Commissioner of Taxation v Bosanac

MR BOSANAC'S SUBMISSIONS 12 Mr Bosanac submits that the Court has the power to vary or set aside the judgment in Bosanac (No 1) pursuant to r 39.05(c) of the Federal Court Rules 2011 (Cth), which enables the variation or setting aside of a judgment if it is interlocutory. Mr Bosanac contends that the summary judgment obtained on 29 April 2016 was interlocutory in nature because it was obtained by an interlocutory application. Mr Bosanac relies on r 41.03 of the Rules in seeking to rely on events occurring after the summary judgment order in Bosanac (No 1) took effect, namely the June 2016 assessments. 13 By detailed reply submissions handed up on the day of the hearing, Mr Bosanac framed the question of law for the Court as being: a. In circumstances where the Commissioner obtains summary judgment on amended assessments prior to an objection decision (relying on the conclusive evidence provision contained in s [350]-1(1) Item 2 Schedule 1 [of the] TAA …; b. Then subsequent to obtaining summary judgment reaches a conclusion that the amended assessments were wrong and issues further amended assessments for each year in contention (in this case, five amended assessments being higher in liability and three being lower, all with multiple amendments) …; and c. Then is the Commissioner entitled to enforce and maintain the summary judgment obtained on the assessments he no longer considers to be correct where the Federal Court has [at] all times remain[ed] continually seized of the matter? 14 Mr Bosanac says that in respect of this application, s 350-10 in Sch 1 of the TAA has evidential force only in relation to the production of the June 2016 assessments, which are at present the only conclusive ascertainment of tax. For this contention, he relies on Commissioner of Taxation v Stokes (1996) 72 FCR 160. 15 Mr Bosanac argues that from June 2016 (at the latest), the Commissioner's statutory duty was only to collect the income tax debt set out as payable by Mr Bosanac. The Commissioner was neither bound, nor entitled, to enforce the incorrect income tax debts set out in the June 2015 assessments and the summary judgment decision in Bosanac (No 1). Mr Bosanac relies upon Stokes, Richardson v Federal Commissioner of Taxation (1932) 5 ALJR 392 per Starke J and Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 per Starke J. 16 The Commissioner has now sought to have the stay ordered in Bosanac (No 2) lifted and has demanded payment of the amounts to which it refers rather than seeking payment of the greater amount of the corrected income tax liabilities set out in the June 2016 assessments. 17 It has been common ground between the parties that the June 2015 assessments were wrong. Three of the eight have since been reduced in quantum and the other five have been increased. The total amount in respect of which the June 2016 assessments applies actually exceeds the amount in the June 2015 assessments for which summary judgment was given. 18 Mr Bosanac contends that the Court should set aside the summary judgment given in Bosanac (No 1) because: … its substratum of fact was always subject to correction in Part IVC proceedings, as section 350-10 in schedule 1 [of the TAA] sets out expressly and the [Commissioner] in fact did make that correction in his objection decision under Part IVC [of the TAA]. Moreover, that correction takes affect ab initio. 19 Mr Bosanac says that the summary judgment given in Bosanac (No 1) should be stayed permanently as the Commissioner's duty to enforce it expired when he decided on objection that the amounts in the June 2015 assessments were wrong and replaced them with the amounts in the June 2016 assessments. 20 As Mr Bosanac notes, the liabilities in respect of which summary judgment was given were amended assessments and notices of assessment of shortfall penalties for the years ending 30 June 2006 to 30 June 2013, which were all issued together and formed part of the June 2015 assessments. 21 Reliance is placed heavily on a recent decision of the Court of Appeal of the Supreme Court of Victoria in Deputy Commissioner of Taxation v Buzadzic [2019] VSCA 221. In Buzadzic, Kyrou, McLeish and Niall JJA said (at [78]-[83]): 78 It may readily be accepted that the debt, which is created upon the making of an assessment and made due to the Commonwealth and payable to the Commissioner by s 255-5 of sch 1 to the TAA, merges upon judgment in favour of the Commissioner into a judgment debt and ceases to have independent existence. That legal position was confirmed by the High Court in Chamberlain. However, the merger of the underlying cause of action has no effect on pt IVC proceedings. That is because those proceedings are not directed at the cause of action, but rather at reviewing or appealing against the decision of the Commissioner on a taxation objection. That in turn depends on whether the assessment that gave rise to the cause of action was excessive or otherwise incorrect: ss 14ZZK(b)(i) and 14ZZO(b)(i) of the TAA. Therefore the subject matter of pt IVC proceedings is not the debt but the assessment. 79 If, while a pt IVC proceeding is pending, judgment is obtained in recovery proceedings, the effect is that the cause of action which was created by the statute, acting upon the assessment, merges into the judgment. However, the assessment itself is not subject to such merger. It is only the operation of the statute, not the assessment, that is spent. 80 This is confirmed by other statutory provisions. Sections 14ZZL and 14ZZQ of the TAA require the Commissioner to give effect to a decision on review or appeal, including by amending any assessment. These provisions presuppose that, up to the point when the Commissioner gives effect to a decision, the assessment survives and is unaffected by the pt IVC process. That is so, notwithstanding that ss 14ZZM and 14ZZR permit the recovery of tax while pt IVC proceedings are pending. In addition, s 172 of the 1936 Act requires the Commissioner to refund tax overpaid where 'by reason of an amendment of an assessment, a person's liability to tax … is reduced'. This confirms that the effect of an assessment being amended following pt IVC proceedings is that the legislation operates afresh upon the amended assessment to create a new, and reduced, tax liability. In other words, a successful challenge to an assessment in pt IVC proceedings ultimately gives rise to a new cause of action (if any tax remains payable). Consistently with this position, the Court in Chamberlain held that the existence of the statutory obligation to refund tax upon a successful review or appeal operated independently of the cause of action involved. 81 This result is also consistent with the result in Chamberlain. There was no question of a second or amended assessment in that case, such as is required upon the successful completion of pt IVC proceedings. The Commissioner instead sought to sue upon the debt created by the original assessment, which debt had lost its independent existence upon the first judgment. 82 For these reasons, pt IVC proceedings do not depend on the existence of the statutory cause of action which is liable to being merged in a judgment in recovery proceedings. Nor can such proceedings be characterised as a 'sham'. 83 The respondents' contention that the impugned provisions result in the imposition of an incontestable tax is therefore without substance. This disposes of the second ground in the notice of contention. (Citations omitted.) 22 Mr Bosanac also produces a table showing the changes in the assessments in the following manner: Year Taxable income as per Amended Assessments Taxable income as per Further Amended Assessments Annual tax payable as per Amended Assessments Annual tax payable as per Further Amended Assessments 2006 $1,636,933.00 $1,649,335.00 $777,462.50 $783,477.47 2007 $1,893,359.00 $1,458,196.00 $860,761.93 $658,411.14 2008 $1,604,623.00 $2,813,459.00 $725,749.69 $1,287,858.43 2009 $1,001,911.00 $1,480,107.00 $442,888.81 $665,249.75 2010 $684,008.00 $590,206.00 $292,913.72 $249,295.70 2011 $1,108,427.00 $849,485.00 $488,968.55 $368,560.52 2012 $469,242.00 $482,917.00 $195,689.95 $202,185.57 2013 $383,005.00 $388,753.00 $151,644.32 $154,317.14

(Citations omitted, emphasis omitted.) 23 An important limb of Mr Bosanac's argument is that there can only be one tax liability in each year. For the purpose of this argument, Mr Bosanac relies upon a decision of Isaacs J in Federal Commissioner of Taxation v S Hoffnung & Co Ltd (1928) 42 CLR 39 (at 54) where his Honour said '[w]hen an alteration or addition is made the assessment henceforth exists as altered or added to, and not as previously existing plus independent alteration or addition'. Reliance is also placed on Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 where Brennan J (with whom Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreed), said (at 620): Section 190(b) confirms the burden of proof which, apart from that provision, a taxpayer appellant would bear in seeking relief from the court against the liability which is otherwise conclusively imposed upon him by operation of s. 177(1): McAndrew's Case; McCormack v. Federal Commissioner of Taxation. The term "excessive" in s. 190(b) relates to the "amount" of the assessment which is mentioned in s. 177(1): McAndrew's Case. (Citations omitted.) See also Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd (1994) 181 CLR 466 (at 479): … As was observed in Federal Commissioner of Taxation v Dalco, the term "excessive" in s. 190(b) relates to the "amount" of the assessment which is mentioned in s. 177(1). … (Citations omitted.) 24 Mr Bosanac argues that if the Commissioner suggests that the June 2016 assessments created additional and separate liability, such an argument would be contrary to High Court authority. The conclusive evidentiary impact of the June 2015 assessments relied on by the Commissioner in Bosanac (No 1) are now incorrect. 25 Mr Bosanac says the Commissioner's approach is untenable in circumstances where the Commissioner clearly no longer holds the view that the June 2015 assessments were correct. The Commissioner has said that: … perhaps most significantly, as the total tax liability owed by [Mr Bosanac] for the relevant years in consequence of the subsequent issue of the [2016 amended assessments] exceeds the judgment debt … there would in any event be no utility in the Court setting aside the judgment. 26 Mr Bosanac argues that this approach equates to 'near enough is good enough' and is not satisfactory for the purpose of the serious liability imposed upon him. That is because such a judgment may be used as the basis of a bankruptcy notice and, knowing that the amount of the assessment is incorrect, Mr Bosanac argues the Commissioner has a clear duty to revisit the assessment with the minimum of expense and inconvenience to the Commissioner and the taxpayer. For this submission, he relies on observations of French J (as his Honour then was) in Deputy Commissioner of Taxation v Warrick (No 2) (2004) 56 ATR 371 (at [104]), where his Honour said: In my opinion, for the preceding reasons, no arguable defence has been disclosed to the claim in the recovery action. The Deputy Commissioner is entitled to summary judgment. I am concerned however that these proceedings have been brought notwithstanding the failure to determine the objections lodged by Mr Warrick to the amended assessments and administrative penalty assessments. It is not a complete answer to that concern that Mr Warrick can force the Deputy Commissioner to a deemed disallowance of the objections under s 14ZYA of the TAA. The Commissioner has a clear duty to determine objections so that if there is a basis upon which an assessment can be re-visited administratively that can be done expeditiously and with a minimum of expense and inconvenience to both the Commissioner and the taxpayer. 27 Reliance is also placed on Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 where Deane, Toohey and Gaudron JJ (with whom Brennan and Dawson JJ generally agreed) observed (at 511): But more fundamentally, the respondent sued the appellant on a cause of action for which he received judgment, then, without seeking to have that judgment set aside or otherwise to impugn it on the ground that 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 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. 28 Mr Bosanac stresses his situation is very different as a further amended assessment has been issued whereas, by contrast, in Chamberlain no subsequent second assessment had been issued. In this instance, the further assessments (the June 2016 assessments) gave rise to a new cause of action and being a new cause of action arising as a result of the objection decision, the summary judgment entered in Bosanac (No 1) in reliance on the erroneous June 2015 assessments should be varied to reflect the liability resulting from the June 2016 assessment. This is because a 'new cause of action', as referred to by the Court of Appeal in Buzadzic, arose and the summary judgment ought no longer be maintained.

CONSIDERATION 29 As set out above, Mr Bosanac submits that the Court has the power to vary or set aside the summary judgment in Bosanac (No 1) under r 39.05 of the Rules because it is an interlocutory judgment. Rule 39.05 of the Rules provides as follows: 39.05 Varying or setting aside judgment or order after it has been entered The Court may vary or set aside a judgment or order after it has been entered if: (a) it was made in the absence of a party; or (b) it was obtained by fraud; or (c) it is interlocutory; or (d) it is an injunction or for the appointment of a receiver; or (e) it does not reflect the intention of the Court; or (f) the party in whose favour it was made consents; or (g) there is a clerical mistake in a judgment or order; or (h) there is an error arising in a judgment or order from an accidental slip or omission. 30 Specifically, Mr Bosanac relies on r 39.05(c). As I recently observed in Nyoni v Pharmacy Board of Australia [2018] FCA 1707 (at [15]), the scope of the power to vary or set aside an order or judgment after entry should be exercised with caution and in exceptional circumstances only, mindful of the overarching principle of the finality of litigation. 31 In this matter, it is doubtful whether exceptional circumstances have been identified. Mr Bosanac has a judgment against him for a sum which is less than his total tax liability. That judgment was regularly entered after full argument more than three years ago. There are other difficulties confronting Mr Bosanac. Prior to the issue of the June 2016 assessments, the Commissioner's cause of action founded on the June 2015 assessments merged in the summary judgment in Bosanac (No 1). The cause of action giving rise to the summary judgment in Bosanac (No 1) no longer enjoys any independent existence. 32 There is nothing which would warrant Mr Bosanac seeking to enliven questions associated with the merits of the former cause of action giving rise to the summary judgment. As at the date of the summary judgment in April 2016, the June 2016 assessments were not in existence. There is no doubt that the judgment was regularly entered and it is not suggested otherwise. 33 It is only events occurring after the entry into judgment, namely the June 2016 assessments, which have given rise to this application. It is by no means clear and no legal basis has been advanced to warrant the variation or setting aside of the judgment in Bosanac (No 1) on the basis of these subsequent events. It is conceivable that a judgment debtor against whom a judgment creditor was seeking to enforce a judgment for a sum greater than that which the judgment creditor had subsequently recognised was owing, may have some form of relief to limit their liability to the agreed amount. There is no apparent policy or legal reason why the original judgment should be varied in a circumstance where the judgment is for a total amount less than the amount of the subsequent assessment as is the case here with the June 2015 assessments the subject of the summary judgment in Bosanac (No 1) being less than the June 2016 assessments. Indeed, in practical terms, the Commissioner acknowledges that while he is relying on this judgment, he may subsequently seek to pursue recovery for the balance due by way of separate proceedings. I make no comment about that prospect. 34 On more technical considerations, Mr Bosanac's argument is misconceived. It disregards a fundamental distinction between an action for a debt arising under a notice of assessment on the one hand and arguments about a taxpayer's underlying tax liability on the other. This was made clear in Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) (2013) 302 ALR 634 per Perram J, from which the following may be distilled: (a) a claim for a fixed sum arising under a notice of assessment is in the nature of a common law claim in debt (at [12]); (b) the source of the debt is s 255-5 of Sch 1 to the TAA (at [12]); (c) the sum made due and payable is the amount stated in the notice of assessment not the underlying sum due (but not payable) under the Income Tax Act 1986 (Cth) (ITA 1986) (at [15]); (d) the liability indicated in debt recovery proceedings, or in this case summary judgment proceedings, is not the tax liability generated by the ITA 1986 but the statutory debt created by the TAA upon the issue and service of a notice of assessment (at [17]); (e) the elements of the cause of action and debt recovery proceeding simply comprised the notice of assessment, not any underlying debates about tax liability (at [20]); (f) in new proceedings based on new assessment notices the position is the same (at [20]); (g) questions arising in the context of proceedings under Part IVC of the TAA have nothing to do with a cause of action pursued on a notice of assessment which is a debt claim (at [21]); and (h) judgment sought in consequence of an amended assessment for an income year following a judgment based on a previous assessment is a different judgment for a different debt (at [27]). 35 This synopsis was confirmed by the Full Court in Chemical Trustee Limited v Deputy Commissioner of Taxation (2014) 308 ALR 366 with special leave being refused. 36 There is therefore no requirement to adjust the debt judgment according to some underlying tax liability. Nothing in Buzadzic affects this position. As that case confirms, on entry of judgment there is a merger of the underlying cause of action created following the making of an assessment. If an amended assessment is subsequently issued this may give rise to a different and fresh cause of action but it does not follow that such a cause of action impugns the earlier cause of action in some way. It cannot do that because the cause of action has merged in the judgment. Nor, for reasons already stated (without additional factors), could it require amendment of the earlier judgment. I repeat that the circumstances of this case are that the amount given in the judgment was for substantially less than the total by which the assessments were increased, making it plain that there could be no prejudice to Mr Bosanac in maintaining the judgment in Bosanac (No 1). 37 There is a further question which is unnecessary to decide and that is the question as to whether the summary judgment in Bosanac (No 1) was in fact an interlocutory judgment or an interlocutory order within the meaning of r 39.05 of the Rules. As noted, Mr Bosanac contends that the judgment given pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (FCA) was interlocutory not final. This can be a difficult question. That a judgment will be final if it finally disposes of the rights of the parties is the appropriate starting observation when considering this issue which arises from time to time. The test is derived from Hall v Nominal Defendant (1966) 117 CLR 423. It is followed in numerous cases, including the Full Court in Ashby v Slipper (2016) 241 FCR 55 (at [36]). 38 In this Court there have been conflicting decisions as to whether an order made pursuant to s 31A of the FCA is final or interlocutory. In Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372, Finkelstein and Gordon JJ (at [14]-[15] and [161] respectively) concluded that such a judgment made pursuant to s 31A was in that case final whereas Rares J (at [54]-[56] and [62]) considered it to be interlocutory. In Luck v University of Southern Queensland (2009) 176 FCR 268, Graham J (at [14]) regarded the decision on appeal as interlocutory as did Rares J (at [101]). In Kowalski v MMAL Staff Superannuation Fund Pty Ltd (2009) 178 FCR 401, Spender, Graham and Gilmour JJ (at [32]-[43]) reiterated that the legal effect of a decision on legal rights is determinative of whether a decision is final or interlocutory. 39 Unlike the present matter, neither Luck nor Kowalski concerned a judgment entered following an application brought under s 31A(1) of the FCA by a prosecuting party for judgment on the whole of its claim on the basis that the other party had no reasonable prospect of successfully defending the proceedings. Rather, each of those cases concerned a judgment entered following an application under s 31A(2) of the FCA brought by a defending party on the basis that the prosecuting party had no reasonable prospect of successfully doing so. The Court in Kowalski (at [43]) only referred to a judgment 'in the nature of the summary dismissal under s 31A(2) [as being] interlocutory'. This debate may have been affected now by the subsequent introduction of s 24(1D) of the FCA which provides, relevantly, that a decision granting or refusing summary judgment under s 31A is taken to be interlocutory for the purposes of s 24(1A) and s 24(1C) - those provisions dealing with the requirement of getting leave to appeal. An application to set aside or vary a judgment is not embraced by either of those provisions. 40 From a substantive perspective, it is clear in this instance that judgment in Bosanac (No 1) was granted after full argument and after evidence had been adduced as to the 'full and complete factual matrix', adopting the expression used in Kowalski (at [40]). Indeed the judgment was not merely confined to making a prediction of the outcome of a trial on the merits or a determination that Mr Bosanac had no reasonable prospect of successfully defending the claim: cf Jefferson Ford (at [45] and [62]); and Luck (at [111]-[112] and [128]). The judgment in Bosanac (No 1) was one in which there was an express finding that the provisions of the statute dictated that the Commissioner was 'entitled to obtain judgment' (Bosanac (No 1) at [81]). Proper analysis of the practical and legal effect of the judgment demonstrates that it was final: cf Kowalski (at [33]-[34]). 41 As reiterated, however, that debate is academic though the application has been approached assuming that the judgment in Bosanac (No 1) was interlocutory only. As I have noted, the principle of finality of litigation has an important role to play in any matter before this Court and there would have to be at a minimum compelling new evidence and argument in order for a variation to be considered under r 39.05 of the Rules. There can be no doubt, for the reasons set out above, that through an analysis of the nature of the debt giving rise to the judgment, the Commissioner was entitled to obtain that judgment on the basis of the assessment. There has been no suggestion that the June 2016 assessments (for a greater sum in total) existed at the time of the judgment and that if they had it would have had some impact on the fate of the defences which Mr Bosanac might have deployed or the judgment would have been adversely affected for any other reason. 42 Further, to the extent that Mr Bosanac makes reference to r 41.03 of the Rules and events after the judgment (the June 2016 assessments), it is doubtful whether this rule has application. In any event, for all the reasons given above, I would not exercise a discretion to grant relief pursuant to the rule. 43 Insofar as matters of discretion generally are concerned, if they are at all relevant (and I comment on this only because counsel for Mr Bosanac expressly addressed the Court in relation to discretion), it is significant in the circumstances of this case that the ability to execute by the Commissioner is in respect of a judgment sum which is less than the total amount said to be due under the 2017 assessments. Secondly, it is equally unclear as to any basis upon which the Court's discretion should be enlivened to grant a permanent stay of the judgment, whether it be pursuant to the Court's inherent jurisdiction or under r 41.03 of the Rules.

CONCLUSION 44 The interlocutory application will be dismissed with costs. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.