FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) [2013] FCA 494

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) [2013] FCA 494

CORRIGENDUM

1    In paragraph 3 line 7 the citation should read Hua Wang Bank Berhad v Commissioner of Taxation (No 3) [2012] FCA 594 rather than Hua Wang Bank Berhad v Commissioner of Taxation (No 3) [2010] FCA 594.

2    In paragraph 3 line 9 and 10 the citation should read Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10 rather than Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCAFC 28.

Associate:

Dated:    19 June 2013

THE COURT ORDERS THAT:

1.    There be judgment for the Applicant in the sum of $28,617,596.68.

2.    The Respondent pay the Applicant’s costs as taxed or agreed.

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

THE COURT ORDERS THAT:

1.    The Second Respondent’s application for a stay be dismissed.

2.    The Second Respondent pay the Applicant’s costs of the application as taxed or agreed.

3.    The judgment given by Kenny J on 25 November 2010 be stayed until midnight on 31 May 2013.

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

REASONS FOR JUDGMENT

(a) Overview

1    There are two proceedings before the Court: Deputy Commissioner of Taxation v Chemical Trustee Limited (NSD 1407 of 2012) (‘the Chemical Trustee proceeding’) and Deputy Commissioner of Taxation v Chemical Trustee Limited, Derrin Brothers Properties Limited, Bywaters Investments Limited (VID 887 of 2010) (‘the Derrin proceeding’).

Deputy Commissioner of Taxation v Chemical Trustee Limited

2    In the Chemical Trustee proceeding, which was listed for final hearing, the Deputy Commissioner seeks to recover unpaid income tax from Chemical Trustee together with the shortfall interest charge and the general interest charge. The total sum sought at the hearing on 6 May 2013 was $28,617,596.68 which was said to be the sum due on 30 April 2013. There is no debate that if the Deputy Commissioner is entitled to judgment against Chemical Trustee then it is in this sum. The controversy which arises between the Deputy Commissioner and Chemical Trustee is threefold:

(a)    Chemical Trustee says that the Deputy Commissioner has already successfully sued it in relation to most of the income years to which the tax relates in the case of Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297. There the Deputy Commissioner obtained from Kenny J a judgment against Chemical Trustee in the sum of $4,833,259.45. The income years to which that judgment related were 2001, 2002, 2003, 2004, 2006 and 2007. The Deputy Commissioner’s present application seeks further recovery in respect of each of these years apart from 2001 and, in addition, also the years 2005 and 2008 – 2011. The additional tax in respect of which judgment is now sought arises in the 2002 – 2004 and 2006 – 2007 income years because subsequent to the first judgment the Deputy Commissioner issued amended notices of assessment; first on 9 July 2012 and then again on 20 September 2012. Chemical Trustee now submits that the Deputy Commissioner’s rights in respect of those years merged in the first judgment and that it is now entitled to plead the existence of a res judicata in answer to the Deputy Commissioner’s fresh claims for those years. Alternatively, it submits that even if the Deputy Commissioner’s causes of action did not merge in the first judgment, there is an issue estoppel arising from the first judgment on the question of its liability to tax in those years. A final variant of the argument was that the present proceedings, if successful, would result in inconsistent judgments as to its liability to tax in the relevant years and was, therefore, to be seen as a species of abuse of process. For the reasons given below at the paragraphs [5] to [30] I reject each of these arguments.

(b)    Chemical Trustee’s second argument is that for the income years 2001 to 2007 the amended notices of assessment issued on 9 July 2012 and 20 September 2012 are inconsistent. For example, it is said that on 9 July 2012 the Deputy Commissioner had assessed Chemical Trustee’s liability for the 2002 income year as $814,559 but on 20 September 2012 assessed the same year at $6,481,604. It was then submitted that the Deputy Commissioner could not issue multiple inconsistent notices of assessment citing the Full Court’s decision in Commissioner of Taxation (Cth) v Stokes (1996) 72 FCR 160. For the reasons given below at [31] to [38] I reject this argument.

(c)    Chemical Trustee’s third argument is that the assessments issued on 20 September 2012 for the 2005 and 2008 income years purported on their face to assess other income years (2004 and 2007) and that this was impermissible. The Deputy Commissioner submitted that all that was involved was a typographical error. For the reasons given below at [39] to [44] I reject Chemical Trustee’s argument.

Deputy Commissioner of Taxation v Derrin Properties Ltd

3    This case was listed for hearing to determine Derrin’s application for a stay of the judgment originally given against it by Kenny J for $9,723,807.23 on 25 November 2010: Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297. I dismissed that application on 8 June 2012 holding that I was not permitted to assess the merits of Derrin’s Part IVC appeal as this was forbidden by s 14ZZR of the Taxation Administration Act 1953 (Cth) (‘the TAA 1953’): Hua Wang Bank Berhad v Commissioner of Taxation (No 3) [2010] FCA 594 at [30]. On 13 March 2013 the Full Court reversed this conclusion and remanded the application to me for further consideration in light of its reasons: Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCAFC 28. On the fresh hearing, Derrin submitted that it had very good prospects of succeeding in its appeal proceedings and that it would suffer extreme prejudice if the Deputy Commissioner now proceeded to sell a particular parcel of shares under charging orders made by me on 18 December 2012. The Deputy Commissioner submitted that such stays were rarely given, that Derrin’s assessment of the prospects of its appeal were speculative and it was not shown, inter alia, that Derrin could not pay the judgment sum so that the question of whether execution would be levied against its shareholding was entirely a matter for it. For the reasons given below at [46] to [92] I have rejected Derrin’s application for a stay.

4    In proceedings NSD 1407 of 2012 I give judgment in favour of the Deputy Commissioner against Chemical Trustee in the sum of $28,617,596.68 with costs. In VID 887 of 2010 I dismiss Derrin’s application for a stay with costs. I will grant a further stay for seven days to allow for the orderly pursuit of any application for leave to appeal.

(b) Chemical Trustee Proceeding

I. Res Judicata, Issue Estoppel and Abuse of Process

5    On 12 August 2010 the Deputy Commissioner issued notices of assessment of liability to income tax to Chemical Trustee under s 167 of the Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’) for the income years ending 30 June 2001, 30 June 2003, 30 June 2004, 30 June 2006 and 30 June 2007 and a notice of amended assessment for the income year ending 30 June 2002. The assessments included amounts for the general interest charge. At the same time, Chemical Trustee was served with a notice of assessment of administrative penalty. As at 8 November 2010 the total amount of income tax and general interest charge owing by Chemical Trustee to the Commonwealth was $3,132,699.30 and the total amount of the administrative penalty was $1,700,560.15. In all, the Deputy Commissioner claimed to be entitled to $4,833,259.45.

6    On the same day that the various notices were issued, the Deputy Commissioner commenced proceedings in the Victorian Registry of this Court against Chemical Trustee and two other taxpayers (Derrin Brothers Properties and Bywater Investments Limited). Simultaneously he sought, and was successful in obtaining from Jessup J, ex parte freezing orders over the assets of Chemical Trustee (and also those of the other taxpayers). Subsequently, following a contested hearing, he obtained similar orders from Kenny J: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 80 ATR 449; [2010] FCA 1014.

7    On 8 October 2010 the Deputy Commissioner sought summary judgment against each of the taxpayers including Chemical Trustee. For procedural reasons, the Deputy Commissioner’s original proceeding was split into two separate proceedings one of which was against Chemical Trustee. It is that suit which presently constitutes VID 887 of 2010. It proceeded ultimately by way of an amended application in which the Deputy Commissioner sought extensive declaratory relief, freezing orders and judgment.

8    Kenny J heard argument on the summary judgment application on 22 November 2010 and granted the Deputy Commissioner judgment against Chemical Trustee in the sum of $4,833,259.45 on 25 November 2010: Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297. At the time the Deputy Commissioner pursued only his claim for judgment. Because it will be significant later, it should be emphasised that he did not pursue the claim for declaratory relief. Before Kenny J the Deputy Commissioner proved his case through an affidavit of a Mr Aris Zafiriou sworn on 11 October 2010 and through the tender of a certificate dated 8 November 2010 as to the sums owing to the Commonwealth on 9 November 2010. Annexed to Mr Zafiriou’s affidavit were copies of each of the notices of assessment for the income years 2001 – 2004 and 2007 – 2008 together with certificates under the hand of the Deputy Commissioner that each of the notices of assessment for tax and notices of assessment for administrative penalty had been, or was taken to have been, served. Chemical Trustee, through its counsel, informed Kenny J that it had lodged objections to each of the assessments but these had not yet been determined by the Commissioner.

9    Kenny J concluded that she should grant summary judgment. Her Honour did so because all of the notices of assessment were in evidence and because, by virtue of ss 175 and 176 of the ITAA 1936, they were conclusive evidence of their due making and that their amount was correct: see [51] – [54]. Subsequently in Deputy Commissioner of Taxation v Hua Wang Bank (No 3) [2012] FCA 594 I varied the judgment given by Kenny J by excising from it the amount of the general interest charge although this is not material to the issues which presently arise.

10    Chemical Trustee submitted that the principle of res judicata meant that where a litigant, such as the Deputy Commissioner, brought an action against another on a particular cause of action and that action resulted in a judgment, that litigant could not thereafter bring another claim against the same party on the same cause of action. I accept this submission. In such circumstances, as Dixon J explained in Blair v Curran (1939) 62 CLR 464, 532 the cause of action ‘has merged and no longer has an independent existence’. There is some uncertainty as to whether the concept of a cause of action refers to the facts which support a right to judgment, a right which has been infringed or the substance of an action as distinct from its form. I do not find it presently necessary to resolve that debate but the various views are usefully, with respect, collected by Clarke JA in Macquarie Bank Ltd v National Mutual Life Association of Australia (1996) 40 NSWLR 543, 558 – 559. Chemical Trustee submitted that the issue of res judicata was to be determined solely by reference to the pleadings and the judgment citing the reasons of Brennan J in Rogers v The Queen (1994) 181 CLR 251, 263. That passage establishes that the issue is to be considered solely on the basis of ‘the record’ of the trial. The Deputy Commissioner did not submit that I ought to have regard to matters beyond the reasons of Kenny J or the amended application and I proceed on the basis that these constitute the record for present purposes.

11    The sole issue between the parties concerns the identification of the cause of action said to have merged in the first judgment. For Chemical Trustee it was said that the cause of action in each of the relevant years was its liability to tax. Whilst it was true that there were three assessments for each year, there was, in reality, for each year but one liability to tax which was determined not by the issue of a notice of assessment but instead by the application to the actual facts of the statute which levies income tax viz the Income Tax Act 1986 (Cth) (‘ITA 1986’). Chemical Trustee invoked the Full Court’s conclusion in Re Mendonca: Ex parte Commissioner of Taxation (1969) 15 FLR 256 that ‘the liability to income tax is imposed by the statute itself and that assessment is only a method of ascertaining the extent of the liability, so that the tax is a debt due and owing, although not payable, notwithstanding that no assessment has been made’. It followed, so it was submitted, that a proceeding to recover an amount said to represent taxable income for a particular year was necessarily based on the same cause of action as a proceeding for a different amount that was also said by reason of a later amended assessment to represent the taxable income for the same year.

12    One begins with the cause of action relied upon by the Deputy Commissioner. Although the Deputy Commissioner had sought declaratory relief in his originating process, at the hearing before Kenny J he pursued only a claim for judgment for a sum which was fixed. The claim was a common law claim in debt: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473, 494 at [51]. The only source of the debt was item 255-5 of Schedule 1 to the TAA 1953 which provides:

Recovering a tax related liability that is due and payable

(1)    An amount of a *tax related liability that is due and payable:

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

(b)    is payable to the Commissioner.

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

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

13    Some key concepts emerge from this provision. First, as Chemical Trustee correctly submitted, the section is not a grant of jurisdiction. The reference to a court of competent jurisdiction in item 255-5(2) takes as its point of departure a court with jurisdiction to entertain a suit by the Commissioner or Deputy Commissioner on the Commonwealth’s behalf for a debt generated by the operation of a law of the Commonwealth, the TAA 1953. Many courts have such jurisdiction and this Court certainly does by reason of s 39B(1A)(c) of the Judiciary Act 1903 (Cth) (the matter arising under a law of the Commonwealth viz the TAA 1953). Secondly, item 255-5(1) of the TAA 1953 will create a debt due to the Commonwealth only where the antecedent tax related liability is both due and payable. This brings into view s 5-5(2) of the Income Tax Assessment Act 1997 (Cth) (‘the ITAA 1997’) which provides:

The income tax is only due and payable if the Commissioner makes an *assessment of your income tax for the year.

14    It is true that the liability to tax in a taxpayer is imposed directly by the operation of s 5(1)of the ITA 1986 itself: ‘Income tax is imposed in accordance with this Act at the rates declared by the Income Tax Rates Act 1986’; but the effect of s 5-5(2) of the ITAA 1997 is that that liability, whatever else may be said about it, is not one which is payable until a notice of assessment has been issued. It is an inchoate liability.

15    One thing that s 5-5(2) of the ITAA 1997 does not explicitly say is that the tax which is due and, by reason of the existence of a notice of assessment, payable is the amount of the tax stated in the notice as opposed to the tax resulting from the direct operation of the ITA 1986. I do not think, however, it can be read any other way. It would be chaotic for s 5-5(2) of the ITAA 1997 to make due and payable an amount other than that appearing in the notice of assessment. Such reasoning would also sit most uncomfortably, if it could sit at all, with the declaration in s 177(1) of ITAA 1936 that the notice of assessment is, inter alia, conclusive evidence of the amount stated in it. Accordingly the sum made due and payable by s 5-5(2) of the ITAA 1997 is the amount stated in the notice of assessment and not the underlying sum due (but not payable) as a result of the operation of the ITA 1986.

16    Once those matters are appreciated, it will be seen that an action in debt to recover unpaid assessed tax has only one indispensible element and this is the existence of a notice of assessment in the amount of the sum claimed by the Deputy Commissioner. The existence of a notice of assessment makes due and payable an amount of tax (s 5(5) ITAA 1936) and Sch 1 item 255-5 (TAA 1953) makes any such amount recoverable as a debt due to the Commonwealth at the suit of the Deputy Commissioner/Commissioner.

17    At no stage in this process is there any requirement that the Deputy Commissioner aver, still less prove, what a taxpayer’s actual liability to tax is under the ITA 1986. It is true, as Re Mendonca holds, that the liability to tax is generated by the ITA 1986 and not the notice of assessment itself but the liability vindicated in debt recovery proceedings is not the liability to tax generated by the ITA 1986 but the statutory debt created by the TAA 1953 upon the issue and service of a notice of assessment.

18    Chemical Trustee gestured both in its written and oral submissions at the ability of the Commissioner to seek declarations as to a taxpayer’s actual liability to tax without relying upon the issue of a notice of assessment and submitted that this phenomenon showed that the existence of a notice of assessment was not an element in a claim for the recovery of tax.

19    The decisions in ABB Australia Pty Ltd v Federal Commissioner of Taxation (2007) 162 FCR 189 and Deutsche Asia Pacific Finance Inc v Commissioner of Taxation (Cth) (No 2) (2008) 172 FCR 336 are examples where this was done. These cases were concerned with withholding tax but, in principle, it is likely that Chemical Trustee’s point is, at least in one respect, a sound one. There is nothing to prevent the Commissioner from seeking a declaration as to how much income tax is due by a taxpayer before he proceeds to issue a notice of assessment. Because the question of the operation of the ITA 1986 on facts in the real world involves a legal controversy I can see no reason why the Commissioner, if he so chose, could not seek such a declaration. Such a suit would involve a claim arising under a law of the Commonwealth and would be within this Court’s jurisdiction. Two things might be observed about such a claim. The first is that it would give rise to res judicata on the question of how much tax under the ITA 1986 was actually due for that question would be the very subject matter of the suit. The second is that notwithstanding that he might obtain such a declaration, the Commissioner would still be unable to obtain payment of the tax if the taxpayer in the face of the declaration still did not pay. So much must be the case because without a notice of assessment the tax determined to be due would still not be payable, Sch 1 item 255-5 of the TAA 1953 having not been enlivened. The theoretical existence of this interesting suit is unlikely to be of much significance in ordinary litigation but if the Commissioner had sought to go down this path, seduced perhaps by its procedural novelty, it is likely that it would generate a res judicata just as Chemical Trustees submits.

20    The difficulty for Chemical Trustee is that this is neither the claim which the Commissioner pursued against it nor that ultimately vindicated by Kenny J. The question of what needs to be proved to obtain such a declaration has, therefore, no relevance for the actual question is what needs to be proved in an action in debt arising from the issue of a notice of assessment. When the latter is the correct question, as it is, the answer is that the issue of a notice of assessment in the sum claimed is both the necessary and sufficient condition to make the good the claim in debt. The consequence is that the ‘elements’ of the cause of action in the proceedings before Kenny J consisted solely and wholly of the notices of assessments which were before her and did not involve any propositions about the underlying liability of Chemical Trustee to tax (under the ITA 1986 as opposed to its liability to pay a tax debt under the TAA 1953). So too, in the proceedings before me the elements of the claim consist only of the new notices of assessment which have been issued subsequent to the judgment originally granted by Kenny J. The elements of the two cases are, therefore, different and a defence of res judicata cannot succeed.

21    The correctness of this conclusion is reinforced by a consideration of what Chemical Trustee’s argument would entail were it to be correct. If the Deputy Commissioner obtains judgment on a notice of assessment and this creates a res judicata on the underlying tax liability of a taxpayer then this would mean that any further Part IVC review proceedings could not succeed because the judgment would have caused the underlying tax obligations to merge in it. There would no longer be any rights or obligations which could be the subject of the Part IVC proceedings. So viewed, the Commissioner could in every case evade Part IVC review proceedings by the simple expedient of obtaining a summary judgment on a notice of assessment. When I suggested to counsel that one consequence of Chemical Trustee’s res judicata argument was that its Part IVC appeal proceedings – which are listed before me for six weeks starting on 16 September 2013 – might be doomed to fail since the underlying tax obligations merged in the judgment given by Kenny J – counsel’s response was to submit that the rights did not merge for the purposes of a Part IVC appeal.

22    It was submitted that this conclusion was supported by the High Court’s decision in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502. There, it will be recalled, Mr Chamberlain had consented to a judgment for $25,557.92 when the sum claimed on the corresponding notice of assessment which had been issued to him was for $255,579.20. The subsequent attempt to recover the balance was successfully resisted by Mr Chamberlain on the basis of res judicata.

23    In the High Court the Deputy Commissioner had submitted that there could be no merger because the underlying rights could still be varied in administrative proceedings (akin to what is presently Part IVC). At page 511 the Court said this:

But more fundamentally, the respondents sued the appellant on a cause of action for which it received judgment, then, without seeking to have that judgment set aside or otherwise to impute on the grounds it had been entered or obtained by mistake sought to sue again in respect of the same cause of action. A statutory obligation to refund the tax as a consequence of a successful appeal or reference by the taxpayer has nothing to do with the existence and character of the cause of action involved. Nor has it anything to do with the operation of res judicata.

24    I do not think this establishes that the underlying tax rights merge in the judgment except for Part IVC purposes. What it says is that the Part IVC questions have nothing to do with the cause of action pursued on the notice of assessment which is a claim for a debt. To the extent that assistance is derived from this passage, it is against the interests of Chemical Trustee because it suggests a complete bifurcation between questions of underlying tax liability and the subsequent recovery of tax debts arising from the issue of a notice of assessment.

25    I reject Chemical Trustee’s defence based on res judicata.

26    It was against the possibility that its res judicata might fail that Chemical Trustee next sought in its written submissions to rely upon a statement by Fullagar J in Brewer v Brewer (1953) 88 CLR 1, 15 to the effect that a litigant could not seek to have a point decided in his favour which could not be decided in his favour consistently with an earlier judgment. It also pursued in the oral submissions made on its behalf an argument based on Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 that where the subject matter of the second action is so relevant to the subject matter of the prior proceeding that it was unreasonable for it not to have been relied upon in the first proceeding, an estoppel (an Anshun estoppel) will arise precluding the issue being raised in the second proceeding.

27    Neither of these principles assists Chemical Trustee. There is no inconsistency, in the sense discussed in Brewer, between the judgment given by Kenny J and the judgment now sought by the Deputy Commissioner because the rights they vindicate are generated by different notices of assessment. They are different judgments for different debts. The inconsistency would arise if they were judgments as to the underlying liability to tax (as opposed to the liability to pay a tax debt) of Chemical Trustee but this, for reasons I have already given, they are not. Likewise there is nothing unreasonable in the Deputy Commissioner’s failure to claim the sums now sought in the earlier proceeding. Had he sought so to do, his claim would have failed because it would have been contradicted by the conclusive nature of the assessments which he himself had tendered.

28    I reject the defence based on estoppel.

29    In its written submissions, Chemical Trustee identified the abuse of process upon which it relied as the ‘multiple or successive proceedings which cause or are likely to cause improper vexation or oppression’ citing Jeffery and Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75, 92 at [25]. In the course of her address, however, counsel for Chemical Trustee made clear that the abuse of process contended for consisted only of the fact that inconsistency would arise from the two judgments in question. For the reasons I have already given, I do not accept that there will be any such inconsistency. Although I need not resolve the issue, it is likely there is force in the Deputy Commissioner’s observation that an abuse of process claim should be vindicated by an application for a permanent stay of proceedings rather than being asserted as a matter of defence as Chemical Trustee did in the present case. In light of the conclusion I have reached this issues does not arise.

30    In those circumstances, I reject each of the res judicata, Anshun estoppel and abuse of process defences.

II. Inconsistent Assessments

31    Chemical Trustee submitted that the power to issue a notice of assessment could not be exercised by issuing multiple inconsistent notices for such conduct would be an abuse of the power to issue an assessment citing the Full Court’s holding in The Commissioner of Taxation (Cth) v Stokes (1996) 72 FCR 160, 167:

Given the statutory framework outlined it would not likely be assumed that Parliament contemplated that there should be extant at any one time three conflicting and inconsistent assessments of a taxpayers taxable income and the tax payable thereon in a particular income tax year. Section 177(1) of the [ITAA 1936] Act would have a somewhat schizophrenic operation if three inconsistent assessments for one income tax year were tendered in recovery proceedings. The section clearly reinforces the view that the Act contemplated one only assessment for income tax of a tax payer for the year of income operative at any one time.

32    In pursuit of the argument Chemical Trustee then summarised the various notices which had been issued in the following table:

33    It will be observed that there is missing from this table any reference to the original assessments issued on 12 August 2010 (which it has paid). Chemical Trustee was clear that it did not wish to seek to develop any contention in respect of those assessments. I am not sure that the logic of its argument would not lead to all three sets of assessments being invalid but no particular point was taken by the Deputy Commissioner about this and I pursue that matter no further.

34    The argument is, in my opinion, of no merit when attention is directed to the actual terms of the notices upon which reliance is placed. Since the issue is the same in respect of the years in the table, attention may be confined for present purposes to the income year ending 30 June 2003 which may serve as an example for each of the other years. In respect of that income year, the Deputy Commissioner first issued a notice of assessment on 12 August 2010. The relevant portions of it were as follows:

Notice of Assessment

For the year ending 30 June 2003 (or substituted accounting period)

35    On 9 July 2012 the Deputy Commissioner issued an amended notice of assessment for the same year. Its relevant parts were in these terms:

Notice of Amended Assessment

Year ended 30 June 2003

We have reviewed some of the information reported in your income tax return for the period 30 June 2003 and have amended your assessment for that period.

Description

Your previous income was $553,912

Your amended taxable income is $567,427

36    On 20 September 2012 a further amended assessment was issued in these terms:

Notice of Amended Assessment

Year ended 30 June 2003

We have reviewed some of the information reported in your income tax return for the period 30 June 2003 and have amended your assessment for that period.

Description

Your previous income was $567,427

Your amended taxable income is $2,748,388

37    Contrary to Chemical Trustee’s submissions, there is no inconsistency between these assessments. Chemical Trustee is not required to pay different amounts; rather, it is required to pay the extra tax arising from the amendments. This is what is contemplated by s 5-5(7) of the ITAA 1997 which provides:

If the Commissioner amends your *assessment, any extra income tax resulting from the amendment is due and payable twenty one days after the day on which the Commissioner gives you notice of the amended assessment.

38    Far from being inconsistent, the three sets of assessments are harmonious, setting out what has occurred already, amending the assessable income and levying tax precisely in accordance with the terms of s 5-5(7). I reject the argument.

III. Ambiguous Notices of Assessments

39    Chemical Trustee then submitted that two of the amended assessments were contradictory on their face. These were the notices of amended assessment dated 20 September 2012 for the income years ending 30 June 2008 and 30 June 2005. The point in relation to both is the same and I will confine my attention to the 2005 income year. The relevant part of the notice is as follows:

Notice of Amended Assessment - year ended 30 June 2005

Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997

We have reviewed some of the information reported in your income tax return for the period ending 30 June 2004 and have amended your assessment for that period.

Description

Your previous taxable income was $0

Your amended taxable income is $5,048,419

(emphasis added)

40    The difficulty is the inconsistency between the underlined words in the principal heading which suggests the assessment of the 2005 year and the underlined words in the next paragraph which suggest that it is the 2004 years which was being assessed. I am prepared to accept for present purposes that if the Deputy Commissioner had in fact assessed Chemical Trustee’s liability to tax for the 2004 year and then issued a notice of assessment for that amount for the 2005 year then there may well be a problem. However, for the reasons which follow this is not what occurred. The amended notice of assessment for the 2004 year issued on 20 September 2012 is as follows:

Notice of Amended Assessment – year ended 30 June 2004

Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997

We have reviewed some of the information reported in your income tax return for the period ending 30 June 2004 and have amended your assessment for that period.

Description

Your previous taxable income was $289,229

Your amended taxable income is $4,693,971

41    These two notices are, if Chemical Trustee’s argument be correct, inconsistent. The impugned notice suggests (if it really is an assessment for the 2004 year) that the previous assessment for that year was $0. Yet the amended notice for that year issued on the same day puts the previous liability at $289,229. In a vacuum one might wonder which was correct and what the previously assessed income for the 2004 year was. But the question does not arise in a vacuum for that previous assessment is available in the form of the amended notice of assessment for the 2004 year dated 9 July 2012. Resort to it shows that the income previously assessed for the 2004 year was $289,229. From that one may deduce that what was assessed in the 2005 year on 20 September 2012 could not have been the income for the 2004 year for the previous income is incorrectly stated if that were the case.

42    I infer from those matters that the reference to the income year 30 June 2004 in the notice of amended assessment for the 2005 year dated 20 September 2012 is erroneous and that what was in fact assessed was Chemical Trustee’s taxable income for the 2005 income year. Consequently, this is not a case where the Deputy Commissioner has assessed the wrong year’s income. Rather it is a case of the Deputy Commissioner committing a typographical error.

43    Counsel for Chemical Trustee, sought to persuade me that the notice might be vitiated nevertheless because it was confusing. I was taken to no authority to support the proposition that a notice of assessment was invalid because it was confusing. General analogy was drawn by counsel with position of confusing penal notices. I do not think this notice was confusing to a taxpayer who had also received the amended notice of assessment for the 2004 year. Read as a whole the assessment relates to the 2005 year. This is explicit in the larger heading which refers to the correct year and also to the box on the top right hand corner of the assessment which plainly indicates that it relates to the 2005 income year. I do not think that a misstatement of the year in a subordinate part of the notice gives rise to a problem particularly to a taxpayer who has all the other notices. Even if that were not so, I would not accept that principles applying to notices such as those issued under s 264 of the ITAA 1936 have any particular application here. There was no ambiguity in what the notice required the taxpayer to do – it stated quite correctly that Chemical Trustee’s gross liability to tax was $1,514,525,70.

44    I reject the attack on the 2005 notice dated 20 September 2012. I reject for similar reasons the attack on the 2008 notice.

IV. Conclusions on Deputy Commissioner’s claims for judgment

45    The Deputy Commissioner’s claim against Chemical Trustee is based on amended notices of assessment dated 9 July 2012 and 30 September 2012 for the income years 2001-2011. Each of Chemical Trustee’s defences to these claims has failed. I am satisfied that the Deputy Commissioner has issued the notices of amended assessment upon which he relies and also of their conclusive nature, at least in relation to the quantum of income tax. Mr Zafiriou has given evidence as to the amount of the general interest charge which is payable, which I accept, together with the quantum of the administrative penalties now said to be due. He has annexed to his affidavit a certificate signed by a Deputy Commissioner that the total tax related debt due on 30 April 2013 was $28,617,596.68. That certificate constitutes prima facie evidence of the matters which it contains and I therefore accept the Deputy Commissioner’s contention that the amount which was owing on 30 April 2013 is in that sum: cf Sch 1 item 255-45 of the TAA 1953. In any event, it was not in dispute that if Chemical Trustee’s defences were to fail this was the correct figure. It is for those reasons that I gave the judgment with costs that I did above at [4].

(c) Derrin Proceeding

46    The judgment which Derrin seeks to stay was given by Kenny J on 25 November 2010 and varied by me by the excision of the amount of the general interest charge on 8 June 2012. Derrin sought a stay from Kenny J but that was rejected. At the time of that application there were no Part IVC proceedings on foot because the Commissioner had not yet resolved the objections which had been lodged by Derrin. Subsequently the Commissioner rejected Derrin’s objections after which it then commenced Part IVC appeal proceedings in this Court and sought, at the same time, a stay of the judgment given by Kenny J. On 8 June 2102 I rejected that application: Deputy Commissioner of Taxation v Hua Wang Bank (No 3) [2012] FCA 594. In the course of doing so I declined to assess the merits of Derrin’s Part IVC appeal proceedings holding instead that this was forbidden by the language of s 14ZZR of the TAA 1953 (‘The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or effect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending’). I reasoned that I could not assess the merits of a proceeding whose existence I was bound to ignore. On 12 February 2013 the Full Court concluded this was an incorrect understanding of the operation of s 14ZZR and remanded the matter to me for further consideration: Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10.

47    I respectfully record my disagreement with the Full Court’s reasoning which does not, so far as I can see, explain how one can assess the merits of something which one is required to assume does not exist.

48    In any event, I am bound to implement the Full Court’s reasoning. At [77] the Full Court set out its summary of the principles to be applied:

(a)    the power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances;

(b)    great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a Part IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of Part IVC proceedings;

(c)    the merits of pending Part IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation;

(d)    in cases where a judge is unable to form even a tentative view of the strength of Part IVC proceedings, it is unlikely that the judge’s discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer’s prospects of success in having the assessment overturned;

(e)    it is too narrow a view of the discretion to grant a stay of proceedings or execution merely because Part IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the Court;

(f)    that is not to say, however, that the outcome of Part IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high;

(g)    in cases where the Court considers that it is in a position to assess the merits of pending Part IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case;

(h)    similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point;

(i)    due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that:

(i)    the mere obligation to pay income tax of itself does not impose extreme hardship; and

(ii)    the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant Part IVC proceedings;

(j)    irrespective of the merits of pending Part IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and

(k)    other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of Part IVC proceedings.

49    Derrin’s argument is that:

(a)    the strength of its Part IVC proceedings are such that, by themselves, they justify the grant of a stay;

(b)    alternatively those merits in combination with some or all of the following justify the same conclusion;

(c)    the Deputy Commissioner has the benefit of freezing orders over Derrin’s assets;

(d)    the judgment in question is a summary judgment;

(e)    Derrin will suffer economic prejudice in the event that the shares are sold in the sense that because the shares in question are reasonably illiquid it is unlikely to be able to reconstruct the same shareholding if the money be refunded on the successful determination of the Part IVC proceedings; and

(f)    execution is being sought contrary to the Commissioner’s own written policy regarding debt collection.

50    I deal with these in turn.

51    The first question to be determined is whether I should assess the merits of Derrin’s Part IVC appeal. According to [77](c) of the Full Court’s judgment in Southgate Investment Funds Limited I should not embark on that course unless I have sufficient material to do so and in that regard I should avoid speculation.

52    Derrrin’s case in the Part IVC appeal is to be heard by me in September this year and relates to profits made on the sale of certain shares. It contends that at all material times it was not an Australian tax resident. To the extent that the profits on the sales of shares were on revenue account it calls in aid of certain double taxation treaties (to which I return below). Its principal position, however, is that the profits were on capital account and that, as a non-resident, it is therefore entitled to the exemption from capital gains tax provided for by Division 855 of the ITAA 1997 (previously Division 136).

53    In either case, at the heart of both defences is the proposition that Derrin was not an Australian tax resident.

54    Derrin has filed a considerable amount of evidence in the Part IVC appeals to make good this proposition. The evidence suggests that Derrin is incorporated in the United Kingdom but that it is administered from Neuchatel in Switzerland. It has two directors, Mr Peter Borgas and his wife, Ms Winny Borgas. Evidence will be led from Mr Borgas that although born in Rockhampton in Queensland he has had a long career as an attorney in the United Kingdom, Belgium and Hong Kong. In 1985 he, Ms Borgas and their son migrated to Neuchatel, he having accepted an offer from several business colleagues to establish a corporate services provider known as the FM Trust SA (‘FM Trust’). Its business was the conducting of the affairs of other companies or legal entities in accordance with the instructions of clients. In his affidavit he says ‘the service that we offered was the set-up of companies and other entities, and the provision of individuals to act as directors of these companies, or as trustees. A company or trust was administered by FM Trust would be run by us in accordance with recommendations of the relevant external client…’ Mr Borgas left this business in 1988 to set up his own firm providing corporate services called Anglore SARL (‘Anglore’). Anglores’s corporate services are similar to those of the FM Trust. Although others perform administrative work for Anglore and, in particular, Ms Borgas, Mr Borgas says that it is he alone who conducts the substantive business of Anglore. Anglore administers the affairs of about 140 separate entities. Usually Anglore, or Mr Borgas or a nominee entity, become the shareholder in the client company often enough under the terms of a management agreement. Usually both Mr Borgas and Ms Borgas become directors of the client entity.

55    Mr Borgas will give evidence that he also conducts business as an investor on his own account through a number of entities including Derrin and makes contributions to religious and charitable organisations. He regards these entities as his personal property. He is not a direct shareholder in Derrin. He is instead the sole shareholder in JA Investments Limited and MH Investments Limited both of which are incorporated in the Cayman Islands. His evidence is that he is the beneficial owner of those shares. Derrin itself is not owned directly by these two entities. Instead its shareholders are GuardHeath Securities Limited and Lord Hall Securities Limited but they have both executed documentation which suggest that they are bare nominees for J A Investments and M H Investments. GuardHeath Securities Limited and Lord Hall Securities Limited are service entities maintained by a London firm of accountants, Lubbock Fine.

56    Although the business of Derrin is Mr Borgas’ personal business and separate from Anglore’s business of administering companies for various clients, Mr Borgas conducts his personal business including that of Derrin from Anglore’s office in Neuchatel.

57    Mr Borgas will say that he acquired an interest in investing in Australian shares through work he did for the FM Trust which brought him into contact with Elders Finance Limited and that he thereafter began investing in Australian shares in the early 1980s; also that Derrin takes long term positions in the Australian shares in which it invests. He will give evidence that he makes decisions on which shares on the ASX for Derrin to buy and on the basis of discussions with Australian advisors about the merits of the stocks in question.

58    He will say that he actually gives verbal instructions to his brokers on what to buy followed, often enough, by a written confirmation. If he places an order outside of business hours he might, so he says, just send an instructional fax. He is very clear that the decisions to invest made by Derrin are his, and his alone, and he denies that there was any arrangement with a third party about what to do (as there might be if Derrin were part of the business, for example, of Anglore).

59    His evidence will be that he dealt with only a small number of people in relation to the affairs of Derrin: some stockbrokers (Messrs Codd, Saba and Gibbs), an accountant at Lubbock Fine, an investor Mr Hasmukh Vara who was responsible for the mechanics of payment and receipt of proceeds on behalf of Derrin, an investment advisor in Malaysia, Mr Yunus, Mr Vanda Gould and Mr John Leaver.

60    Mr Borgas will also give evidence of his relationship with Mr Vanda Gould who he originally met through the business of the FM Trust in the 1980s. Mr Gould, along with Mr Leaver, were involved in the setting up of an Australian company called CVC Limited (‘CVC’) which was floated on the ASX in the 1980s. It is the shares in CVC, I interpolate, which are presently the subject of the Deputy Commissioner’s attempts to levy execution against Derrin. The investment was very successful. Mr Borgas and Mr Gould thereafter have had a successful business relationship and Mr Borgas says that he has come to have a great deal of confidence in Mr Gould’s business acumen. They also, apparently, share a common Christian faith.

61    Mr Gould became Mr Borgas’ principle source of advice on his Australian investments which included advice on what Australian stocks to buy. That advice accounts for the majority of the transactions which are now impugned by the Deputy Commissioner according to Mr Borgas. There are a number of other aspects of the closeness of the relationship between Mr Borgas and Mr Gould to which he will attest to but I need not set them out. The gravamen of the evidence as a whole will be as to the closeness of the relationship, the frequency of their contact and also as to Mr Gould’s role as a trusted advisor to Mr Borgas on his own investment decisions.

62    Evidence will be given by Mr Gould about his dealings with Mr Borgas and the affairs of Derrin. Mr Gould will say that his introduction to Mr Borgas arose through their contact with Lubbock Fine. He will testify that they are personal friends who speak frequently; that since the 1980s they have spoken by phone about business and personal matters at least once a fortnight; that their friendship is sufficiently close that they exchange gifts; and that Mr Gould and Mr Borgas usually catch up annually during Mr Gould’s business trips to Europe.

63    Mr Gould gives Mr Borgas investment advice across a range of topics including stock selection and investment proposals available through CVC. Generally Mr Borgas is not looking for dividend yield but instead capital growth. A lot of the advice proffered to Mr Borgas by Mr Gould had its source with CVC and, in particular, with CVC investment advisors.

64    Mr Gould will give detailed evidence of the kind of advice he has proffered to Mr Gould. I will not set it all out. It suffices to say that it details a close relationship between the two gentlemen but one in which it is clearly Mr Borgas who is making the decisions and Mr Gould who is proffering the advice.

65    Evidence will also be called from Mr Leaver. Mr Leaver was instrumental in setting up CVC with Mr Gould. Both he and Mr Gould are directors of CVC. He will say that he speaks to Mr Gould everyday at CVC’s offices which are on the same floor as Mr Gould’s firm of accountants Gould Ralph (both in the Suncorp Tower in Sydney). He knows Mr Borgas and has spoken with him on a semi-infrequent basis. He will say that he proposed to Mr Gould that Derrin might be involved in a joint venture with CVC and that Mr Gould said that he would speak to Mr Borgas about it. The proposal involved Derrin investing in CVC (and another entity called Sunland), Mr Leaver guaranteeing the success of the investment backed by a personal guarantee and Derrin agreeing, in return, to pay Mr Leaver 50% of any of the profit it made. Derrin proceeded with the investment. Under the arrangement Derrin was entitled to invoice Mr Leaver for commission and in due course it did so.

66    Mr Vara, the accountant at Lubbock Fine, will be called about his dealings with Mr Borgas. He will say that he spoke with Mr Borgas three or four times per week and sometimes daily to receive instructions from him to perform transactions on behalf of Derrin. Mr Shah, from the same firm, will be called to attest to the long relationship between Mr Borgas and the firm. Although he did speak with Mr Borgas on some occasions he does not recall the terms of any of those discussions.

67    A Mr Yunus is also to be called. He is the group managing director of the Normandy Malaysia Group of companies (‘Normandy Malaysia’). Normandy Malaysia is an investment management and corporate advisory services provider. It operates from Malaysia and, Mr Yunus will say, manages Derrin’s investments in the Asia Pacific Region. He deposes to dealings with Mr Borgas about investments for Derrin in which has proffered advice to Mr Borgas and then received immediate instructions in relation to that advice. He will say that he has also had dealings with Mr Gould in relation to the affairs of Derrin and that Mr Borgas has made it clear to him that Mr Gould has a particular responsibility for Derrin and its investments in the Asia Pacific region. He will also say that he acts on the instructions of Mr Borgas and that that his dealings with Mr Gould are consistent with the latter having a subordinate role. He has proceeded on the assumption that Mr Borgas is the person who speaks for Derrin.

68    A broker, Mr Codd, is also to be called and he will say that he was introduced to Mr Borgas by Mr Gould around 2001. Mr Borgas would ring to discuss investments of, inter alia, Derrin. He will say that on most occasions Mr Borgas would seek advice from him and ask questions. He would often then place an order on the spot in light of the advice. Sometimes, but not that often, he would receive only written instructions.

69    There will be tendered business correspondence between Mr Borgas, Mr Codd, other brokers and Normandy Malaysia which will be directed presumably to the end of showing that the source of the instructions for those firms was Mr Borgas.

70    Evidence will also be called from a Mr Watson. He gives evidence of Mr Borgas’ dealing in relation to another entity, Chemical Trustee. He does not depose to any dealings with Derrin. On the assumption that the debate which concerns Chemical Trustee will be largely the same as that which concerns Derrin, the evidence is arguably relevant because it goes to the nature of Mr Borgas’ operations in Neuchatel. In substance, Mr Watson will give evidence that following an introduction by Mr Gould, Mr Borgas provided funds to a charity conducted by Mr Watson.

71    Expert evidence will be adduced from Dr Simonek of Zurich on the content of Swiss domestic tax law and on the operation of two double taxation treaties being the 1977 treaty between Switzerland and the United Kingdom (Convention between the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation with respect to Taxes on Income, signed 8 December 1977 (entered into force 8 December 1977)) and the corresponding treaty between Switzerland and Australia (Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income, and Protocol, signed 28 February 1980, [1981] ATS 5 (entered into force 13 February 1981). On the assumption that it was Mr Borgas who was making all the decisions for Derrin she will say Derrin is a Swiss resident for the purposes of Swiss tax law and also under the two double taxation treaties.

72    Finally, witnesses will be called to prove that the profits made by Derrin on its share trading activities on the ASX were on capital rather than revenue account. These witnesses will be Dr Lepone, Mr Bryant, Mr Codd and another broker Mr Gibb.

73    I turn then to the material placed before me by the Deputy Commissioner. Ms Whan, one of the solicitors for the Deputy Commissioner, gave evidence as to the manner in which the Deputy Commissioner will approach the trial. The Deputy Commissioner proposes to contend that Mr Borgas has only ever acted in a nominee capacity on the instructions of Mr Gould and Mr Leaver. He will say that at all times Mr Gould and Mr Leaver did so through a complex web of structures which were designed deliberately to conceal the fact of their control. The Deputy Commissioner’s position has been arrived at, according to Ms Whan: by a detailed analysis of the corporate structures, directorships and arrangements between Derrin and companies associated with Mr Gould and Mr Leaver; by a detailed analysis of flows of funds between Derrin and companies associated with, or in someway connected to, Mr Gould and Mr Leaver; and with eleven folders of documents obtained by the Deputy Commissioner relevant to the control question insofar as Derrin and Mr Borgas are concerned (although I was spared the eleven folders on the occasion of the present application). There will also be called a Mr John Temple-Cole who will give evidence about the structures involving Mr Gould and Mr Leaver and also the flow of funds. Mr Temple-Cole’s report was not before me.

74    Insofar as the lay witnesses foreshadowed by Derrin to be called were concerned, Ms Whan said that the credibility of each would be directly challenged but she said it was not possible at this stage for the Deputy Commissioner to foreshadow how this would be done until the oral evidence was itself completed.

75    In response to the report of Dr Simonek, the Deputy Commissioner will call Professor Dr Oberson of Geneva. He says a number of things about the principle of effective management for the purposes of Swiss law and the double taxation treaties (to which I return below) and largely agrees with Dr Simonek’s description of them.

76    Thus is the material which is proposed to be called at the trial (put in reasonably short compass).

77    I turn then to the relevant principles starting with Swiss law. Two concepts are in play: residency under Swiss domestic tax law and residency under the two tax treaties (both of which are modelled largely on the OECD double taxation law). So far as Swiss law is concerned, Dr Simonek says (and Professor Dr Oberson agrees) that an entity will be resident for Swiss tax purposes if it has its place of effective management in Switzerland: Articles 50 and 52(1) of the Federal Income Tax Act (Switzerland) of 14 December 1990, entered into force on 1 January 1990 (‘FITA’); Article 20(1) Federal Taxation Harmonisation Act (Switzerland) of 14 December 1990, entered into force on 1 January 1993 (‘FTHA’). Both agree that at the federal level in Switzerland (which is the relevant level) the place of effective management ‘is considered to be located where the affairs of the company are carried on and where important company decisions are taken’; they also agree that there is a different test at the inter-cantonal level, however, I did not understand that the inter-cantonal approach to be relevant to Article 50 FITA or Article 20 FTHA (and certainly this was not suggested to me).

78    So far as the federal test is concerned, both agree that the location where a company’s supreme bodies have their activities is not a determining factor : Dr Simonek says that ‘it is not of relevance per se where the meetings of board members or the meetings of the general assembly take place’. They agree that ‘the concrete circumstances of the case must be taken into consideration’.

79    Insofar as the operation of the two treaties are concerned both are, again, in agreement. A company will be entitled to the benefit of the tax treaties if it is liable to Swiss tax and this will be so if its place of effective management is, as a matter of Swiss law, in Switzerland. The application of those treaties therefore turns on the outcome of the operation of the domestic law which I have set out above.

80    In Australia, the relevant principles appear in Esquire Nominees Limited as Trustee of Manolas Trust v Federal Commissioner of Taxation (Cth) (1973) 129 CLR 177. For the purposes of income tax, a company is resident ‘where its real business is carried on, and its real business is carried on where central management and control actually abides’ (at 189). Importantly, ‘the question where a company is resident is one of fact and degree’ (at 190).

81    Derrin submits that the merits of its Part IVC appeal are overwhelming both under Australian and under Swiss law. It points to the facts in Esquire Nominees and the statement in the reasons of Gibbs J (at 190-191):

But if it be accepted that Messrs Wilson, Bishop, Bowers and Craig told it to do in the administration of the various trusts, it does not follow that the control and management of the appellant lay with Messrs Wilson, Bishop, Bowers and Craig. That firm had no power to control the directors of the appellant in the exercise of their powers or the A class shareholders in the exercise of their voting rights. Although it is doubtless true that steps could have been taken to remove the appellant form its position as trustee of one or more of the trust estates, Messrs Wilson, Bishop, Bowers and Craig could not control the appellant in the conduct of its business of a trustee company. The firm had power to exert influence, and perhaps strong influence, on the appellant, but that is all. The directors in fact complied with the wishes of Messrs Wilson, Bishop, Bowers and Craig because they accepted that it was in the interests of the beneficiaries, having regard to the tax position, that they should give effect to the scheme. If, on the other hand, Messrs Wilson, Bishop, Bowers and Craig had instructed the Directors to do something which they considered improper or inadvisable, I do not believe that they would have acted on the instructions. It was apparent that it was intended that the appellant should carry on its business of trustee company on Norfolk Island. It was in my opinion managed and controlled there, nonetheless because the control was exercised in a manner which accorded with the issues of interest in Australia. The appellant was, in my opinion, a resident of Norfolk Island.

82    Derrin says that even assuming, as the Deputy Commissioner contends, that Mr Borgas acted at the direction of Mr Gould and/or Mr Leaver, it would still be bound to prevail on this issue for the situation would then be the same as that rejected by Gibbs J in Esquire Nominees as being sufficient to establish non-residency.

83    I do not accept this submission. As Gibbs J said, it is a question of fact and degree in each case. If the Deputy Commissioner establishes that Mr Borgas was, as it was put it in oral submissions ‘a puppet’ or, at another time during the hearing, that the whole structure was a ‘façade’ then those questions of fact and degree would, in my opinion, arise. Notably, in Esquire Nominees, it was not suggested that the structure was a façade or that the trustee company was a mere puppet. Gibbs J accepted that the trustee company acted in the way that it did because it believed it to be in the interests of the beneficiaries and he also accepted that had the directors of the trustee company been directed to do something that they considered improper they would have declined to have done so. I cannot be clear that if the Deputy Commissioner establishes that the entire arrangement is a façade that that conclusion will necessarily be the same in this case.

84    No separate submissions were put to me that suggested a different outcome if one applied Swiss law to the question. In any event, the references in Dr Simonek’s report to the need to look at the concrete circumstances of the case rather tell in the same direction.

85    Derrin submitted that the Deputy Commissioner had not indicated on what basis the attack on the credit of its various witnesses was going to be launched and that should I proceed on the basis that nothing has been put before me to suggest that Derrin would lose the appeal. Whilst I accept that it is not enough for the Deputy Commissioner in a case such as the present merely to say that it is going to traduce the credit of a taxpayer’s witnesses in a Part IVC appeal, I do not consider that that is what has occurred in this case. The Deputy Commissioner has explained, through Ms Whan, the basis of his suspicions and has obtained the report of Mr Temple-Cole. Although that report was not before me, its existence is sufficient to indicate that the Deputy Commissioner’s position is not frivolous. It is true that I was not taken to the eleven folders of material upon which the Deputy Commissioner proposes to launch his attack, but I do not think that a stay application would provide a convenient forum for that kind of submission. This is particularly so where that would be tantamount to making the Deputy Commissioner run the details of his credit attack on these witnesses in advance of the trial.

86    I conclude therefore that the Deputy Commissioner’s position is substantive and that this is not a case of bald assertion on his part.

87    Once that position is reached, I do not see that I can assess the merits of the case in any meaningful way. I simply do not know how this trial will play out. I accept, as the Deputy Commissioner quite properly accepted, that if I were ultimately to accept the credit of all of Derrin’s witnesses, then it would succeed. Any attempt by me, however, at this stage to work out whether that will be so would be purely speculative.

88    Derrin’s submissions were not only based on the strength of its case, however. It also submitted that it would suffer prejudice in the event that the CVC shares were now sold because CVC on the ASX is an illiquid stock and it would be difficult thereafter to reassemble the parcel of shares if the Part IVC appeal were successful. It did not submit, as it did when I first heard this application last year, that it would suffer financial detriment (the stock market having recovered significantly since the hearing of the first stay application). I do not think the nominated prejudice is a great one, but even assuming it was then there is no evidence before me that Derrin cannot pay the sum now demanded by the Deputy Commissioner. As the Deputy Commissioner pointed out, Derrin can avoid the prejudice it now points to by the simple expedient of paying the amount of the judgment sum. I raised this matter with counsel for Derrin but no submission was made in response to explain why the Deputy Commissioner’s argument was not sound. In those circumstances I find no substantive prejudice if the judgment is enforced.

89    I accept, as counsel for Derrin correctly submitted, that the existence of the freezing orders is a relevant matter. In a sense, the position of the Deputy Commissioner is secured but being secured is not the same as being paid and as the events of last year show, the value of the securities held by Derrin is a fluctuating one given the movements of the stock market. This matter was also said to be relevant because of the Commissioner’s written policy, Practice Statement Law Administration 2011/6 (‘PSLA 2011/6’) in which it was submitted that the Deputy Commissioner accepted that where a debt is disputed then the only reason to seek enforcement is if there is some prejudice to the economic position of the revenue. I was not taken to the terms of PSLA 2011/6 to make good this point, nor was I in fact provided with a copy of it. Having, perhaps impermissibly, located a copy of it I cannot find the passage to which reference is made in the submissions. It appears only to deal with the position of disputed debts in relation to taxation appeals in a section dealing with garnishee orders.

90    Finally, I do not regard the fact that the judgments in question are summary judgments as having any great relevance. Summary judgment is readily available to the Deputy Commissioner because of the debt which is deemed to exist. A summary judgment is a judgment nonetheless. If there were on foot an application to set aside the summary judgment matters might well be different, but I did not apprehend that to be the case.

91    Should then a stay be granted? I think not. The power to grant the stay is to be exercised sparingly giving great weight to the legislative policy embodied in ss 14ZZM and 14ZZR of the TAA 1953 and recognising, at the same time, the asperity with which those provisions can operate. I do not think there is a substantive prejudice to Derrin if judgment is now enforced and I am unable to do anymore than speculate about the merits of the Part IVC appeal. Despite closely considering the material upon which Derrin proposes to rely, I have no present inkling in either direction as to how this litigation is eventually likely to unfold. Although accepting the fact that the Deputy Commissioner is secured by the existence of the freezing orders I do not think that that leads, given the statutory policy inherent in the provisions, to a different outcome. In all of those circumstances, the stay will be refused with costs.

92    In order to allow for the orderly conduct of the proceedings I will stay the judgment given by Kenny J until midnight on 31 May 2013. I will indicate that I would not be disposed to grant leave to appeal were it to be sought.

Associate:

Dated:    23 May 2013