establish that the power conferred by O 35 r 7 is to be exercised cautiously, having regard to the importance of the public interest in the finality of litigation. In Theo v Official Trustee in Bankruptcy [1998] FCA 862 (when O 35 r 7(2) was not materially different from now) a Full Court, consisting of Black CJ, Sackville and Finn JJ, said:

The authorities make it clear that the jurisdiction [under O35, r 7 (2)] is to be exercised with great caution. Generally speaking, the power is not to be exercised unless the applicant can show that by accident and without fault on his or her part the order was made without the applicant being heard: Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300, at 302, per Mason CJ. His Honour, however, made these further observations (at 303):

[I]t must be emphasised that the jurisdiction is not to be exercised for the purpose of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put. What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to reargue their cases.

10    The proposition that, generally speaking, a court will not exercise the power conferred by O 35 r 7 unless the applicant can show that by accident without fault on his part he has not been heard is well established: see also Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 684; State Rail Authority of NSW v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 38; Registrar of Aboriginal Corporations v Murnkurni Women’s Aboriginal Corporation (1995) 137 ALR 404 at 406; Watson v Anderson (1976) 13 SASR 329 at 333; Rosing v Ben Shemesh (1959) [1960] VR 173 at 176; and Evans v Bartlam [1937] AC 473 at 480. The corollary of this is that “where a party has had full notice, and has had the opportunity of availing himself of the contest, he will be bound by the decision”: see Ratcliffe v Barnes (1862) 2 Sw. & Tr 486, 164 ER 1085 at 1087, applied by Payne J in Re Barraclough (dec’d) [1967] P1 at 10-11 (saying “[t]he fundamental principle therefore is that a party should be bound by the decision if he has had an opportunity to appear and oppose the proceedings”). See also Nicholson v Nicholson (1974) 4 ALR 212 at 218-9.

11    These propositions highlight the difficulty with the Bank’s submission that it should be excused from the hearing of the summary judgment motion in order to preserve its rights under O 35 r 7(2)(a). There can be no doubt that the Bank would have had the opportunity of being heard on the summary judgment motion, since it not only had notice of the motion but would have been present when the motion was called on. The Bank would thus be unable to show that it had not been heard by accident. Rather, the circumstances would be that the Bank would have deliberately chosen not to be heard. Accordingly, I very much doubt that the course that the Bank would take would afford it the advantage that its counsel suggested.

12    In any event, there remains the possibility that an order for summary judgment made under s 31A of the FCA Act is interlocutory and, therefore, of the kind of which O 35 r 7(2)(c) speaks. See discussion in Jefferson Ford Pty Ltd v Ford Motor Company Australia Ltd (2008) 167 FCR 372 (‘Jefferson Ford’) at 392 [62] (Rares J); Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2009) 178 FCR 401 at 411-2 [40]–[43] (Spender, Graham and Gilmour JJ); Wills v Australian Broadcasting Commission (2009) 173 FCR 284 at 290 [28] (Rares J); Rana v Musolino [2010] FCA 476 at [9] (McKerracher J); Yao v Secretary, Dept of Education, Employment and Workplace Relations [2010] FCA 241 at [15] (Flick J). Others have expressed different views: see Finkelstein J and Gordon J in Jefferson Ford at 379 [12], 417 [173] and 419-422 [180]-[191]. It is unnecessary now for me to state a view on this issue.

13    Parties are sometimes excused from attendance when the matters to be agitated at a particular stage of the proceeding have little direct bearing on their interests or, for some other practical reason, the need for their attendance is properly dispensed with: see, for example, Nine Films & Television Pty Ltd v Ninox Television Limited [2005] FCA 249. This was not such a case. The Bank gave no proper justification for its request to be excused.

Basis for Deputy Commissioner’s Summary Judgment Claim

14    I turn first to the motion brought by the Deputy Commissioner. I commence by noting that, in what follows, I make no findings of fact as to any substantive matter: see Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (2008) 252 ALR 41 at 44 (Finkelstein J) and Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at 282. Rather, what follows is a summary of the evidence adduced by the Deputy Commissioner, principally given by way of an affidavit of Aris Zafiriou sworn on 8 October 2010, which, with its exhibits, was relied on by the Deputy Commissioner in support of the summary judgment motion. Mr Zafiriou is an Executive Level Officer in the Commonwealth Public Service employed in the Debt Section of the Australian Taxation Office at Melbourne.

15    According to Mr Zafiriou, the Bank wrongly failed to provide the Commissioner of Taxation with income tax returns for the years ended 30 June 2004, 30 June 2006 and 30 June 2007, with the result that, on 12 August 2010, the Deputy Commissioner issued notices of assessment to the Bank under s 167 of the ITAA 1936. Also on 12 August 2010, the Deputy Commissioner sought orders, amongst other things, restraining the Bank from removing assets from Australia or diminishing the value of such assets. The court granted the orders sought by the Deputy Commissioner that day. Although varied from time to time, the orders have in substance continued until now. The making of the orders and some of the background to the proceeding is discussed in Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 (appeal pending).

16    The notices of assessment related to income tax liabilities for the years ended 30 June 2004, 30 June 2006 and 30 June 2007. In respect of each income year, there was also a general interest charge pursuant to s 204 of the ITAA 1936 and Part IIA of the TAA 1953, which, so Mr Zafiriou deposed, “has been properly calculated in accordance with the provisions of the said Acts”. Also according to Mr Zafiriou, as at 7 October 2010, income tax liabilities and general interest charges totalled $4,441,472.91, the notices of assessment being duly served on the Bank on or about 12 August 2010 “in accordance with the provisions of the ITAA 1936 and the Income Tax Regulations 1936”.

17    Three documents under the hand of a Deputy Commissioner of Taxation, being copies of the relevant notices of assessment pursuant to s 177 of the ITAA 1936, were exhibited to Mr Zafiriou’s 8 October 2010 affidavit. Also exhibited to his affidavit was a certificate pursuant to s 255-45 of Schedule 1 to the TAA 1953, again under the hand of a Deputy Commissioner of Taxation, which stated that:

1.    Notices of the following assessments were, or are taken to have been, served on HUA WANG BANK BERHARD under a taxation law:

a)    notice of assessment as to income tax for the year ended 30 June 2004, which issued on 12 August 2010;

b)    notice of assessment as to income tax for the year ended 30 June 2006, which issued on 12 August 2010;

c)    notice of assessment as to income tax for the year ended 30 June 2007, which issued on 12 August 2010;

2.    The sum of $4,441,472.91 is as at 7 October 2010, a debt due and payable by the [Bank] to the Commonwealth of Australia.

18    A copy of a notice of administrative penalty for failure to lodge income tax returns for these years, certified by a Deputy Commissioner of Taxation pursuant to s 298-30 of Schedule 1 to the TAA 1953, was also exhibited to Mr Zafiriou’s 8 October 2010 affidavit. Mr Zafiriou deposed that:

The Notice of Administrative Penalty was duly served on the [Bank] on or about the date of issue of the notice, being 12 August 2010, in accordance with the provisions of the TAA 1953 and the Taxation Administration Regulations 1976.

19    According to Mr Zafiriou’s 8 October 2010 affidavit, the Bank has not paid the administrative penalty on or before the due date specified in the notice of administrative penalty; and, as at 7 October 2010, the Bank was indebted to the Commonwealth in respect of the administrative penalty in the sum of $2,091,319.86. This amount comprised the administrative penalties payable pursuant to s 284-75 of Schedule 1 to the TAA 1953, in respect of the Bank’s failures to lodge income tax returns in the relevant years and general interest charges for late payment of administrative penalty calculated up to and including 6 October 2010. According to Mr Zafiriou, the amount of $2,091,319.86 “has been properly calculated in accordance with the provisions of the [TAA 1953]”.

20    A certificate pursuant to s 255-45 of Schedule 1 to the TAA 1953 under the hand of a Deputy Commissioner of Taxation was exhibited to Mr Zafiriou’s affidavit, which stated that:

1.    Notices of the following assessments were, or are taken to have been, served on HUA WANG BANK BERHARD under a taxation law:

a)    notice of assessment of penalty for failing to provide a document for the year ended 30 June 2004, which issued on 12 August 2010;

b)    notice of assessment of penalty for failing to provide a document … for the year ended 30 June 2006, which issued on 12 August 2010;

c)    notice of assessment of penalty for failing to provide a document for the year ended 30 June 2007, which issued on 12 August 2010;

2.    The sum of $2,091,319.86 is as at 7 October 2010, a debt due and payable by the [Bank] to the Commonwealth of Australia.

21    At the hearing of the summary judgment motion on 9 November 2010, the Deputy Commissioner tendered a further certificate under s 255-45 of Schedule 1 of the TAA 1953 stating that:

(a)    The sum of $4,487,415.89 is at 8 November 2010 a debt due and payable by [the Bank] to the Commonwealth of Australia in respect of income tax and associated general interest charge.

(b)    The sum of $2,112,952.65 is at 8 November 2010 a debt due and payable by [the Bank] to the Commonwealth of Australia in respect of administrative penalties and associated general interest charge.

22    Having regard to these matters, the Deputy Commissioner claims to have established that the Bank is indebted to the Commonwealth of Australia in the amount of $2,112,952.65 as at 8 November 2010. The sum of $2,112,952.65 and $4,487,415.89 (referred to above) is $6,600,368.54, which is therefore claimed as a debt owed by the Bank to the Commonwealth and payable to the Commissioner.

23    Mr Zafiriou’s 8 October 2010 affidavit also affirmed his belief that the Bank had no defence to the Deputy Commissioner’s claim.

24    In submissions filed on the question whether summary judgment should be entered, the Bank referred to the affidavit of Vanda Gould of 1 September 2010 in support of the proposition that the correctness of the amounts assessed might be doubted. The Court was informed that the Bank had lodged objections to the assessments and the Deputy Commissioner had not yet made decisions on the objections.

Relevant provisions of the taxation legislation

25    The Deputy Commissioner maintained that, having regard to Mr Zafiriou’s 8 October 2010 affidavit evidence and its exhibits, the further certificate under s 255-45 of Schedule 1 of the TAA 1953 tendered at the hearing on 9 November, and the relevant provisions of the taxation legislation (set out below), the Court should be satisfied that the Bank has no reasonable prospect of successfully defending the proceeding.

26    The provisions of Part IV of the ITAA 1936 relating to returns and assessments are relevant to the Deputy Commissioner’s application. Under the ITAA 1936, the obligation upon persons to provide annual returns of income arises under s 161 of Part IV. Section 166 relevantly provides:

From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income … of any taxpayer, and of the tax payable thereon ...

The term ‘assessment’ is defined in s 6(1) of that Act.

27    Default assessments are provided for in s 167:

If:

(a)    any person makes default in furnishing a return; or

(b)    the Commissioner is not satisfied with the return furnished by any person; or

(c)    the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;

the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied and that amount shall be the taxable income of that person for the purpose of section 166.

Section 169 provides:

Where under this Act any person is liable to pay tax … , the Commissioner may make an assessment of the amount of such tax ...

28    The amendment of assessments is authorised by s 170. Amended assessments are treated as assessments for all purposes of the ITAA 1936: see s 173. Notices of assessment are to be served in writing by post or otherwise upon the person liable to pay the tax as soon as conveniently may be after the assessment is made: see s 174(1).

29    For present purposes, ss 175 and 177(1) are critical. Section 175 provides:

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

Section 177(1) further provides:

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.

Judicial notice is to be taken of the signature of Commissioners and Deputy Commissioners provided it is attached or appended to an official document: see ITAA 1936, s 176.

30    Objections to assessments are referred to in s 175A:

A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

31    Part IVC of the TAA 1953 provides for taxation objections, review and appeals. Division 3 of Pt IVC of the TAA 1953 relates to taxation objections and requires that a person making a taxation objection must make it in the approved form and lodge it with the Commissioner within the period set out in s 14ZW and state fully and in detail the grounds that the person relies on: see s 14ZU.

32    The obligation of the Commissioner to decide taxation objections is set out in s 14ZY. Section 14ZYA deals with the circumstance in which the Commissioner does not make an objection decision within 60 days:

(1)    This section applies if the taxation objection … has been lodged with the Commissioner within the required period and the Commissioner has not made an objection decision by whichever is the later of the following times:

(a)    the end of the period (in this section called the original 60-day period) of 60 days after whichever is the later of the following days:

(i)    the day on which the taxation objection is lodged with the Commissioner;

(ii)    if the Commissioner decides under section 14ZX to agree to a request in relation to the taxation objection – the day on which the decision is made;

(b)    if the Commissioner, by written notice served on the person within the original 60-day period, requires the person to give information relating to the taxation objection – the end of the period of 60 days after the Commissioner receives that information.

(2)    The person may give the Commissioner a written notice requiring the Commissioner to make an objection decision.

(3)    If the Commissioner has not made an objection decision by the end of the period of 60 days after being given the notice, then, at the end of that period, the Commissioner is taken to have made a decision under subsection 14ZY(1) to disallow the taxation objection.

33    Rights of review and appeal are set out in s 14ZZ, including review applications to the Administrative Appeals Tribunal and appeals to this court. On a review application to the Tribunal the applicant has the burden of proving, if the taxation decision concerned is an assessment, that the assessment is excessive: s 14ZZK. A similar burden lies on the taxpayer in appeals to this court: s 14ZZO.

34    Section 255-1 of Schedule 1 of the TAA 1953 provides:

A tax-related liability is 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 provides:

(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.

35    Section 255-45(1) and (2) provide:

(1)    A certificate:

(a)    stating one or more of the matters covered by subsection (2) …; and

(b)    signed by the Commissioner, a Second Commissioner or a Deputy Commissioner;

is prima facie evidence of the matter or matters in a proceeding to recover an amount of a tax-related liability.

(2)    A certificate may state:

(a)    that a person named in the certificate has a tax-related liability; or

(b)    that an assessment relating to a tax-related liability has been made, or is taken to have been made, under a taxation law; or

(c)    that notice of an assessment, or any other notice required to be served on a person in respect of an amount of a tax-related liability, was, or is taken to have been, served on the person under a taxation law; or

(d)    that the particulars of a notice covered by paragraph (c) are as stated in the certificate; or

(e)    that a sum specified in the certificate is, as at the date specified in the certificate, a debt due and payable by a person to the Commonwealth.

36    Section 255-50 of Schedule 1 of the TAA 1953 gives prima facie effect to statements or averments made by the plaintiff in recovery actions. Thus -

(1)    In a proceeding to recover an amount of a tax-related liability, a statement or averment about a matter in the plaintiff’s complaint, claim or declaration is prima facie evidence of the matter.

(2)    This section applies even if the matter is a mixed question of law and fact. However, the statement or averment is prima facie evidence of the fact only.

(3)    This section applies even if evidence is given in support or rebuttal of the matter or of any other matter.

(4)    Any evidence given in support or rebuttal of the matter stated or averred must be considered on its merits. This section does not increase or diminish the credibility or probative value of the evidence.

(5)    This section does not lessen or affect any onus of proof otherwise falling on a defendant.

37    Regulation 172 of the Income Tax Regulations 1936 (Cth) provides:

(1)    Judicial notice shall be taken of the names and signatures of the persons who are, or were at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner.

(2)    A certificate, notice or other document bearing the written, printed or stamped name (including a facsimile of the signature) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner in lieu of that person’s signature shall, unless it is proved that the document was issued without authority, be deemed to have been duly signed by that person.

(3)    In this regulation, “certificate, notice or other document” includes a certificate, notice or other document under the Income Tax Assessment Act 1997 or Regulations made under that Act.

Summary judgment under s 31A

38    As noted at the outset of these reasons, the Deputy Commissioner seeks an order pursuant to s 31A(1) of the FCA Act that there be judgment for it against the Bank. Section 31A relevantly provides:

(1)    The Court may give judgment for one party against another in relation to the     whole or any part of a proceeding if:

(a)    the first party is prosecuting the proceeding or that part of the     proceeding; and

(b)    the Court is satisfied that the other party has no reasonable prospect of     successfully defending the proceeding or that part of the proceeding.

(2)    …

(3)    For the purposes of this section, a defence or a proceeding or part of a     proceeding need not be:

(a)    hopeless; or

(b)    bound to fail;

for it to have no reasonable prospect of success.

39    Put simply, the Deputy Commissioner says that the Bank has no defence to the entry of judgment as claimed against it. Precisely how such a claim is assessed depends on the nature of the cause of action, as well as the identity of the parties, the pleaded facts and the evidence adduced: see Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at 407 [126] (Gordon J). Here, the relevant provisions of the taxation provisions referred to above are critical, together with Mr Zafiriou’s 8 October 2010 affidavit evidence and its exhibits, and the further certificate under s 255-45 of Schedule 1 of the TAA 1953 tendered at the 9 November hearing.

40    In Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 at [37], Sundberg J said the following about s 31A:

The principles governing the operation of s 31A of the Act were canvassed in detail by Lindgren J in White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 (White Industries) and Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 (Boston). In White Industries 160 FCR at [59], Lindgren J considered that a claim requires “real” as opposed to “fanciful” or “merely arguable” prospects in order for it to have reasonable prospects of success as required by s 31A. Justice Rares in Boston 236 ALR at [45] was of the view that, unless there are no real issues of fact – such that “only one conclusion can be said to be reasonable” – summary judgment (or dismissal) ought not be given pursuant to s 31A. The Full Court has recently considered the summary judgment standard in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 (Finkelstein, Rares and Gordon JJ) (Jefferson Ford). Although different views were taken as to the precise operation of s 31A, the following principles appear to have been endorsed:

    In applying s 31A, the court does not conduct fact finding but must assess the strength of the allegations made by reference to the pleadings, affidavits and any other evidence adduced, in order to determine whether the claim is sufficiently strong to warrant a trial: see Jefferson Ford 167 FCR at [23] (Finkelstein J), [74] (Rares J) and [130] (Gordon J); see also Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd [2008] FCA 1257 at [28] (Emmett J); Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [6] (Finkelstein J). Ultimately, the court must consider whether there are any real, as opposed to fanciful, issues of fact or law that require proper determination at a trial.

    In assessing whether there are reasonable prospects of success, the court should draw all reasonable inferences (but only reasonable inferences) in favour of the non-moving party: see Jefferson Ford 167 FCR at [132] (Gordon J). Moreover, where the evidence on a summary judgment application is of an ambivalent character, there will be a real issue of fact and therefore reasonable prospects of success for the purposes of s 31A: see Boston 236 ALR at [45]; Jefferson Ford 167 FCR at [73] (Rares J) and [130] (Gordon J).

    The moving party bears the onus of persuading the court that its opponent has no reasonable prospects of success: see Jefferson Ford 167 FCR at [127] (Gordon J); Boston 236 ALR at [45]. However, where the moving party establishes a prima facie case for summary judgment, the opposing party must be able to point to “specific factual or evidentiary disputes that make a trial necessary”: see Jefferson Ford 167 FCR at [127] (Gordon J).

    As s 31A requires in effect a prediction as to the outcome of a claim, the court should be more reluctant to summarily dismiss a claim where real questions of fact and credit arise. In those cases, the court will not have all material evidence before it until trial, the credit of important witnesses will not have been tested and it will as a consequence be very difficult if not impossible to fairly assess the prospects of the claim: see Jefferson Ford 167 FCR at [20] (Finkelstein J); Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 at [6] (Gilmour J).

This remains an accurate account of the operation of s 31A.

41    In the context of the case management system of this court, s 31A of the FCA Act provides an efficient means of resolving litigation where the court is satisfied that the respondent has no reasonable prospect of a successful defence. The provision has previously been applied in income tax recovery proceedings: see Commissioner of Taxation v Grimaldi (No 5) [2009] FCA 765.

Consideration

Summary judgment

42    As noted above, ss 175 and 177 of the ITAA 1936 are critical provisions for the Deputy Commissioner’s summary judgment motion.

43    The effect of s 177(1) is that notices of assessment have a conclusive evidentiary character both in respect of the due making of the assessment and, save in Part IVC proceedings, that the amount and all the particulars of the assessment are correct: see McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 281-282 (Taylor J) and FJ Bloeman Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 (‘Bloemen’) at 376. Part IVC proceedings are review proceedings in the Administrative Appeals Tribunal and appeals to this court concerning an objection decision. The present proceedings are not proceedings under Part IVC.

44    In Bloeman at 376, the High Court held that the effect of ss 175 and 177 was to confine a taxpayer to the appeal procedures for which the taxation legislation provides. As French J said in Deputy Commissioner of Taxation v Warrick (No 2) (2004) 56 ATR 371; [2004] FCA 918 (‘Warrick (No 2)’) at [84], “[t]he weight of High Court authority in relation to the operation of ss 175 and 177 stands against any challenge to the validity of an assessment where the purported assessment is a bona fide attempt to exercise the powers conferred by the Act, relates to the subject matter of the Act and is reasonably capable of reference to those powers”.

45    In their joint judgment in Bloemen, Mason and Wilson JJ, with whom Stephen and Aickin JJ agreed, said (at 378) that the production of a notice of assessment:

... will put beyond contention the due making of the assessment so that the court cannot find that no assessment was made or that, if made, it was made for an inadmissible purpose.

46    Relevantly for present purposes, in Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 at 187-188, Mason CJ said that this statement in Bloemen:

... proceeds upon the footing that the paramount purpose of the Act is to ascertain the liability of taxpayers to tax and that the Act, with that object in view, sets up a legislative regime whereby the Commissioner assesses a 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 Tribunal or an appeal under Pt IVC to the Federal Court. In such an appeal, it is for the taxpayer to show that the assessment is excessive. In that context, the existence of an inadmissible purpose on the part of the Commissioner plays no part. 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. In such an appeal, the taxpayer is at liberty to challenge the exercise of any relevant discretion by the Commissioner. Thus, on appeal, the court will set aside the assessment if any relevant exercise of discretion by the Commissioner is affected by error of law, if he has taken an extraneous factor into account or if he has failed to consider a material factor.

47    These observations assumed that s 177 was in the nature of a privative clause, the operation of which was to be understood having regard to the principle derived from R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 (‘Hickman’). In Richard Walter at 180, Mason CJ referred to the Hickman principle, clearly a reference to Dixon J’s observations about privative clauses (in Hickman at 615) that:

Such a clause is interpreted as meaning that no decision which is in fact given by the body concerned shall be invalidated on the grounds that it has not conformed to the requirements governing its proceedings or the exercise of its authority or has not confined its acts within the limits laid down by the instrument giving it authority, provided always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body.

Applying this, Mason CJ saw s 177 as “consistent with the Hickman principle” on the basis that (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 Act or considerations of purpose.

48    In summary, on the one hand, the Hickman principle as stated by Mason CJ in Richard Walter does not extend the protection of ss 175 and 177 to assessments that are not made in good faith or to ‘assessments’ that, on their face, are not assessments at all. Nor do these provisions offer protection in the case where the Commissioner concedes that no attempt to ascertain or estimate the taxpayer’s taxable income has yet been made: see R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 310. On the other hand, the effect of ss 175 and 177 is to preclude judicial review of assessment decisions in proceedings under s 75(v) of the Constitution or s 39B of the Judiciary Act 1903 (Cth) for error of law, failure to take into account mandatory relevant considerations and breaches of procedural fairness. In conformity with this understanding, Brennan J said in Richard Walter at 196:

... if s 175 confers validity on assessments made in a bona fide attempt to exercise the power to make them, it authorises the Commissioner to determine in good faith, rightly or wrongly, the application of the general provisions of the Act to the facts of the particular case subject to correction by the objection, review and appeal procedures. That accords with the policy of the Act which most clearly appears from the text of s 177(1).

See also Richard Walter at 211, 213 (Deane and Gaudron JJ), 227 (Toohey J) and 242 (McHugh J). Further, in Warrick (No 2) at [86], French J rejected an argument that the decision of the High Court in Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476 required a reconsideration of the authorities with respect to ss 175 and 177.

49    The Commissioner is not prevented from suing for recovery of tax debts simply because the taxpayer has not had relevant objections determined or has not exhausted review or appeal rights: see TAA 1953, ss 14ZZM and 14ZZR and Clyne v Deputy Commissioner of Taxation (1983) 48 ALR 545 at 547; 57 ALJR 673 at 675. Judgment may, however, be stayed in appropriate circumstances: see below.

50    In support of the motion for summary judgment the Deputy Commissioner has relied upon the production of certified copies of the notices of assessments and the certificate of their service upon the Bank (although, at the 9 November hearing, the court was informed that service was not in issue between the parties). The notices of assessment were produced as exhibits to the 8 October 2010 affidavit of Mr Zafiriou. By virtue of ss 175 and 177, the production of the notices of assessment was conclusive evidence of their due making; and in this proceeding that the amount and all the particulars of the assessments were correct. Upon service of the notices the Bank became liable to pay to the Commissioner the tax assessed and shown as due to the Commonwealth and, by s 255-5 of the TAA 1953, recoverable in a court of competent jurisdiction. Pursuant to s 255-45 of Schedule 1 of the TAA 1953, the evidentiary certificates bearing a Deputy Commissioner’s signature was relied upon as evidence that the sums of $4,487,415.89 and $2,112,952.65 were debts due and payable to the Commonwealth by it. These sums totalled $6,600,368.54. The Deputy Commissioner relied upon s 255-45 of Schedule 1 of the TAA 1953 as prima facie evidence of the matters stated therein.

51    Counsel for the Deputy Commissioner also noted that there had recently been a change to the legislation imposing a general interest charge (‘GIC’) on taxpayers with overdue income tax debts and shortfall interest charge. This affected the provisions pursuant to which the Deputy Commissioner claimed GIC on unpaid income tax debts. Subsection 204(3) of the ITAA 1936 (‘the former provision’) had been repealed and replaced by s 5-15 of the Income Tax Assessment Act 1997 (‘ITAA 1997’) (‘the new provision’). The change applied from 1 July 2010. There were transitional provisions for GIC remaining unpaid as at 1 July 2010: see Income Tax (Transitional Provisions) Act 1997, s 5-10 (‘the transitional provision’). The effect of the change to the legislation is that in circumstances where GIC is unpaid as at 1 July 2010, the Deputy Commissioner relies upon the former provision, the new provision and the transitional provision to claim GIC on unpaid income tax debts. The change does not affect Part IIA of the TAA 1953, however, and, accordingly, the Deputy Commissioner continues to claim GIC pursuant to this provision. With respect to the Bank, the income debts were all payable prior to 1 July 2010. Accordingly, the Deputy Commissioner claimed GIC on these unpaid income tax debts pursuant to s 204 of the ITAA 1936, s 5-10 of the Income Tax (Transitional Provisions) Act 1997 and s 5-15 of the ITAA 1997.

52    For the reasons already set out, the recovery proceedings cannot be resisted upon the basis of jurisdictional error short of the failure of the Commissioner to observe the criteria referred to under the rubric of the Hickman principle. The Bank does not allege, and there is no evidence of, any such failure.

53    As the Bank properly conceded in written submissions filed on 8 November 2010, the fact that objections remain undetermined and review and appeal rights are not yet exhausted has no bearing on the question of liability. This is the combined effect of ss 175 and 177 and the evidence of certified notices of assessment and the evidentiary certificates produced to the Court. The authorities clearly establish that the policy of the taxation legislation in circumstances such as these should be given effect notwithstanding that the taxpayer’s challenge to the assessments in question may ultimately be vindicated in Part IVC proceedings. I conclude that the Bank has no reasonable prospect of defending the proceeding and, save for the question of a stay, judgment should be entered as the Deputy Commissioner seeks.

Should there be a stay?

54    In support of its motion for a stay, the Bank submitted that the Court should stay the Deputy Commissioner’s motion for judgment and, if judgment is entered, should stay execution until after “the adjudication of objections to these assessments”. The parties agreed that the principles were the same for both forms of stay. The Bank supported its motion by various affidavits, including an affidavit of Thomas Leslie Hollo of 8 November 2010, an affidavit of Vanda Gould sworn on 8 November 2010 (with annexures), as well as the affidavit of Daud Yunus sworn on 30 August 2010 and two affidavits of Vanda Gould of 6 September 2010, the last three being filed in opposition to the making of freezing orders. The Bank’s written submissions also referred to another affidavit of Mr Gould of 1 September 2010.

55    The amounts assessed to the Bank and the general interest and charges accruing with respect to them are debts due to the Commonwealth and payable to the Deputy Commissioner: see TAA 1953, s 255-5(1). As noted already, the Bank can challenge the tax debts only via Part IVC of the TAA 1953. Counsel for the Bank correctly accepted that the fact the Deputy Commissioner had not yet determined the Bank’s objection did not disentitle the Deputy Commissioner from pursuing recovery proceedings. The Deputy Commissioner also correctly accepted that the Court had jurisdiction to stay tax recovery proceedings or execution of judgment in such proceedings. Both parties accepted that the power to grant a stay is discretionary and is exercised, having regard to the policy of the taxation legislation, as reflected in a number of the provisions mentioned above.

56    The authorities emphasize that the power to grant a stay is exercised sparingly in respect of any proceeding for the recovery of a tax debt based on the issue and service of an assessment, and that it is incumbent on the taxpayer to justify the exercise of power. Reference may be made in this connection to Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 (‘Broadbeach’) at 491-493 (Gummow A-CJ, Heydon, Crennan and Kiefel JJ); Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation (2006) 64 ATR 316 at 322-323 (Nettle JA); Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 (‘Snow’) at 139 (French J); and DFCT v Mackey (1982) 45 ALR 284 at 287 (Moffit P)and 289 (Hutley JA); 82 ATC 4571 at 4573 and 4575.

57    The harshness with which such provisions as 177(1) of the ITAA 1936 can operate in circumstances like the present is obvious enough: compare Broadbeach at 492. But, as the plurality observed in that case, s 177(1) and related provisions of the taxation legislation “implement a long-standing legislative policy to protect the interests of the revenue”. The fact that pending objections have not been determined will not preclude a recovery action, as their Honours in Broadbeach made clear when they cited with approval the decision of Asprey J in Deputy Commissioner of Taxation v Niblett (1965) 83 WN (Pt 1)(NSW) 405 (‘Niblett’) at 411, who, as their Honours in Broadbeach said (at 492), “struck out pleas of non-liability to a recovery action instituted by the Deputy Commissioner in the Supreme Court of New South Wales while objections were pending under what was then s 185 of the [ITAA 1936]”. Also at 492, their Honours in Broadbeach set out the following passage from Asprey J’s judgment:

It may be thought to be a hardship that a taxpayer should have to pay the tax assessed when an objection to the assessment has not been decided upon but there are obvious financial considerations of high policy that must be weighed in the balance against cases of individual hardship with which the Commissioner through the appropriate use of his powers under [the Assessment Act] can cope … Where the meaning of the words of a statute is clear ‘it is not open to the Court to narrow or whittle down the operation of the Act by seeming considerations of hardship or of business convenience or the like’ – Attorney-General v Carlton Bank [1899] 2 QB 158 at 164.

These observations are also pertinent to the present case.

58    At the general level, the approach of Ireland J in Deputy Commissioner of Taxation v Ho (1996) 131 FLR 188 (‘Ho’) is consistent with the approaches of Asprey J in Niblett and the plurality in Broadbeach. In Ho as in the current case, the relevant notice of assessment was a default assessment, although, in contrast to the current case, there was some doubt as to whether a valid objection had been lodged. Ireland J stated (at 192):

Whilst most cases in which a stay of recovery proceedings was sought were commenced after an objection had been lodged and rejected by the Commissioner and thus appeals were in fact pending, either to the Administrative Appeals Tribunal or Federal Court, I do not consider this to be any basis of distinction. There is no difference in substance that the appeal from the Board of Review is pending on the one hand and that an objection is yet to be lodged on the other. Again this is, in my opinion, the direct effect of ss 14ZZM and 14ZZR. By virtue of the definition of “taxation decision” in s 14ZQ, ss 14ZZM and 14ZZR operate inclusive of an objection against a notice of assessment.

59    Referring to this reasoning, counsel for the Bank argued that Ireland J erred in Ho in assimilating, for present purposes, an undetermined objection to a tax review or appeal pending in the Administrative Appeals Tribunal or the court. Counsel argued that the lack of express provision in respect of an undetermined objection meant that in the case of an undetermined objection (as in the present case) “the bar is slightly lower” for a stay applicant. In this context, counsel also drew attention to the Commissioner’s legislative obligation to determine the objection: see TAA 1953, s 14ZY.

60    Whilst I consider that there is some force in the Bank’s proposition that, contrary to Ireland J’s view, the effect of the definition of “taxation decision” in s 14ZQ is not to assimilate an objection to the “review” or “appeal” of which ss 14ZZR and 14ZZM speak, this does not in fact diminish to any material extent the need for the taxpayer to justify the exercise of power to grant a stay in the taxpayer’s favour. The policy of the legislation is not affected by the fact that an objection is pending and undetermined. In any event, as the Bank itself acknowledged, the absence of an express provision dealing with undetermined objections could, at best from its point of view, do no more that slightly lower the bar for a stay. For the reasons that follow, even if this were correct, the Bank would not cross the bar.

61    The parties agreed (though, as can be seen, not unreservedly) that the principles governing the grant or refusal of a stay were as stated by French J in Snow at 139 as follows:

1.    The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer’s appeal against his assessment.

2.    The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it.

3.    The merits of the taxpayer’s appeal constitute a factor to be taken into account in the exercise of the discretion (although some judges have expressed different views on this point).

4.    Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax.

5.    A stay may be granted in the case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay.

6.    The mere imposition of the obligation to pay does not constitute hardship.

7.    The existence of a request for reference of an objection for review or appeal is a factor relevant to the exercise of the discretion.

At a general level, this statement of principles was re-iterated by French J in Warrick (No 2) at [105]-[106] and has been repeatedly cited with approval by other judges.

62    In written submissions relating to the stay of motion for judgment dated 8 November 2010, the Bank argued that a stay was appropriate because: (1) its assets could only be sold at prejudice to third parties; (2) the Bank has strong grounds of appeal in the Part IVC proceedings; and (3) the Bank has done everything possible to progress its Part IVC appeal.

63    In oral submissions, counsel for the Bank also argued that it (and the other respondent taxpayers for which she appeared) would suffer prejudice, or possible prejudice, in the event a judgment was entered by virtue of the principle that the cause of action merges in the judgment and the difficulty the Bank would face in setting the judgment aside. The Deputy Commissioner responded that, if the judgment debt had been wholly or partly satisfied at the time the Bank succeeded in its Part IVC challenges, then the Commissioner would make restitution and would, if requested, provided appropriate confirmation of that outcome, with a view to nullifying any adverse commercial impact. The Commissioner’s conduct in this regard was, plainly enough, consistent with the overarching policy of the taxation legislation. Even if I were to accept that the Bank would suffer some commercial injury by the entry of judgment against it, such injury would not amount to exceptional hardship sufficient to militate in favour of a stay. This kind of commercial injury is not akin to the “extreme personal hardship” that has justified a stay in other circumstances: cf Deputy Commissioner of Taxation v Denlay [2010] QCA 217.

64    On the issue of third parties’ prejudice, the Bank relied on certain affidavits filed in opposition to freezing orders, including the affidavit of Daud Yunus sworn on 30 August 2010, in support of the proposition that the Bank held its shares on the Australian Stock Exchange as a nominee for clients, with the result that third party property rights would be compromised by the sale of the assets. Written submissions also referred to the affidavit of Vanda Gould sworn on 1 September 2010. As the Bank foreshadowed, however, if issues arose as to the competing rights of the Bank and others in respect of any assets, these issues can be resolved by the court at a subsequent date.

65    Further, relying on the affidavit of Aris Zafiriou filed on 12 August 2010 and the affidavit of Vanda Gould filed on 1 September 2010, the Bank submitted in written submissions that:

… a significant proportion of the assets held by the [Bank] are loans to Australian citizens. The liquidation of these particular assets could result in inconvenience to third parties if they are forced to refinance.

The liquidation of all the above assets would be very damaging to an entity whose success depends on the perception of its financial performance. There is a contrast between companies such as this, and businesses which sell products or services the quality of which can be distinguished from their basic financial position.

The last observation is another way of supporting a claim of commercial hardship, which, even if I were to accept, would not greatly militate in favour of the requested stay. Further, the general observation as to the possibility that liquidation of the Bank’s assets “could result in inconvenience to third parties” is general and also unpersuasive.

66    As to the merits of the Bank’s Part IVC challenges, the Bank submitted that, given the effect of the capital gains tax exemption in Division 855 of the Income Tax Assessment Act 1997 (Cth), it is “plausible that the [Bank’s] Part IVC challenge could eliminate the liability in its entirety”. Further, so the Bank submitted, the Deputy Commissioner’s failure to give it the benefit of a trading stock election cast doubt over the correctness of the assessments. The Bank also challenged other aspects of the Deputy Commissioner’s calculations.

67    The Bank stated that in Part IVC proceedings it would adduce evidence that all but one investment was held under a nominee arrangement and that it was not the beneficial owner of them. Amongst other things, Mr Yunus said that he was the principal of Normandy Malaysia and that:

Within our investment management activities, some clients of Normandy Malaysia have loaned funds to the [Bank], the [B]ank has also undertaken an agency business on behalf of Normandy Malaysia’s clients whereby the Bank has held shares in Australia listed public companies on behalf of those clients as nominee and accounted to Normandy Malaysia for the proceeds of the share sales. For example the Bank was the nominee of Normandy Malaysia client’s (Normandy Finance & Investment Asia Ltd) shareholdings in Vita Life Sciences Limited (281, 987 shares) and in Cyclopharm Limited (315,124 shares). …

I have been provided with a copy of the schedule prepared by the Australian taxation office which purports to assess to taxation gains that may have been made from the sale of client securities. I confirm that apart from the 3,335,097 shares in CVC Limited every other transaction relates to Normandy Malaysia clients.

I further confirm that every share in Cyclopharm Limited and Vita Life Sciences Ltd relates to Normandy Malaysia clients and as is the case with the CVC shares apart from the above 3,335,097 CVC shares. The [Bank] has had no beneficial interest in those shares. …

68    An affidavit of Vanda Gould sworn on 8 November 2010 presented a table that was intended to show share transactions in each of the six companies in which the Bank holds shares relevant to the assessments. Mr Gould stated that the Bank’s central argument in Part IVC proceedings will be that it has only had beneficial ownership in one parcel of what became 4,000,000 Sunland Group Limited shares which it sold after approximately nine years.

69    Counsel for the Bank submitted that, as a matter of general impression, the pattern of transactions was not that of a share trader, referring to John v Commissioner of Taxation (1989) 166 CLR 417 at 430; Smith v FCT 2010 ATC 10-146; FC of T v Shields 99 ATC 4,783 and 99 ATC 2037; and Williams v Federal Commissioner of Taxation (1972) 128 CLR 645 at 656. The Bank’s written submissions stated that:

... only the sales of the Cyclopharm shares, and possibly the Greens shares, in any way fit the profile of ‘trading’ transactions, and also that these transactions represent a sufficiently small proportion of the [Bank’s] operations that they cannot possibly be used to characterise this entity as being engaged in a trading business.

70    I do not consider that these submissions greatly assist the Bank’s stay application. As French J observed in Snow, there is a difference in judicial opinion about the significance of the merits of the taxpayer’s challenge to an assessment or assessments: compare Ho at 191, Mackey at 4575 with Cywinski v DFCT (1989) ATC 4512 (‘Cywinski’) at 4517-8 (Kaye J, with whom Gobbo J agreed). Here, as noted, the Part IVC process is at the stage of undetermined objections. Perhaps there are cases in which consideration of the merits may assist in determining whether or not to grant a stay. This is not such a case. It would be inappropriate for me in this case to enter on the very questions that the Commissioner or, perhaps, at a later date the Administrative Appeals Tribunal or this court may be called on to determine. Indeed, there is insufficient detailed and full material before me to permit this to occur. At most, the Bank’s case might support the proposition that the Bank had arguable grounds for challenging the assessments in question. Even if I were to accept this proposition, however, this would not justify the grant of a stay, given the clear policy of the taxation legislation, as discussed in the authorities previously mentioned: see, for example, Cywinski at 4518.

71    As to the parties’ conduct in progressing the tax objections and this proceeding, the Bank relied on Warrick (No 2) in support of the proposition that a stay should be granted. In that case as in this a Deputy Commissioner instituted recovery proceedings for unpaid income tax and penalties and subsequently applied for summary judgment. French J held that the taxpayer in that case had no arguable defence to the recovery action, but also held (at [2]) that “because the Australian Taxation Office … delayed in resolving the taxpayer’s objections without any satisfactory explanation, execution of the judgment [would] be stayed” until a specified date that permitted the objections to be determined. French J concluded (at [106]) that:

… the priority given to recovery of the revenue should be qualified by an appropriate recognition of the taxpayer’s right to object and to have his objection determined and the Commissioner’s duty in that respect … I … consider that no satisfactory explanation has been given for the delay in and failure to deal with the objections to the assessments. In my opinion, execution of the judgment should be stayed for a period sufficient to enable Mr Warrick to require the making of an objection decision pursuant to s 14ZYA of the TAA and to take advantage of the deemed refusal at the expiry of 60 days from that period to institute a review process. The stay will be subject to liberty to apply.

The result was that the Court granted a stay from 13 July 2004 until 28 January 2005 when the objections were to be adjudicated.

72    In this case, so the Bank argued, the Bank lodged its objections on 14 September 2010, within about a month of receiving the notices of assessment. The Bank submitted that it had acted expeditiously notwithstanding its foreign domicile and that, as in Warrick (No 2), the objections were yet to be determined. Further, the Bank maintained that, at least with respect to the assessments issued to three of the five respondents (including the Bank), the proceedings had been instituted before the assessments were served. The Bank noted that it was unable to apply under s 14ZYA of the TAA 1953 to cause the Commissioner to determine the objection (in default of which there would be a deemed disallowance) because the Commissioner had since made a request for further information. The Bank estimated that it would be unable to make such an application before the end of January assuming the Bank were able to provide the Commissioner with the information sought within the relevant time. According to the Bank, the Deputy Commissioner had moved expeditiously for judgment; the Bank had lodged its objections with the Commissioner speedily; but the Commissioner had not moved as speedily with respect to determining the Bank’s objections.

73    The Deputy Commissioner informed the court that the objections lodged by the Bank would not be determined before 31 March 2011 – a little over seven months after the assessments were issued and these proceedings were instituted. At the 9 November 2010 hearing, the Deputy Commissioner stated and the Bank conceded that this date was the date agreed between them at a meeting in September this year. (This circumstance was the subject of a further application by the Bank: see below.) Further, as the Deputy Commissioner pointed out, once the proceedings were instituted and the freezing orders sought and obtained, the Deputy Commissioner was obliged to move in the recovery proceedings with some alacrity. In these circumstances, the analogy with Warrick (No 2) breaks down.

74    I have reached the conclusion that the present case comes squarely within the principles in Niblett, as stated by Asprey J and referred to with approval in Broadbeach: see [57] above. As Asprey J said, it might well be thought to be a hardship that the Bank should have to pay the tax assessed when the objections to the relevant assessments have not yet been decided but there is the clear policy of the taxation legislation to be weighed in the balance.

75    The Bank also referred to some miscellaneous matters in written submissions, including the fact that it had paid substantial withholding tax. It also submitted that the freezing order gave the Deputy Commissioner “a higher than usual level of security in respect of the prospective debts”, noting too that interest continued to accrue. I do not consider that these considerations would in the circumstances discussed justify the grant of a stay.

Application to re-open

76    Accordingly, as things stood after the hearing on 9 November, I would have dismissed the Bank’s motion for a stay. Some seven days later, however, on 16 November, the Bank applied, by notice of motion bearing that date, for orders:

1.    That the [Bank] be granted leave to re-open [its] case in respect of the application[] for a stay of judgment and execution of judgment so that [it] may adduce fresh evidence; and    

2.    That the applicant be granted leave to adduce evidence in reply; and

3.    That the court consider such further evidence on the papers, without oral submissions.

77    In support of this motion, the Bank relied on an affidavit of Thomas Leslie Hollo sworn on 16 November 2010. Notwithstanding paragraph [3] of the notice of motion, counsel for the Bank stated that the entirety of the evidence that the Bank wanted to rely on was contained in the 16 November affidavit of Mr Hollo. The Deputy Commissioner also stated that he had placed all his evidence in reply in the 21 November affidavit of Ms Thompson (see below). The parties made submissions to the Court on this basis.

78    Mr Hollo described himself as an employee solicitor at Henry Davis York, which was the Bank’s legal representative. In this affidavit, Mr Hollo stated that Mr Gould instructed him that the Bank sought to adduce further evidence. Part of Mr Hollo’s affidavit read as follows:

I am informed by Ms Fisicaro, a solicitor of Henry Davis York, and believe that on 30 September 2010 there was a meeting held between the representatives for the [Deputy Commissioner] and the [Bank] to discuss the determination of the objections at which the parties came to an agreement as to the time frame in which the objections would be determined (the Agreement).

Certain correspondence was exhibited to this affidavit, including a copy of a letter dated 6 October 2010 from the Australian Government Solicitor (‘AGS’), who were the solicitors for the Deputy Commissioner, to Henry Davis York; a letter dated 7 October 2010 from Henry Davis York to AGS; and two letters dated 12 November 2010 from Henry Davis York to AGS. Part of the AGS letter of 6 October 2010 stated:

The parties agree to apply to the Court for orders consenting to the extension of the freezing orders made on 12 August 2010 to 31 March 2011. This extension is to coincide with the date agreed for the determination of the objections.

The Commissioner has agreed to stay enforcement of any judgment he may obtain against one or more of your clients also to 31 March 2011.

The letter also addressed a range of other matters connected generally with the conduct of the litigation and the determination of the tax objections.

79    In their letter of 7 October 2010, Henry Davis York noted, amongst other things, that:

The Respondents [including the Bank] consented to determination of the Part IVC objections by the end of March 2011 (and continuation of the freezing orders as varied so as to permit dealings with the assets) on the basis that the Commissioner will not seek to execute any judgment in the substantive proceedings at least until after that time, and that there will be no prejudice to the Respondents’ appeal rights from the orders made by Kenny J on 15 September.

80    In the second letter of 12 November 2010, Henry Davis York advised AGS that:

The Respondents [including the Bank] wish to formally indicate that they no longer regard the agreements concluded between the parties on 30 September 2010 as operative. Key elements of these agreements were the Respondents’ acquiescence to an extension of the freezing orders, and also the Applicant’s preparedness to stay execution of judgment. Both have been overtaken by events.

To the extent there is any agreement on foot it is no longer appropriate for the Respondents to be bound by it, at least because the Applicant failed to support the Respondent [sic] application for stay of execution. As it is in the Respondent’s interests for the objections to be determined as quickly as possible, we no longer endorse any view that these objections need not be determined until next year.

It would be appreciated if you can proceed to adjudicate the remaining tax objections with the utmost expedition. Please tell us urgently when you intend to determine the objections.

81    In response to this material, the Deputy Commissioner relied on an affidavit of Sue-Anne Thompson of 21 November 2010, to which correspondence was exhibited. Ms Thompson is a solicitor employed by the AGS, with responsibility for the conduct of the matters involved in this proceeding.

82    Broadly speaking, the correspondence exhibited to Ms Thompson’s affidavit showed that their representatives met in September 2010, when the parties agreed upon a timetable, which, amongst other things, involved the Deputy Commissioner determining the taxation objections by 31 March 2011. As both parties noted in their submissions at the hearing on 22 November 2010, the agreed date was part of a set of proposed arrangements concerning the future conduct of the litigation and the Part IVC matters, including with respect to the freezing orders, summary judgment, and execution of judgment in the recovery proceedings, and other related matters. The correspondence showed that, as one might expect, the opposing parties identified different issues as important and supporting the agreed 31 March 2011 date. Equally, the correspondence indicated that, by the end of October or early November 2010, the parties’ attempts to take interlocutory steps on a consensual basis according to an agreed time table were failing. Importantly, however, there was no reference in the correspondence to the March date and no indication that either party wished to re-visit that part of their arrangements until the 12 November 2010 letter. This letter post-dated the 9 November hearing.

83    The Bank’s application for leave to reopen its case was made after a hearing at which evidence was tendered and submissions made by the opposing parties, and the Court had reserved its decision. The jurisdiction is well recognised: Hawthorn Glen Pty Ltd v Aconex Pty Ltd (No 1) [2007] FCA 2010 at [18]; Murray v Figge (1974) 4 ALR 612; and Smith v New South Wales Bar Association (1992) 176 CLR 256 at 266267. In Inspector General in Bankruptcy v Bradshaw [2006] FCA 22 (‘Bradshaw’) at [24], I said that:

The authorities indicate that, broadly speaking, there are four recognised classes of case in which a court may grant leave to re-open, although these classes overlap and are not exhaustive. These four classes are (1) fresh evidence (Hughes v Hill [1937] SASR 285 at 287; Smith v New South Wales Bar Association [No 2] (1992) 108 ALR 55 at 61-2); (2) inadvertent error (Brown v Petranker (1991) 22 NSWLR 717 at 728 (application to recall a witness); Murray v Figge (1974) 4 ALR 612 at 614 (application to tender answers to interrogatories); Henning v Lynch [1974] 2 NSWLR 254 at 259 (application to re-open); (3) mistaken apprehension of the facts (Urban Transport Authority of NSW v NWEISER (1992) 28 NSWLR 471 (“UTA”) at 478; and (4) mistaken apprehension of the law (UTA at 478). In every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open: see UTA at 478; also The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310 (“Silver Fox”) at [22] and [25].

84    The stated ground for the Bank’s application to re-open was to adduce further evidence. The Bank did not suggest that its was a case of inadvertent error or mistaken apprehension of the facts or law. Relevantly, in the Bank’s case, the Bank sought to adduce evidence that its agreement or acquiescence to the March 2011 deadline for determining its taxation objections was “concluded on certain factual premises, which have now been superseded by events, and that these agreements have been expressly rescinded”. Or, as counsel said at the 22 November hearing, “any acquiescence by the [Bank] to a March date was conditional and made in contemplation of the extension of the freezing orders and throughout the entirety of that period … the applicant refrained from the execution of judgment”. There was, so counsel for the Bank said, “no unqualified acquiescence to the March date”.

85    The Bank argued at the 22 November hearing that because “the landscape changed significantly” by the 9 November hearing, then “to the extent there was an agreement, it should have been obvious that the agreement was now defunct”. “Accordingly”, so the Bank’s counsel said, “any submission made by the respondents about the time being taken by the applicant to determine these objections did not self evidently have to deal with an agreement that has since been superseded and no longer formed a live factor”. The Bank agreed with the Deputy Commissioner’s statement in submissions dated 21 November that, before 8 November 2010, “it was evident to the parties that the agreement made 30 September 2010, of which the timetable for determination of the objections was part, could no longer be given effect”. Thus, so counsel for the Bank said, “the [Bank] chose to proceed with the application for stay without the preparation of evidence on that particular point”.

86    The Deputy Commissioner submitted that this was not a case of new evidence. I agree. As the Deputy Commissioner submitted, the Bank’s notice of motion and supporting affidavits were filed prior to the hearing on 9 November 2010. The correspondence showed that the parties were aware before that date that the arrangements agreed at the meeting in September 2010 could not be given complete effect. Whilst the 31 March date was part of the agreed arrangements, as the Deputy Commissioner also noted in oral submissions on 22 November, save for the 12 November 2010 letter, none of the correspondence exhibited to the 16 November affidavit of Mr Hollo and the 21 November affidavit of Ms Thompson mentions any difficulty with the March 2011 date.

87    In keeping with this awareness, counsel for the Bank indicated at the hearing on 9 November that the March date was part of various agreed arrangements, some of which had broken down, when she observed that the Bank’s agreement as to the March 2011 date was:

… in the context of a suite of agreements that also included agreements as to whether or not there would be execution of a judgment, and whether their freezing orders would continue, and there’s been much water under the bridge since then.

88    Also at the 9 November hearing, counsel for the Bank acknowledged that, for various reasons, parts of the agreed arrangements could not be carried out. Given that the Bank was aware of the relevant attendant circumstances at least at the time of the 9 November hearing, the 12 November 2010 letter, in which the Bank’s solicitors “formally indicate” that they no longer regard their “agreement” as operative is not relevantly fresh evidence relevant to the Deputy Commissioner’s conduct in not having determined the Bank’s objection as at 9 November. Even if it were new evidence, it would show that after the 9 November hearing the Bank took certain steps and, for the reasons stated below, this would not affect the outcome of the Bank’s application to re-open.

89    Moreover, the Bank has not adduced any evidence that might explain why evidence relating to the Commissioner’s suggested dilatoriness and/or the Bank’s acquiescence as to the March date was not presented at the 9 November hearing. This is a relevant factor in circumstances such as these: see Smith v New South Wales Bar Association (1992) 176 CLR 256 (‘Smith’) at 266-7. The failure to give an explanation tells against the grant of leave to re-open. As Brennan, Dawson, Toohey and Gaudron JJ said in Smith at 266, “[i]f there was a deliberate decision not to call it, ordinarily that will tell decisively against the application”. Their Honours added (at 266-7) that “assuming that that hurdle is passed, different considerations may apply depending on whether the case is simply one in which the hearing is complete, or one in which reasons for judgment have been delivered”. In the former case, as here, the focus is on “embarrassment or prejudice to the other side”: see Smith at 267.

90    One might reasonably infer from the absence of an explanation and from the statements by the counsel for the Bank at the hearing that the lack of evidence concerning the agreed March 2010 date was deliberate. Counsel for the Bank apparently conceded as much at the 22 November hearing when he sought to explain the Bank’s decision to proceed “without the preparation of evidence on that particular point”: see [85] above. In such a case, where the Bank had full knowledge of the considerations relevant to their conduct and proceeded on a particular basis, the public interest in the finality of litigation weighs strongly against permitting them to depart from that basis: see Bradshaw at [24] citing The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310 at [25] and the cases there cited.

91    Whether or not deliberate, however, the overriding principle is, so the parties agreed, whether, taken as a whole, the justice of the case favours the grant of leave to re-open: see Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471 at 478.

92    The materiality of the evidence in question and its tendency (if accepted) to affect the outcome of the case may be subsumed in an inquiry into the justice of the case. Here the issue of the time proposed to be taken by the Commissioner for the determination of the taxpayer’s objections arose in the context of a discussion of the extent to which the decision in Warrick (No 2) might assist in the resolution of the Bank’s stay application. The circumstances attending the nomination of the March date for the determination of the objections, together with the other factors referred to earlier, rendered Warrick (No 2) distinguishable from the present case. This is so irrespective of the further evidence to which the Bank would take me. In Warrick (No 2) French J had regard to the fact that there was no satisfactory explanation for the delay in resolving the taxpayer’s objections. Even though the arrangements agreed in September were falling apart by the time of the 9 November hearing, the fact that the March 2011 date had been previously agreed provides a sufficient explanation for the Deputy Commissioner’s conduct to date and for alleged delay on his part in determining the Bank’s objections. The fact that, by its letter of 12 November 2010, the Bank has now indicated dissatisfaction with the date is not to the point so far as this explanation is concerned. Further, this explanation is consistent with the statement made by counsel for the Bank at the hearing on 9 November that the Bank was not in a position to call for a speedier determination of the objections until it answered the 264A notices served upon it. The explanation for the Commissioner’s alleged delay, taken with the other factors to which reference has been made, is enough to distinguish Warrick (No 2) from the present case, with the result that the outcome in Warrick (No 2) is not the appropriate outcome in this case. Hence, the further evidence, if admitted, would not affect the outcome of the application.

93    In the circumstances of this case, considered as a whole, I do not consider that the justice of the case favours the grant of leave to re-open.

DISPOSITION

94    For the reasons already stated, I would order that there be judgment for the Deputy Commissioner against the Bank in the amount of $6,600,368.54. I would further order that the Bank pay the Deputy Commissioner’s costs. Save for the orders made at the hearing on 9 November 2010, I would order that the respondent’s motion, notice of which is dated 8 November 2010, be otherwise dismissed. Further, I would order that the respondent’s motion, notice of which is dated 16 November 2010, also be dismissed.

Associate:

Dated:    25 November 2010