FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 4) [2012] FCA 1482

THE COURT ORDERS THAT:

1.    The parties provide short minutes of order to give effect to these reasons by 1 February 2013.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide short minutes of order to give effect to these reasons by 1 February 2013.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide short minutes of order to give effect to these reasons by 1 February 2013.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    These reasons deal with two matters:

(a)    the question of whether the Deputy Commissioner is entitled to summary judgment for the general interest charge (‘GIC’); and

(b)    my reasons for making the charging orders sought by the Deputy Commissioner on 18 December 2012.

(a) Summary judgment on the GIC

2    On 25 November 2010, Kenny J gave judgment in favour of the Deputy Commissioner against:

(a)    Chemical Trustee Ltd in the amount of $4,833,259.45;

(b)    Derrin Brothers Properties Ltd in the amount of $9,723,807.23; and

(c)    Bywater Investments Ltd in the amount of $15,658,276.74.

3    See Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297. On the same day, her Honour also gave judgment against Hua Wang Bank Berhad in the amount of $6,600,368.54: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) (2010) 81 ATR 40; [2010] FCA 1296. Her Honour also gave judgment against Southgate Investments Funds Ltd in the amount of $2,914,450.64: Deputy Commissioner of Taxation v Southgate Investments Funds Ltd [2010] FCA 1298.

4    Each of these judgments was a summary judgment given under s 31A of the Federal Court of Australia Act 1976 (Cth) after her Honour had concluded that each of the respondents had no defence to the Deputy Commissioner’s claims. Those claims were for unpaid income tax. They also included a component for the GIC.

5    On 8 June 2012, I concluded that each of the judgments given by Kenny J had been interlocutory, that the Court therefore had power to vary the judgments and that the judgments should be varied by excising from each the amount referable to the GIC: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594 (‘my earlier judgment’) at [9]-[24]. I did this because I concluded that the tax due to the Commissioner did not become payable until 12 August 2010 when the relevant notices of assessment were issued and that s 5-10 of Pt 3, Schedule 1 of the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) (which would have made the GIC payable) was inapplicable because the tax was not payable immediately before the day it came into force (1 July 2010), the notices of assessment not having been issued until 12 August 2010: see [9]-[17]. This was a matter which had been overlooked by all parties before Kenny J.

6    By the time the application to vary the judgments given by Kenny J came before me (on 17 May 2012), the Parliament had moved to resolve the problem by making clear that the levying of the GIC in cases such as the present did not require there to have been an anterior assessment of tax. This was done by item 4 of Schedule 2 to the Tax Laws Amendment (2011 Measures No 3) Act 2011 (Cth) which, with retrospective effect from 1 July 2010, provided that:

For the purposes of applying, at a particular time, former subsection 204(3) of the Income Tax Assessment Act 1936 in relation to any tax, it does not matter whether the tax had been assessed at that time.

7    In the previous hearing, the Deputy Commissioner sought to rely upon item 4 as a reason for not varying the judgments which had been given by Kenny J. I declined to allow that to occur, concluding instead that, if reliance was to be placed on item 4, this should be done in a fresh application for summary judgment: see [23]. I did this because the respondents wished to argue that there might well be defences to a claim for GIC based on item 4.

8    In the event, what is clear is that neither Kenny J nor I have ever dealt with the effect or operation of item 4. Her Honour did not deal with it because it did not exist when the matter was argued before her. I did not deal with it because I thought it more appropriate that it be raised in a fresh summary judgment application. It follows that there has been no hearing on the merits of the Deputy Commissioner’s case based on item 4.

9    It is against that backdrop that the disposition of the Deputy Commissioner’s present application to reinstate the GIC in the judgments falls to be decided.

Is the application defeated by res judicata?

10    The taxpayers argued that the application should be defeated by principles of res judicata. I reject this contention. There will be no res judicata where it is plain that the issue alleged to have been resolved in the earlier judgment was expressly left out of consideration. This will either be because the earlier judgment was not final for res judicata purposes or because it did not involve any hearing of the issue on its merits.

11    I reject the Deputy Commissioner’s submission that my prior determination (at [18]-[19]) that the orders made by Kenny J were interlocutory for the purposes of r 39.05, Federal Court Rules 2011 entails necessarily that they were not final for res judicata purposes. It is plain, in my opinion, that these are distinct inquiries. As the learned author of the fourth edition of Spencer Bower and Handley: Res Judicata (KR Handley, LexisNexis, 2009) observes at 65 [5.02]:

A judicial decision may be final for one purpose but not another. Decisions on finality for purposes of appeal are not always relevant. Some decisions which are final for appeal are not final for res judicata

12    Indeed, the footnote to that passage indicates that the High Court itself held as much in Coroneo v Kurri Kurri and South Maitland Amusement Co Ltd (1934) 51 CLR 328 at 334. There, a judgment of non-suit was held not to be interlocutory for appeal purposes (so that leave was not required) but, nevertheless, this did not prevent a further action being pursued. It is for that reason that many issues may be resolved during the course of proceedings which do generate a res judicata but which are nevertheless interlocutory for appeal purposes. Two of the most obvious examples of this phenomenon are determinations of liability in advance of quantum and the closely-allied procedure of determining separate questions prior to trial. In both cases, the decisions are final for res judicata purposes but interlocutory for appeal purposes.

13    I do not need to decide whether a res judicata will usually arise following a summary judgment (although I should be surprised if it did not). This is because I am satisfied for other reasons that the orders made by Kenny J and those made by me have not finally determined the GIC issue (regardless of the general position of summary judgment). I turn to those in a moment. The availability of that conclusion makes it unnecessary for me to determine whether the statement by McLelland J in Brinds Ltd v Chapmans Ltd (1985) 10 ACLR 97 at 98 that the question of finality was the same in content for the purposes of both res judicata and appeals can be correct.

14    Instead, I conclude that my earlier determination that I would not consider the effect of item 4 on the Deputy Commissioner’s variation application but would entertain another summary judgment application (at [23]) meant that the orders in question were contemplated to be subject to further revision and were, therefore, not final for res judicata purposes in accordance with the principle in Somodaj v Australian Iron and Steel Ltd (1963) 109 CLR 285 at 297-298 per Kitto, Taylor and Menzies JJ.

15    In any event, it is quite clear that the question of whether the GIC is to be imposed by reason of item 4 has simply not yet been heard. There has been, in that circumstance, no determination on the merits. Without this there can be no res judicata to defeat the Deputy Commissioner’s application to reinstate the GIC utilising item 4.

Should the GIC be reinstated?

16    Turning then to the application itself, it is important to observe that the application the Deputy Commissioner pursues is one for summary judgment under s 31A of the Federal Court of Australia Act 1976 (Cth). Before I can give judgment, therefore, I must be satisfied that the taxpayers have no reasonable prospects of defending the Deputy Commissioner’s proceedings: s 31A(1)(b).

17    One begins by observing that the GIC does not directly result from a notice of assessment but rather as a possible consequence of such an assessment: see, for example, s 163AA of the Income Tax Assessment Act 1936 (Cth) (‘the 1936 Act’). It is, therefore, not the subject of the protection conferred by s 175 of the 1936 Act. It is legally possible, therefore, to defend a claim for GIC (unlike a claim for tax based on a notice of assessment not infected by jurisdictional error).

18    The taxpayers’ primary submission is that they have reasonable prospects of defending the Deputy Commissioner’s claims for GIC under item 4 because:

(a)    on its proper construction item 4 does not apply to proceedings which have already been determined; and

(b)    they are entitled to invoke s 361-5(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) which provides that a person is not liable to the GIC where (very loosely speaking) the person’s liability to GIC arises from reliance upon a ruling given by the Commissioner.

19    As to (a), I accept that item 4 should not be interpreted as applying to judgments for GIC already granted: cf. Federated Engine-Drivers and Firemen’s Association of Australasia v Broken Hill Pty Co Ltd (1913) 16 CLR 245. However, this does not assist the taxpayers because it is not correct in this case that the GIC issue has been resolved in my earlier judgment. The effect of my earlier judgment is that the excision of the GIC from the orders made by Kenny J was done on the explicit basis (at [23]) that the question of whether the taxpayers were liable for GIC under item 4 had yet to be determined. The principle of statutory interpretation invoked has, therefore, no application.

20    I turn then to (b). It was not in dispute textually that, if item 4 applied in these proceedings, subject to the taxpayers’ defences, the GIC would become payable. I do not, therefore, need to dwell on the detail of how the GIC became payable. Some discussion of the issue appears in my earlier judgment at [9]-[17]. The issue in (b), therefore, arises against a backdrop which includes the fact that item 4 has otherwise made the GIC due and payable.

21    The taxpayers relied upon s 361-5(1) of Schedule 1 to the Taxation Administration Act which is as follows:

361-5 Non-ruling advice and general administrative practice

(1)    You are not liable to pay the *general interest charge or the *shortfall interest charge under a relevant provision to the extent that the charge would relate to a *shortfall amount or a *scheme shortfall amount that was caused by:

(a)    you reasonably relying in good faith on:

(i)    advice (other than a ruling) given to you or your *agent by the Commissioner; or

(ii)    a statement in a publication approved in writing by the Commissioner;

unless the advice, or the statement or publication, is labelled as non-binding; or

(b)    you reasonably relying in good faith on the Commissioner’s general administrative practice.

* For definition, see section 995-1 of the Income Tax Assessment Act 1997.

22    The taxpayers submitted that they had reasonably relied in good faith upon TR [Taxation Ruling] 2004/15 to arrive at the view that they were resident outside Australia. The taxpayers also placed reliance upon ATO ID [Australian Taxation Office Interpretive Decision] 2005/73, ATO ID 2005/117, ATO ID 2006/127, ATO ID 2006/128 and ATO ID 2005/151. The ruling and each of the interpretive decisions were said to contain statements to the effect that the central management and control of a company will be where the company’s directors meet.

23    The evidence did not, perhaps, rise so high. On the application, the taxpayers relied upon the affidavit of one of their solicitors, Mr Eric Herman, sworn on 5 December 2012. Mr Herman swore that Mr Gould, the taxpayers’ agent and advisor, had informed him that in reliance on, inter alia, TR 2004/15 he had advised the taxpayers that they were not resident in Australia for tax purposes and were not obliged to file returns. I infer, for present purposes, that it was in reliance upon that advice that the taxpayers will contend, in the Part IVC proceedings to be heard by me commencing on 16 September 2013, that they did not file returns in the relevant years.

24    There is no evidence before me from Mr Herman or anyone else to suggest any reliance by the taxpayers upon the interpretive decisions and I will disregard them for present purposes. Nevertheless, the taxpayers submit that Mr Herman’s evidence means that it is reasonably arguable that they may invoke s 361-5 in their defence because of their reliance on TR 2004/15.

25    The Deputy Commissioner submits this is not so for seven reasons.

26    First, he submits that s 361-5(1)(a)(ii) (set out above) requires reliance upon, on this hypothesis, TR 2004/15 whereas as Mr Herman’s evidence showed that the taxpayers had relied on Mr Gould’s advice (which the taxpayers alleged was derived from TR 2004/15). For the purposes of a summary judgment application, I reject this argument. There is nothing legally adventurous about permitting s 361-5(1)(a) to apply to reliance upon a statement by a taxpayer’s advisors; that is ‘you’ in s 361-5(1)(a) arguably may include ‘or your agents’.

27    Secondly, it was argued that TR 2004/15 expressly did not apply in circumstances which indicate ‘an artificial or contrived [central management and control] outcome’. This mattered, according to the Deputy Commissioner, because such circumstances were ‘plainly the case here’. I do not see how I can embrace for s 31A purposes that proposition, which translated into its correct procedural language, must mean that the taxpayers have no reasonable prospects of defending the GIC claim on the basis that the circumstances are not ‘artificial or contrived’. There is no basis upon which I could make such a finding on this application.

28    Thirdly, the Deputy Commissioner submitted that he did not accept, in terms of TR 2004/15, that the relevant directors resided outside Australia. His contention has always been that the non-resident directors are merely puppets of Australian residents. Again, this position of the Deputy Commissioner is irrelevant for s 31A purposes. Is it reasonably arguable that the taxpayers’ directors are resident overseas? Plainly, it is.

29    Fourthly, it was submitted that s 361-5(1) could not be engaged by a public ruling. This flowed from the heading which included the words ‘[n]on-ruling advice’ and the language of s 361-5(1)(a)(i) which limited ‘advice’ by the words ‘other than a ruling’. The more general words of sub-s (a)(ii) could not include the rulings excised from sub-s (a)(i) because that would render the excision in sub-s (a)(i) otiose. The taxpayers countered this by arguing that what was excluded from sub-s (a)(i) was private rulings not public rulings. This followed from the fact that the advice in sub-s (a)(i) had to be ‘given to you’ and a public ruling did not have that quality.

30    The resolution of that debate would require a determination of whether ‘ruling’ meant private ruling, public ruling or both. This, in turn, would require a broader examination of the legislative context and drafting history than was undertaken before me. I am not prepared to say that the taxpayers have no reasonable prospects of succeeding on this argument.

31    Fifthly, the Deputy Commissioner submitted that s 361-5 could only apply to the extent that the GIC would relate to a shortfall amount. The expression ‘shortfall amount’ is defined in s 284-80(1) of Schedule 1 to the Taxation Administration Act. It is as follows:

284-80 Shortfall amounts

(1)    You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.

32    It was said that none of the items in the table could apply because all of the assessments in question were default assessments (the taxpayers having not filed returns). I can see no textual basis in the table for that submission which, at the level of s 31A, I reject.

33    During argument, a more refined version of this submission was developed to the effect that there needed to be a ‘statement’ made by the taxpayer before s 361-5 could be engaged. This sprang derivatively from the references in the table to s 284-80(1) to ‘the statement’. It was likely that ‘the statement’ referred to the statements mentioned in s 284-75 (which were contained in the same division). Broadly speaking, that section provided for the imposition of an administrative penalty where a taxpayer made a false or misleading statement to the Commissioner: see ss 284-70 and 284-75. Relevant too in this context is the definition of ‘statement’ in s 284-20:

284 20 Which statements this Division applies to

This Division applies to a statement made orally, in a document or in any other way (including electronically) for a purpose connected with a *taxation law.

34    The Deputy Commissioner’s submission was that, whatever the shortfall amount was, it could not have arisen from a ‘statement’ because the taxpayers had not filed returns.

35    Certainly, there could be no statement contained in returns which ex hypothesi have never been filed. The taxpayers submitted, however, that the meaning of ‘statement’ was informed by s 284-75(4) which is as follows:

284-75 Liability to penalty

…

(4)    You are liable to an administrative penalty if:

(a)    you make a statement to an entity other than:

(i)    the Commissioner; and

(ii)    an entity exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and

(b)    the statement is, or purports to be, one required or permitted by a taxation law (other than the Excise Acts); and

(c)    the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

36    From this the taxpayers argued that there would be a statement for the purposes of s 284-80 if it was contained in a document prepared by a tax agent and forwarded to a person other than the Commissioner if the statement purported to be required by a taxation law. The taxpayers then pointed to a tax form completed by an Australian company in whom one of the taxpayers held shares, indicating that it was paying a dividend to the taxpayer from which withholding tax had been deducted.

37    I am prepared to assume that the taxpayers’ contention that the concept of a statement in the table to s 284-80(1) is informed by s 284-75. But I can see no basis for a conclusion that the statement upon which s 284-80(1) rests may be a statement made by a person other than the taxpayer (or a statement taken to be made by the taxpayer). Every provision imposing a liability to an administrative penalty in Part 4-25 of Schedule 1 does so by reference to statements made by the taxpayer (see, e.g., ss 284-30(a), 284-75(1)(a), 284-75(2)(a) and 284-75(4)(c)) or to persons (such as tax agents or partners) in respect of whose statements it is said the Division applies ‘as if it had been made by you’ (for agents, see s 284-25, for partners, s 284-35(1)). This shows that the Division is concerned with statements either made by a taxpayer or expressly deemed to have been made by a taxpayer. It is true that the table in s 284-80 refers only to statements without observing who the statements are made by but this is because it operates on a concept (‘statements’) explicated elsewhere in Part 4-25.

38    This reading of Part 4-25 is consistent with s 284-70 which tells one that :

284-70 What this Subdivision is about

39    If s 284-80 applies to statements not made by taxpayers (or deemed by Part 4-25 to be made by them) then this is not an accurate statement of the Part’s operation.

40    I do not think, in those circumstances, that it is reasonably arguable that Part 4-25 applies to statements made by persons other than taxpayers or those statements deemed by Part 4-25 to have been made by taxpayers.

41    This matters because the documents put forward by the taxpayers as containing the statements were not made by the taxpayers, or their tax agents or their partners. They were made, instead, by companies in which the taxpayers held shares. Such statements cannot reasonably be argued to be the kind of statements referred to in the table to s 284-80.

42    That being so, there can be no reasonable argument, either, that there is a shortfall amount for the purposes of s 284-80 or that s 361-5(1), which requires such an amount to exist, is engaged.

43    That means that I do not accept that the taxpayers have any reasonable prospects of defending the Deputy Commissioner’s claim on the basis of s 361-5.

44    It is unnecessary to deal with the Deputy Commissioner’s other two objections to s 361-5. However, it is difficult to see how s 361-5(1) could be engaged prior to 1 January 2006 (when it commenced) so that the years in dispute prior to that time appear to be unaffected by s 361(5)(1) (the taxpayers accepted this to be so in writing). The same may be said of those assessments predating TR 2004/15.

45    In those circumstances, I conclude that:

(a)    item 4 does apply;

(b)    s 361-5(1) does not confer a defence on the taxpayers; and

(c)    that the contrary propositions are not reasonably arguable.

46    In that circumstance, the Deputy Commissioner is entitled to the summary judgments for GIC which he seeks.

47    Against that eventuality, the taxpayers submitted that any such judgment should be stayed. The basis of this application was that they had, on 16 March 2012, applied by letter for a remission of the GIC. The GIC may be remitted by the Deputy Commissioner under s 8AAG of the Taxation Administration Act. As at the time of the hearing, no decision has been reached by the Deputy Commissioner as to whether that application should be granted.

48    If the application is successful, the GIC the subject of this application will cease to be due. The judgment for the GIC which I have indicated above should be given is, for reasons I gave in my earlier judgment at [18]-[19], interlocutory and susceptible to recall under r 39.05(c). If the Commissioner ultimately decides to remit the GIC, then this will provide a good reason to set it aside. The question which arises is whether execution on that judgment should now be stayed until such time as the Commissioner has determined the remission application. The answer to that question is informed by the fact that, unlike an assessment of tax, the levying of GIC is not a ‘taxation decision’ against which an objection may be lodged, with the consequence that there is no equivalent to s 14ZZM of the Taxation Administration Act (‘The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending’).

49    Unlike the situation obtaining when a stay is sought of a judgment based on a notice of assessment for tax, the Court is not commanded to ignore the fact of a remission application under s 8AAG. Despite that, it is obvious that the remission application itself affords no defence to the claim for GIC for, whilst the GIC remains unremitted, it remains due and payable. But it remains, in my opinion, a highly relevant matter when considering whether the ensuing judgment should be stayed.

50    It would, I think, be quite unjust to permit the Deputy Commissioner to levy execution on the GIC judgment even whilst he is considering whether the GIC ought to be remitted under s 8AAG. The evidence is that the application was made nine months ago. I have not been informed why it has not been determined in that period. A stay is appropriate. I might be prepared to take a different view if I regarded the application for remission as hopeless, but it was not submitted to me that I should approach the matter that way. In those circumstances, whilst the Deputy Commissioner is entitled to judgments for the amounts of GIC, those judgments should be stayed until the Deputy Commissioner determines the remission application made on 16 March 2012.

(b) The Charging Orders

51    I turn then to the question of the charging orders. The Deputy Commissioner sought such orders only in relation to Derrin Brothers Properties Ltd. The judgment sum against Derrin was, as at 18 December 2012, $3,056,174.21. Rule 41.10 provides:

41.10 Execution generally

(1)     A party may apply to the Court to issue a writ, order or any other means of enforcement of a judgment or order that can be issued or taken in the Supreme Court of the State or Territory in which the judgment or order has been made, as if it were a judgment or order of that Supreme Court.

(2)     An order made under subrule (1) authorises the Sheriff, when executing the orders of the Court, to act in the same manner as a similar officer of the Supreme Court of the State or Territory in which the order is being executed is entitled to act.

(3)     A party who wants to enforce an order in more than one State or Territory may adopt the procedures and forms of process of the Supreme Court of the State or Territory in which the judgment or order has been made.

Note It is not necessary to adopt different modes of procedure and forms of process in each State or Territory.

52    Because the judgment of Kenny J was given in Victoria, sub-r (1) directs attention to the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and, in particular, r 73.02, which provides:

73.02 Order charging securities

For the purpose of securing the payment of a judgment debt the Court may by order impose a charge on the beneficial interest of the judgment debtor in any securities.

53    Rule 73.04 provides:

73.04 Evidence on application for charging summons

(1)     An application for an order under Rule 73.03(1) shall be supported by an affidavit—

(a)     stating that the judgment is unsatisfied, either wholly or to a stated extent;

(b)     identifying the securities in respect of which the order is sought and stating in whose name they stand; and

(c)     stating that the judgment debtor has a beneficial interest in the securities and describing that interest.

(2)     An affidavit under this Rule may contain statements of fact based on information and belief if the grounds are set out.

54    The charging summonses identify the securities (as required by r 73.05) and were served (as required by r 73.03). There is no dispute that Derrin is the beneficial owner of the securities. I am satisfied that the charging order should be made. I am also satisfied both that I have the power to appoint a receiver to give effect to the charging order and that that power should be exercised.

55    It was for those reasons that I made the orders sought by the Deputy Commissioner on 18 December 2012. Two further matters should be noted. First, those orders are to be stayed pending the Full Court’s judgment on the taxpayers’ appeal against my refusal to stay the judgment in question; secondly, there is an extant application by Cellnet Group Ltd and Cyclopharm Ltd (two of the companies whose securities are involved) opposing the making of the charging orders. There was no appearance by them on 18 December 2012 and I have not dealt with their application.

56    I will direct the parties to provide short minutes of order to give effect to these reasons by 1 February 2013.

Associate:

Dated:    21 December 2012