Chemical Trustee Limited v Deputy Commissioner of Taxation

2. Primary Judge's Reasons 3 The facts were not in dispute. The reasons of the primary judge (Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) [2013] FCA 494) record that the respondent, the Deputy Commissioner of Taxation, issued to the appellant on 12 August 2010 notices of assessment of liability to pay income tax, interest and penalties. The 2010 notices of assessment related to the tax years ending 30 June 2001, 30 June 2003, 30 June 2004, 30 June 2006 and 30 June 2007, with a notice of amended assessment for the income year ending 30 June 2002 (at [5]). On the same day the respondent commenced a proceeding in the Victorian Registry of this Court which resulted in the making of freezing orders over the assets of the appellant (at [6]). Thereafter, the respondent sought summary judgment against the appellant, having previously amended its original application to seek what the primary judge described as "extensive declaratory relief, freezing orders and judgment" (at [7]). The application for summary judgment came before Kenny J. As the primary judge put it at [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. 4 In 2012 the respondent issued to the appellant further notices of assessment of liability to pay income tax including notices of assessment for the same years the subject of the 2010 notices apart from 2001, as well as some additional years. 5 The primary judge identified the appellant's arguments based on the 2010 proceeding in these terms at [2(a)]: Chemical Trustee now submits that the Deputy Commissioner's rights in respect of those years [that is, the years common to both the 2010 and 2012 proceedings] 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. 6 Although the primary judge accepted the appellant's description of the principle of res judicata (at [10]), he did not accept that the principle applied in the present case. The primary judge reasoned that: (i) before Kenny J the respondent pursued only a claim for debt (at [12]); (ii) the source of the debt was item 255-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) (the TAA 1953) (at [12]); (iii) item 255-5(1) of the TAA 1953 creates a debt due to the Commonwealth only where the antecedent tax related liability is both due and payable, which brings into play s 5-5(2) of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997) to the effect that "income tax is only due and payable if the Commissioner makes an *assessment of your income tax for the year" (at [13]); (iv) accordingly, what is due and payable by s 5-5(2) of the ITAA 1997 is the amount stated in the notice of assessment and not any "underlying sum" (that is, the income tax imposed by the Income Tax Act 1986 (Cth) (the ITA 1986), which in s 5(1) provides that "Income tax is imposed in accordance with this Act and at the relevant rates declared by the Income Tax Rates Act 1986") (at [14] and [15]); (v) it follows that "an action in debt to recover unpaid assessed tax has only one indispensable element and this is the existence of a notice of assessment in the amount of the sum claimed" (at [16]); and (vi) the elements of the 2010 proceeding (based on the notices issued in 2010) were different from the elements of the 2012 proceeding (based on the notices issued in 2012) and thus no res judicata could arise (at [20]). The error made by the primary judge which the respondent pointed out in oral submissions (that s 5-5(2) of the ITAA 1997 did not apply in the present case) is immaterial given the issues in dispute. 7 The primary judge also concluded that it followed from these circumstances that the appellant's arguments of issue estoppel and abuse of process had to fail. 8 As to issue estoppel, the primary judge said at [27]: There is no inconsistency,… 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. 9 As to abuse of process, the primary judge said at [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. 10 The primary judge dealt with the alleged ambiguity or inconsistency of the notices of assessment at [31] to [44]. Using the three notices relating to the 2003 tax year as an example, the primary judge concluded at [37] that the notices were not inconsistent. Although they identified different tax liabilities, it was plain from the face of the notices that the appellant was not being required to pay different amounts. It was being required to "pay the extra tax arising from the amendments", a circumstance expressly permitted 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 21 days after the day on which the Commissioner gives you notice of the amended assessment. 11 The primary judge also rejected the challenge to two other notices issued in 2012 for the tax years ending 30 June 2005 and 30 June 2008. At [39] to [44], using the notice relating to the 2005 tax year as an example, the primary judge reasoned that the notice was an amended assessment and thus was not issued in a vacuum but in the context of previous assessments which could be considered. When considered, it became apparent the respondent had not assessed the wrong year's income but had committed a typographical error by referring to the wrong year in one part of the notice (at [42]). However, and in any event, read as a whole the assessment relates to the 2005 year and the error in a subordinate part of the notice did not render the notice invalid (at [43]).

3.1 Res judicata, issue estoppel and abuse of process 12 These claims depend on the relationship between the 2012 proceeding and the 2010 proceeding. As the primary judge explained, the essence of the appellant's argument is that the 2010 proceeding necessarily involved a judicial determination of the actual tax liability of the appellant for the tax years ending 30 June 2001, 30 June 2003, 30 June 2004, 30 June 2006 and 30 June 2007, with the consequence that the respondent could not, thereafter, recover additional amounts of tax said to be due and payable for the same tax years on the issue of amended notices of assessment relating to those tax years. 13 The appellant's argument is not supported by the provisions of the statutory scheme or authority. Nor do the appellant's written submissions accurately characterise the primary judge's reasoning. The focus in those submissions on the asserted distinction drawn by the primary judge between the tax liability created by the ITA 1986 and the tax liability created by the issue of a notice of assessment under the TAA 1953 is misplaced. 14 The issues are res judicata, issue estoppel and abuse of process. The required focus of the analysis for the asserted res judicata is the causes of action founding the 2010 proceeding and the 2012 proceeding. The appellant's written submissions do not confront this issue. They do not identify any error in the primary judge's analysis that the 2010 proceeding concerned only the appellant's liability in accordance with the notices of assessment as issued. As such, and as explained by the primary judge at [17], the 2010 proceeding said nothing about the appellant's actual tax liability in the years in question. As the respondent put it: Once that conclusion is accepted, it becomes impossible to say that the actual liability merged in the judgment by reason that the issue has been previously determined. 15 The statutory provisions do not support the appellant. The critical fact in the present case is that the 2010 proceeding was founded on the notices issued in that year. The appellant's submission, that the claim in the 2010 proceeding was a claim for the entirety of the tax liability of the appellant for the years in question, is unpersuasive. It is not supported by the notices of assessment in the 2010 proceeding, given that s 173 of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) contemplates the issue of amended assessments for the same tax years. Nor does the conclusive evidence provision in s 177 of the ITAA 1936 assist the appellant. The provision does not go as far as the appellant would have it or requires to sustain its argument. The notice is conclusive evidence that the amount in and particulars of the notice are correct and nothing more. Section 177 does not say that a notice is conclusive proof that the amount is the entire amount of the tax liability or that the tax liability may never be amended. Nor does the judgment of Kenny J in the 2010 proceeding (Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297), at [8]-[10] and [49] or otherwise, assist the appellant. It is clear from her Honour's reasons that she was dealing with the effect of the notices of assessment and no more. 16 The authorities also do not support the appellant. As explained in the respondent's written submissions: (1) Insofar as Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; [1988] HCA 21 (Chamberlain) is concerned: Paragraph 1 of the appellant's submission overstates the effect of the High Court's decision in Chamberlain. That case holds that a cause of action for payment of income tax due for specified years of income merges in a judgment entered for less than the amount actually due pursuant to certain notices of assessment. Subsequent proceedings are not maintainable for recovery of the balance of the amount due under those same notices. The cause of action in the first proceeding was identified in the following terms (at 508.5): …a debt due to the Crown by the appellant in respect of income tax assessments and additional tax for late payment of the years in question. and in the subsequent proceeding as: a debt due to the Crown in respect of the same assessments and the same additional tax for late payment. (2) Insofar as Batagol v Commissioner of Taxation (1963) 109 CLR 243 (Batagol) is concerned: …Batagol does not support the appellant's case. Batagol says that there cannot be an assessment without completion of "the process by which the provisions of the Act are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case". Batagol says nothing to preclude a conclusion that a taxpayer's actual liability under the ITA 1986 might be different from the amount of stated in an assessment. (3) Insofar as O'Driscoll v Manchester [1915] 3 KB 499 is concerned: …O'Driscoll is not authority for the broad proposition stated [that is, where a statute imposes an obligation to pay, a debt is created prior to the time when the amount becomes 'due and payable']. As appears from [1915] 3 KB 499 at 512, the relevant statute imposed a statutory obligation on the Insurance Committee to pay to certain medical practitioners amounts, the quantum of which was [to] be determined. The Court held that a debt arose, even though it was uncertain in amount until the amount payable was ascertained. In this case, item 255-5 makes a tax related liability that is due and payable a debt due to the Commonwealth. Until the circumstances specified in item 255-5 have arisen, the debt is not recoverable. (4) Insofar as Haller v Ayre [2005] QCA 224; Executor, Trustee & Agency Co of South Australia Limited v Thompson (1919) 27 CLR 162 and Frinty v Landmax Developments [2010] NSWSC 734 are concerned: The cases of Haller, Thompson and Frinty are of no assistance because they address the legal position in the context of a pre-existing debt. Van Amstel v Country Roads Board [1961] VR 780 is equally unhelpful, addressing claims on different causes of action arising from a single breach of contract. 17 The repetition in the appellant's written submissions in reply that the doctrine of res judicata is engaged in the circumstances of the present case and was held by the High Court to be an absolute bar to the second proceeding, fails to recognise the substance of the res. The reasons for judgment of Deane, Toohey and Gaudron JJ disclose that, as the respondent submitted, the res in Chamberlain was (at 505) "income tax assessments for the years ended 30 June 1975 to 1982 inclusive together with additional tax for late payment in respect of each of those years except 1977 or 1978". The consent order entered mistakenly stated the amount due under those assessments. It was these circumstances that caused their Honours to note at 507 that no application had been made to set aside the consent orders on the ground of mistake. The later claim was for the correct amount less the amount already the subject of the first order. The later claim was thus "in respect of the same assessments of income tax and the same amounts of additional tax for late payment as were identified in the earlier proceeding" (at 505). These facts were held to engage the doctrine of res judicata. The cause of action, based on the assessments, had merged with the judgment. Deane, Toohey and Gaudron JJ at 508 said: There can be no doubt that the respondent sued for a debt due to the Crown by the appellant in respect of income tax assessments and additional tax for late payment for the years in question. Equally, there is no doubt that in the second proceeding the respondent sued for a debt due to the Crown in respect of the same assessments and the same additional tax for late payment. Whether one focuses on the facts supporting a right to judgment or on the right impugned or on the substance of the action, the conclusion is inevitable that the cause of action relied upon by the respondent in the second proceeding is that upon which he had earlier relied. 18 The present case is patently different. The assessments are not the same. They are different assessments issued in different years. The assessments relate to the same tax year, but that is all. Contrary to the appellant's submissions, this difference is critical. The observations at 508 of Chamberlain that whether "one focuses on the facts supporting a right to judgment or on the right impugned or on the substance of the action, the conclusion is inevitable that the cause of action…is that upon which he had earlier relied" reflect the unusual facts in Chamberlain. They do not lend support to the appellant's case. Chamberlain at 509 also does not assist because, read in context, it is clear that what the Court found had been "spent" was any capacity to rely on the same notices of assessment which had founded the consent orders. 19 Accordingly, the appellant's contention that the defence of res judicata is "made out in such a case" fails to confront the basic reality of what "such a case" means. If the respondent had again tried to sue on the notices of assessment which had been the subject of the 2010 proceeding, then, no doubt, Chamberlain could be called in aid. But that is not what the 2012 proceeding involves. It follows that the appellant's submission that the "proper course" was for the respondent to seek to set aside the 2010 judgment on the basis of mistake is simply wrong; based, as it is, on an incorrect view of the law. 20 The further repetition in the written submissions in reply that Batagol says that the claims in the 2010 proceeding and the 2012 proceeding are the "same" is also inaccurate. Batagol says nothing of the kind asserted by the appellant. The point of Batagol is that an assessment is only completed by the issue of a notice. 21 To the extent that the appellant attempted to assert error based on a res judicata in respect of the penalty component in both proceedings, the respondent's answer is compelling: The argument…was not agitated before the primary judge however, it is based upon the fallacy addressed above, namely that the first judgment determined the substantive liability of the appellant to income tax for the relevant years. In making the argument, the appellant presumably accepts that the penalties assessed in 2012 are "shortfall penalties" based on the additional tax assessed and are not the same penalties that were the subject of the first judgment. 22 As the respondent also put it in written submissions: …the appellant's argument ignores the "passing nature" of an assessment: cf IRC v Sneath [1932] 2 KB 362, cited in Society of Medical Officers of Health v Hope [1960] AC 551 at 553. In FCT v Hoffnung & Co Ltd (1928) 42 CLR 39 at 55-56, Isaacs J said: Every assessment, of course, contemplates that it may appear thereafter that an alteration or addition is necessary. The power to make an amended assessment is set out in s 170 of the Income Tax Assessment Act 1936 (ITAA 1936). By s 173 ITAA 1936, unless otherwise indicated an amended assessment shall be an assessment for all purposes of the ITAA 1936. The corollary of the appellant's argument is that the power to issue amended assessments, including in cases of fraud or evasion without any time limitation, is useless if the Commissioner has obtained a judgment on an assessment for a particular income year. 23 The appellant's contentions also failed to confront the difficulties its case, if accepted, would create for Pt IVC appeals. The exclusion of Pt IVC appeals from s 177(1) of the ITAA 1936 is not an answer. The point the primary judge made at [21] as follows remains good: 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. 24 For these reasons the assertions of error in the primary judge's conclusion that the 2010 proceeding could not preclude the 2012 proceeding by reason of the doctrine of res judicata cannot be accepted. The same circumstances undermine the arguments based on issue estoppel and abuse of process. 25 As to issue estoppel, the appellant's written submissions again mischaracterise the primary judge's conclusions as being based on different causes of action. His Honour's conclusion that there was no inconsistency between the two proceedings, however, was because "the rights they vindicate are generated by different notices of assessment. They are different judgments for different debts" (at [27]). The error asserted, based on an incorrect focus on causes of action, does not exist. The appellant's further response is based on the erroneous proposition that there is a "necessary implication" in each proceeding "about the taxable income and liability of the appellant". The proposition is erroneous for the reasons the primary judge gave at [17]. The only "necessary implication" in a proceeding to recover a debt for a tax liability based on a notice of assessment is the issue of the notice of assessment claiming an amount of tax due. Once this is accepted, it is plain that the appellant's contentions about inconsistency must fail. There is no inconsistency. There is simply recovery of additional tax for the relevant tax years based on the issue of amended notices of assessment. 26 Nor can the appellant now be heard to complain about the primary judge's approach to Anshun estoppel (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589). Adopting the respondent's answer: …there is no factual basis for the contention that the additional tax recovered in the second proceedings should have formed part of the first proceedings. For example, there is no finding that facts relating to the liability were disclosed by the appellant to the respondent prior to the first judgment. 27 The abuse of process claim also must fail. The appellant submitted: It is submitted that the 2012 proceeding was a paradigm case of what was described in Walton v Gardiner ((1993) 177 CLR 378; [1993] HCA 77) and Spassked ([2007] FCAFC 205). The situation was not only one in which the respondent sought to raise the same basic matters for a second time, but also sought to freeze the appellant's assets for a second time, with the consequence that the appellant was denied its ordinary right to conduct business and deal with its assets over a period of almost three years (viz: August 2010-May 2013). If the court holds that the 2012 proceeding were not blocked by res judicata or issue estoppel this does not derogate from the fact that the 2012 proceedings were unjustifiably vexatious and oppressive. 28 However, and as the respondent submitted: What might make proceedings "unjustifiably vexatious and oppressive" is an attempt to re-litigate a case that has already been disposed of in prior proceedings: Walton v Gardiner (1993) 177 CLR 378 at 393. That is not what has happened in this case. 29 The appellant's written submissions in reply asserted that the primary judge's analysis of the alleged abuse of process was "highly formalistic" and failed to "engage with a doctrine that is intended to operate as a supplement to res judicata and issue estoppel, on different grounds". The submissions continued as follows: The Full Court decision in Spassked Pty Ltd v Commissioner of Taxation [2007] FCAFC 205 (per Edmonds J at [48]-[49], Spender and Dowsett JJ agreeing) indicates that if a second court proceeding is based on the same tax periods as an earlier proceeding, as well as an issue that must be re-determined on a year-by-year basis, the second proceeding will be amenable to a demurrer based on abuse of process. The 2012 proceeding was such a case. It involved taxable income, which is something that must be re-determined on an annual basis. It also involved income years for which taxable income had already been considered. 30 Spassked Pty Ltd v Federal Commissioner of Taxation (No 2) (2007) 165 FCR 484; [2007] FCAFC 205 does not support this generalised proposition. To the contrary, Spassked shows that close analysis of the facts of each case is required rather than sweeping generalisations of principle. The Full Court determined that there was no abuse of process because "the temporal period during or over which this issue was determined in the earlier proceedings for the 1992 year of income was different from the period or periods during or over which the same issue is to be determined in the current proceedings for the 1991, 1993 and 1994 years of income" (at [49]). The appellant's submission converts a negative conclusion into a positive proposition without any support from the reasoning of the Full Court. 31 The notion that it is somehow an abuse of process for the respondent, following judgment in the 2010 proceeding, to carry out further investigations into the appellant's taxable income and tax liability for the years in question, to issue amended notices of assessment based on those investigations, and then seek to recover the additional amounts of income tax owing based on those amended notices of assessment is fundamentally misconceived. It ignores the statutory scheme which the respondent is responsible for administering and pays no heed to common sense. 32 Each of appeal grounds 1 to 6 in the amended notice of appeal must be rejected.

3.2 Inconsistency of and ambiguity in the notices 33 The appellant's written submissions do not identify any reason which undermines the reasoning of the primary judge in [31]-[38] to the effect that the initial and amended assessments issued for each tax year in question were not inconsistent but, rather, "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)" (at [38]). The primary judge was right in so concluding. 34 The appellant's contentions of ambiguity also should be rejected. First, it is apparent from the primary judge's reasons at [43] that he was satisfied that, when read as a whole, the notices in question were not ambiguous despite the references to different tax years in what the primary judge correctly described are "subordinate" parts of the notice. Second, and for good reason, the primary judge was not persuaded that the principles applying to provisions such as s 264 of the ITAA 1936 (the Commissioner's power to require information and evidence to be given) apply. A notice of assessment of liability to tax is not a form of penalty notice or an exercise of a power of compulsory disclosure. Issues of privilege and exposure to penalties for false or misleading information are not in play. Accordingly, the principles applying to penalty notices or notices compelling information or evidence to be given are not engaged by a notice of assessment. Third, Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 (Prestige Motors) says nothing about recourse to material other than a notice itself in order to construe the notice. Mason CJ, Brennan, Deane, Gaudron and McHugh JJ said at 14 in Prestige Motors that the "principal purpose of the notice of assessment is to bring to the attention of the person on whom it is served that such person is liable to pay on the due date the amount of tax assessed in the notice on the income stated in the notice." The impugned notices in the present case satisfy the principal purposes irrespective of the inconsistent references to the tax year. In any event, the primary judge had regard to material other than the notices solely for the purpose of satisfying himself that the inconsistent references to the tax year in the subordinate part of the notice was nothing more than a typographical error. Reference to material other than the notice itself for this purpose, all of which was available to the appellant and which discloses that the appellant could not have been under any misapprehension as to the tax liability for the relevant tax years, is legitimate. The appellant has not identified any statutory provision, authority or principle which would suggest error by the primary judge in so doing. Nor has any submission disclosed any error by the primary judge in treating the notices of assessment as the completion of the process of assessment. This is consistent with the reasoning in Batagol. 35 For these reasons ground 6 to 8 of the amended notice of appeal cannot be sustained.

4. Conclusions 36 The appeal should be dismissed with costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds, Jagot and Pagone.