Deputy Commissioner of Taxation v Buzadzic [2019] VSCA 221

CONSTITUTIONAL LAW - Incontestable tax - Constitution s 51(ii) - Whether provisions impose incontestable tax - Whether practical difficulty in challenging taxation assessment relevant to question whether incontestable tax - Whether risk pt IVC proceedings might be discontinued following bankruptcy after judgment in recovery proceeding relevant to incontestability - WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2008] HCA 33; (2008) 237 CLR 198, Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146, Federal Commissioner of Taxation v Bosanac [2016] FCA 448; (2016) 103 ATR 51 applied - Whether recovery proceeding results in merger of cause of action that makes pt IVC proceedings 'sham' - Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502, distinguished.

TAXATION AND REVENUE - Recovery - Recovery proceeding in State court - Whether taxpayer in recovery proceeding can raise defence that not open to Commissioner to be not satisfied with tax returns - Income Tax Assessment Act 1936 (Cth) s 167(b) - Whether taxpayer in recovery proceeding can raise defence that Commissioner could not have formed conclusion there was fraud or evasion - Income Tax Assessment Act 1936 (Cth) s 170 - George v Federal Commissioner of Taxation (1952) 86 CLR 183, McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263, Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, Chhua v Federal Commissioner of Taxation (2018) 262 FCR 228 applied.

TAXATION AND REVENUE - Recovery - Recovery proceeding in State court - Whether taxation assessments tentative or provisional - Meaning of 'tentative' or 'provisional' - Whether tentativeness can be raised as defence in recovery proceeding - Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146 applied, FJ Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27; (1981) 147 CLR 360 considered.

1 The Deputy Commissioner of Taxation ('the Commissioner') brought proceedings in the Trial Division against Mr Danny Buzadzic and Mrs Leisa Buzadzic seeking recovery of $4,535,348.97 and $1,137,965.45 respectively by way of income tax over the nine year period ending 30 June 2015, including administrative penalties and interest charges. The Commissioner relied on assessments and amended assessments under the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act').

2 Mr and Mrs Buzadzic filed defences which are referred to below, and the Commissioner sought summary judgment in the amounts of $3,781,735.66[1] and $1,166,009.16 respectively, together with further interest, on the basis that the defences had no real prospect of success under s 61 of the Civil Procedure Act 2010 ('the CPA') and r 22.03 of the Supreme Court (General Civil Procedure) Rules 2015.

3 The applications for summary judgment were dismissed by a judge in the Trial Division. This was principally on the basis that, if the provisions of the 1936 Act and the Taxation Administration Act 1953 (Cth) ('the TAA') which the Commissioner relied on had the operation for which the Commissioner contended, they would 'impermissibly confer judicial power' on the Commissioner and 'require the Court to act in a manner inconsistent with its position as a repository of federal judicial power'.[2] Alternatively, the judge held that, even if the defences had no real prospect of success, it was not in the interests of justice to dispose of the proceedings summarily and only a full hearing on the merits was appropriate.[3] The Commissioner seeks leave to appeal.

4 It is convenient to refer to the relevant law governing income tax assessments before describing the defences relied on by the respondents. The Commissioner is empowered by s 166 of the 1936 Act to make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable on that taxable income. Section 167 relevantly applies where the Commissioner is not satisfied with a return filed by the taxpayer: s 167(b). Where s 167 applies, the Commissioner is empowered to assess the amount upon which income tax ought to be levied, and that amount is then deemed to be the taxable income of the person for the purposes of s 166. Section 170 empowers the Commissioner to amend an assessment, subject to time limits which do not apply if the Commissioner is of the opinion that there has been fraud or evasion. Section 5-5 of the Income Tax Assessment Act 1997 (Cth) provides that income tax is due and payable if the Commissioner makes an assessment of a person's income tax for the year in question.

5 Four legislative provisions whose constitutional validity the respondents contest are critical to the present case.

6 First, s 255-5 of sch 1 to the TAA provides:

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

(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.

7 The expression 'tax-related liability' is defined in s 255-1 to mean a pecuniary liability to the Commonwealth arising directly under a taxation law, as defined, but excluding certain civil penalties. Relevantly for present purposes, it includes income tax, shortfall interest charge, administrative penalties and general interest charge.[4]

8 Section 255-5 is a successor provision to ss 208 and 209 of the 1936 Act.

9 Secondly, s 175 of the 1936 Act states that '[t]he validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with'. This can be referred to as the 'no invalidity' provision.

10 Thirdly, s 350-10(1) item (2) of sch 1 to the TAA provides that:

production of ... a notice of assessment under a taxation law; ... is conclusive evidence that ... (a) the assessment was properly made; and (b) except in proceedings under Part IVC of [the TAA] on a review or appeal relating to the assessment - the amounts and particulars of the assessment are correct.

11 This language replaces, and is almost identical to, former s 177 of the 1936 Act which is referred to extensively in the case law. It is conveniently referred to as the 'conclusive evidence' provision.

12 Finally, s 14ZZM of the TAA (which replaced s 201 of the 1936 Act) states:

The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending.

13 Part IVC of the TAA, to which some of these provisions refer, is titled 'Taxation objections, reviews and appeals'. Division 3 provides for the making of taxation objections. A person dissatisfied with the Commissioner's decision on such an objection is entitled under s 14ZZ to appeal to the Federal Court against that decision or, if the decision is a 'reviewable objection decision', may apply to the Administrative Appeals Tribunal ('the Tribunal') for review of the decision. The definition of 'reviewable objection decision' extends to all objection decisions except for a limited and presently irrelevant class.

14 Under div 4, certain modifications are made to the provisions of the Administrative Appeals Tribunal Act 1975 (Cth) in relation to the review of reviewable objection decisions. Otherwise, that legislation governs such reviews, including s 43(1) which permits the Tribunal to affirm, vary or set aside the decision. By s 14ZZK(b)(i) of the TAA, the applicant has the burden of proving that an assessment is 'excessive or otherwise incorrect and what the assessment should have been'. The Commissioner is required to take such action, including amending any assessment, as is necessary to give effect to the Tribunal's decision: s 14ZZL. However, as already set out, s 14ZZM provides that any tax or other amount may be recovered while the review is pending.

15 Finally, div 5 provides for appeals to the Federal Court against objection decisions. Again, the appellant has the burden of proving that an assessment is 'excessive or otherwise incorrect and what the assessment should have been': s 14ZZO(b)(i). The Court may make such order on the appeal as it thinks fit, including an order confirming or varying the objection decision: s 14ZZP. Again, however, the Court does not deal directly with the assessment. Instead, the Commissioner is required by s 14ZZQ to take such action, including amending any assessment, as is necessary to give effect to the Court's decision. Finally, s 14ZZR provides, in terms similar to s 14ZZM, that any tax or other amount may still be recovered while the appeal is pending.

16 The respondents' defences relied on several matters. First, they maintained that there had been errors in the purported exercise by the Commissioner of the powers to make assessments conferred by ss 167(b) and 170 of the 1936 Act, which amounted to jurisdictional errors. Three such errors were alleged:

(a) it was not open to the Commissioner not to be satisfied with the respondents' returns (so that he ought to have made assessments under s 166 consistent with those returns, rather than exercising the power under s 167(b) to make an assessment upon being dissatisfied with a return);

(b) amendment of the assessments under s 170 was not authorised because there was no fraud or evasion and no evidence to sustain the formation of the Commissioner's opinion that there was fraud or evasion; and

(c) the method used by the Commissioner to make the assessments was arbitrary, meaning that the assessments were not definitive, were speculative and tentative and lacked certainty and finality.

17 The respondents further alleged that, because they had pending proceedings for review in the Tribunal under pt IVC, in which they had a reasonably arguable case, they were not indebted to the Commonwealth in the amount of the tax-related liabilities in the assessments.

18 The respondents also alleged part payment of the tax assessed, but indicated before the judge that they did not press this aspect of their defences.

19 Finally, the defences pleaded constitutional arguments in respect of the four statutory provisions we have described, alleging that:

each of section 175 of the [1936 Act]; section 350-10(1) item (2) and section 255-5 of schedule 1 of the [TAA] and section 14ZZM of the [TAA] is unconstitutional and is invalid and of no force and effect.

These provisions are contrary to Chapter III of the Constitution of the Commonwealth because they require the Supreme Court of Victoria to exercise judicial power in a manner which is inconsistent with the essential character of a court or with the nature of judicial power and they confer upon the plaintiff part of the judicial power of the Commonwealth.

Further, these provisions are contrary to section 51(ii) of the Constitution of the Commonwealth because they operate to deny the defendant all rights to resist the pleaded assessments by proving in the Supreme Court of Victoria that the criteria of pleaded liability are not satisfied.

20 As already mentioned, the Commissioner sought summary judgment against each respondent.

21 Before the summary judgment applications proceeded in the Trial Division, the respondents filed and served notices under s 78B of the Judiciary Act 1903 (Cth). No Attorney-General intervened in the proceedings. The same course was followed in this Court and, again, no Attorney-General intervened. The judge also adjourned the hearing of the applications to enable the respondents to seek to have that part of the matter pending in the Trial Division that related to the validity and construction of the four impugned provisions removed to the High Court pursuant to s 40 of the Judiciary Act. The High Court dismissed that application on the papers on 13 September 2018.[5]

22 When the summary judgment applications were heard in the Trial Division, argument concentrated on the constitutional questions. That reflected the reliance of the Commissioner on the four impugned provisions. In short, the Commissioner argued that:

(a) the jurisdictional error arguments failed because:

(i) the argument that the assessments were 'not open' was foreclosed by the conclusive evidence provision (s 350-10(1) of sch 1 to the TAA) and the no invalidity provision (s 175 of the 1936 Act);

(ii) the argument that the assessments could not be amended because there was no fraud or evasion was similarly foreclosed by both s 350-10(1) and s 175; and

(iii) the 'arbitrary' or 'speculative or tentative' argument was not available because the assessments were not alleged to be tentative in the sense permitted by the authorities; and

(b) the existence of pending Tribunal proceedings was irrelevant because of s 14ZZM of the TAA.

23 The Commissioner produced notices of assessment in respect of the claimed tax-related liabilities and relied on s 255-5 of sch 1 to the TAA to establish the relevant debt.

24 The judge held that he could not accept that the pleaded defences had no real prospect of success. The judge expressed 'serious concerns regarding the nature of the case' put to him by the Commissioner and noted that the Commissioner's submissions 'pay insufficient regard to this Court's status as a superior court of record and a repository of judicial power'.[6]

25 The judge referred to a submission by counsel for the Commissioner that the purpose of the Court in the proceedings was 'to give curial force' to the decision of the administrator.[7] The judge held that this bore:

a curious resemblance to the admonition of Gummow J in Kable v DPP, where His Honour observed, by consequence of the impugned legislation:

The judiciary is apt to be seen as but an arm of the executive which implements the will of the legislature. Thereby a perception is created which trenches upon the appearance of institutional impartiality ...[8]

26 The judge concluded that if he were to grant summary judgment it would reduce the Court's function 'to such a role as an "arm of the executive"'.[9] After referring to established principles relating to the vesting and exercise of federal judicial power, he noted that in Falzon v Minister for Immigration and Border Protection Gageler and Gordon JJ held that 'the grants of legislative power in s 51 of the Constitution "do not permit the conferral upon any organ of the Executive Government of any part of the judicial power of the Commonwealth"'.[10] The judge interpreted this to mean that 'the Parliament is constrained as to the extent to which it may direct a Chapter III Court as to the outcome of the exercise of its judicial function'.[11] He also set out a passage from Chu Kheng Lim v Minister for Immigration, Local Government and Ethnic Affairs[12] in which Brennan, Deane and Dawson JJ held that:

It is one thing for the Parliament, within the limits of the legislative power conferred upon it by the Constitution, to grant or withhold jurisdiction. It is a quite different thing for the Parliament to purport to direct the courts as to the manner and outcome of the exercise of their jurisdiction. The former falls within the legislative power which the Constitution, including Ch III itself, entrusts to the Parliament. The latter constitutes an impermissible intrusion into the judicial power which Ch III vests exclusively in the courts which it designates.[13]

27 The judge noted that while a conclusive evidence provision may not ordinarily be an interference with the exercise of judicial power, it might be different if the legislature were to attempt 'to give conclusivity to a document or certificate which was in its terms determinative of the very issue for determination in a pending case'.[14] He held that:

The Courts have not yet considered whether the Parliament may prescribe a conclusive rule of evidence to be applied by federal courts, and whether this precludes the determination by a federal court of facts in controversy, in so doing constituting an impermissible intrusion into the exercise of judicial power.[15]

28 The judge recognised that a law prescribing a rule of evidence was not necessarily an infringement of Ch III of the Constitution. However, he quoted Brennan CJ's observations in Nicholas v The Queen[16] as to the difference between prescribing rules of evidence and impairing the curial function of finding facts and hence usurping judicial power. Brennan CJ illustrated the difference by the following example:

If a court could be directed by the legislature to find that an accused, being found in possession of stolen goods, had stolen them, the legislature would have reduced the judicial function of fact finding to the merest formality. The legislative instruction to find that the accused stole the goods might prove not to be the fact. The legislature itself would have found the fact of stealing.[17]

29 The judge determined that the Commissioner's construction of the relevant provisions would have the effect that '[t]axpayers seeking to challenge recovery proceedings would do so in vain, despite the pendency of Part IVC proceedings in the Administrative Appeals Tribunal or the Federal Court of Australia'.[18] The consequence of this was that 'the legislature would have reduced the judicial function of fact finding to the merest formality'.[19]

30 The judge stated that he shared the concerns expressed by Kirby J in Federal Commissioner of Taxation v Futuris Corporation Ltd that issues may arise as to the constitutional validity of s 175 and former s 177(1) because they rendered an administrative decision unexaminable by the courts or only examinable in a way inconsistent with s 75(v) of the Constitution.[20]

31 Finally, the judge held under s 64 of the CPA that, even if the respondents' defences did not have a real prospect of success, it was not in the interests of justice to dispose of the proceedings summarily and only a full hearing on the merits was appropriate.[21]

32 Accordingly, the Commissioner's applications for summary judgment were dismissed.

33 The Commissioner set out the following proposed grounds:

1. The primary Judge erred in finding that construing the conclusive evidence provision in item 2 of the table in s 350-10(1) of Schedule 1 to the TAA, ss 175 and 175A of the ITAA 1936 and s 14ZZM of the TAA (together, the impugned provisions) as foreclosing the defences raised in the Respondent's amended defence would impermissibly confer judicial power on a federal official and require the Supreme Court to act in a manner inconsistent with the Court's position as a repository of federal judicial power.
2. The exercise by the primary judge of the discretion in s 64 of the Civil Procedure Act 2004 (Vic) [sic] miscarried insofar as the judge found that it was not in the interests of justice to dispose of the proceedings summarily and that only a full hearing on the merits was appropriate.
   • (a) The primary judge erred in acting upon wrong principles.
   • (b) The primary judge erred in failing to take into account a material consideration, namely that to try the Respondents' jurisdictional error defences would deny the effect of s 175 of the ITAA 1936 and item 2 of the table in s 350-10(1) of Schedule 1 to the TAA.
   • (c) The primary judge erred in failing to take into account a material consideration - namely, that to try the Respondent's jurisdictional error defences would result in a duplication of proceedings in relation to the same issues.
   • (d) Alternatively, the primary judge's finding that only a full hearing on the merits was appropriate was unreasonable or plainly unjust.[22]

34 In this Court, the respondents relied on further or amplified constitutional arguments, beyond those pleaded. They filed a notice of contention with two grounds:

1. The impugned provisions were unconstitutional and hence invalid and of no force and effect because they, together or severally, infringe the rule of law to the extent that they operate to deprive the Supreme Court of Victoria of its constitutional jurisdiction to enforce the law; and

2. The impugned provisions were unconstitutional and hence invalid and of no force and effect because they, together or severally, operate to impose an incontestable tax liability, contrary to s 51(ii) of the Constitution of the Commonwealth, because in their legal operation and practical impact, they deny the [respondents] all rights to resist the pleaded assessments by proving in the Supreme Court of Victoria that the criteria of claimed liability are not satisfied.

35 The first of these grounds was not raised at trial in these terms but no objection was taken by the Commissioner to the respondents relying upon it in this Court. The second ground is an amplified version of an argument advanced at trial and, on one reading, accepted by the judge by his finding that the impugned provisions reduced the Court's 'judicial function of fact finding to the merest formality'.[23]

36 During the hearing of the application for leave to appeal, the respondents were granted leave to add a third ground as follows:

3. The decision of Croft J can also be affirmed on the ground that the respondents' pleaded defences in paragraph 2 of their respective amended defences that there has been an error in the purported exercise by the appellant of the powers conferred by sections 167 and 170 of the Income Tax Assessment Act 1936 to assess the respondents, which amounted to jurisdictional error and the purported exercise of power was ultra vires the power of assessment and was unlawful invalid void and of no effect, have real prospects of success within section 63 of the Civil Procedure Act 2010 and warranted the exercise of discretion in section 64 of that Act.

37 We will return to this ground, which is not clearly expressed. To the extent that it suggests that the power in s 64 is attracted when a proceeding has a real prospect of success, it is misconceived. However, as explained later in these reasons, the gist of the respondents' argument was that summary judgment should have been refused because the Commissioner had failed to put before the Court evidence proving the formation of an opinion that he was not satisfied with the respondents' returns under s 167(b) of the 1936 Act or an opinion that he was satisfied there had been fraud or evasion sufficient to enliven the power to issue amended assessments under s 170.

Commissioner's submissions on the proposed grounds of appeal

Proposed ground 1

38 The Commissioner submitted that none of the impugned provisions conferred judicial power on the Commissioner. The Commissioner's assessment did not create a debt. That was achieved by the legislation which acted upon the assessment. The legislation required any controversy over the correctness of an assessment to be heard in the manner provided for under pt IVC of the TAA. Although the legislation authorised the Commissioner to recover the tax payable notwithstanding a pending review or appeal under pt IVC, the availability of comprehensive merits review by the Tribunal, and an appeal to the Federal Court, meant that an assessment was not finally determinative of rights. The scheme was different to that in Brandy v Human Rights and Equal Opportunity Commission,[24] where the administrative decision of the Human Rights and Equal Opportunity Commission was given the status of a court order.

39 Mr Hanks QC, who appeared with Mr Ure for the Commissioner, contended that the provisions did not require the Supreme Court to act in a manner inconsistent with Ch III of the Constitution. The observations of Kirby J in Futuris upon which the judge relied were said to have been explicitly rejected by the rest of the Court_._ In particular, Gummow, Hayne, Heydon and Crennan JJ held that:

In recovery proceedings s 177(1) operates to change what otherwise would be the operation of the relevant laws of evidence. But, given the presence of Pt IVC, s 177(1) does not operate to impose an incontestable tax or otherwise fall foul of the principles which were considered in Nicholas v The Queen and which respect [sic] usurpation of the federal judicial power by deeming to exist an ultimate fact.[25]

40 The judge was said to have treated the conclusive evidence provision as a privative clause, inconsistently with the joint reasons in Futuris, which explicitly stated that s 177(1) was not a privative clause but rather gave evidentiary effect to the no invalidity provision, s 175.[26] The Commissioner pointed to the conclusion in Futuris that the function of the conclusive evidence provision is 'the facilitation of proceedings for the recovery of tax which are instituted by the Commissioner'.[27]

41 Mr Hanks also referred to the High Court's decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd where it was held that 'harsh though the operation of these provisions may be, they implement a long-standing legislative policy to protect the interests of the revenue'.[28] He noted that this Court had considered similar provisions in Victorian legislation and had recognised the practical justification for attaching special characteristics to tax debts.[29]

42 The Commissioner submitted that the observations in the joint reasons in Futuris about the constitutional validity of the provisions necessarily followed from the reasoning on the central issue in the case, namely whether there had been jurisdictional error in the Commissioner's exercise of power. The joint judgment was said to have determined that issue by deciding that, where s 175 applies, errors in the process of assessment do not go to jurisdiction, and that s 175 applies where there has been what answers the statutory description of an 'assessment'. The Commissioner accepted that this excludes assessments which are tentative or provisional or which involve conscious maladministration of the assessment process.

43 The judge's alternative conclusion, that a full hearing on the merits was required even if the respondents had no real prospect of success, was said by the Commissioner to have involved a miscarriage of the discretion in s 64 of the CPA. To the extent that the judge's conclusion flowed from his decision as to the constitutional validity of the provisions, that conclusion was inconsistent with Futuris. It was submitted that a full hearing of these issues could lead to no different outcome.

44 The Commissioner also submitted that a full hearing of the merits of the respondents' jurisdictional error defences would mean ignoring the effect of s 175 and the conclusive evidence provision. Section 175 meant that the errors alleged by the respondents did not go to jurisdiction. On that basis, it was said, the errors had been authoritatively held not to invalidate an assessment.[30] It had also been held that the conclusive evidence provision applied in recovery proceedings according to its terms.[31]

45 The Commissioner further submitted that to try the respondents' defences would result in a duplication of proceedings and the risk of inconsistent findings, given the pending pt IVC proceedings in the Tribunal. Finally, the judge's conclusion as to the need for a full hearing on the merits, even if the defences had no prospect of success, was said to be unreasonable or plainly unjust because it was impossible to understand why the interests of justice required a full hearing if the defences had no real prospect of success. The Commissioner submitted that it must be inferred from the unreasonableness of the conclusion that there was in some way a failure to properly exercise the discretion under s 64 of the CPA, within the meaning of House v The King.[32]

Respondents' submissions

Proposed ground 1 and the notice of contention

46 The respondents submitted that the observations in the joint reasons in Futuris upon which the Commissioner relied were obiter and that the High Court had not decided whether the impugned provisions were constitutionally valid. They advanced three constitutional arguments.

47 First, the respondents submitted that s 175 and the conclusive evidence provision (s 350-10(1) item 2) removed all scope for judicial review and gave the Commissioner an unexaminable power to exact money from taxpayers. It was contended that the observations to the contrary in the joint judgment in Futuris were inconsistent with the subsequent decisions of the High Court in Plaintiff S157/2002 v Commonwealth[33] and Graham v Minister for Immigration and Border Protection,[34] which recognised an entrenched minimum provision of judicial review and held that privative clauses which would deny that minimum provision were invalid.

48 In a closely related submission, Dr Orow on behalf of the respondents contended that the provisions imposed an incontestable tax, relying on the following statement of principle in WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation:

First, for an impost to satisfy the description of taxation in s 51(ii) of the Constitution it must be possible to distinguish it from an arbitrary exaction. Secondly, it must be possible to point to the criteria by which the Parliament imposes liability to pay the tax; but this does not deny that the incidence of a tax may be made dependent upon the formation of an opinion by the Commissioner. Thirdly, the application of the criteria of liability must not involve the imposition of liability in an arbitrary or capricious manner; that is to say, the law must not purport to deny to the taxpayer 'all right to resist an assessment by proving in the courts that the criteria of liability were not satisfied in his case'.[35]

49 The respondents submitted that a judicial determination in recovery proceedings would make the causes of action relied on by the Commissioner merge

49 in the judgment and destroy the independent existence of those causes of action.[36] As a result, the process in pt IVC was a 'sham' because the taxpayer would not have open any judicial process by which they could show that they were not liable to the tax assessed. The respondents also submitted that the Commissioner could press the recovery proceedings all the way to bankruptcy and the trustee in bankruptcy could then discontinue the pt IVC proceeding (a possibility recognised by Hill J in his dissenting reasons in McCallum v Commissioner of Taxation).[37]

50 Secondly, the respondents submitted that the impugned provisions directed the court in recovery proceedings as to the manner and outcome of the exercise of its jurisdiction, amounting to an impermissible interference with the exercise of judicial power. It was submitted that the observations in the joint reasons in Futuris could not be reconciled with the High Court's decisions in Brandy,[38] Kable,[39] Wainohu v New South Wales[40] and South Australia v Totani,[41] by which the judicial independence and institutional integrity of the Supreme Court, and the appearance thereof, were constitutionally guaranteed. Dr Orow submitted that there was no contest to be resolved in recovery proceedings, depriving them of the character of judicial proceedings. The respondents also referred to the rule of law and the Supreme Court's 'constitutional jurisdiction to enforce the law' in this context.

51 Thirdly, the respondents submitted that, because the court in a recovery proceeding has no function except to give curial force to the decision of the Commissioner, judicial power had been conferred on the Commissioner. The respondents submitted, in reliance on Brandy, that the existence of appeal rights would not cure the conferral of judicial power on an officer of the executive. In Brandy, Mason CJ, Brennan and Toohey JJ rejected the argument that the existence of a review function was capable of saving from invalidity legislation which enabled determinations of the Human Rights and Equal Opportunity Commission to be registered as judgments of the Federal Court. It was held that that 'argument is without substance for the simple reason that the determination is registered and becomes enforceable in circumstances where the review procedure is not invoked'.[42] The respondents also pointed to the conclusion of Deane, Dawson, Gaudron and McHugh JJ in Brandy that '[t]he existence or exercise of a right of appeal from a decision made in the exercise of judicial power does not convert that decision into one of an administrative kind'.[43] Accordingly, the respondents submitted that the existence of rights under pt IVC by which they could challenge the assessments was irrelevant to the question whether the impugned provisions conferred judicial power on the Commissioner.

52 Finally, by the third ground of their notice of contention, the respondents contended that the assessments relied upon by the Commissioner were based upon two discretionary considerations or opinions. First, in order to issue assessments under s 167(b) of the 1936 Act, the Commissioner must have been 'not satisfied' with the returns filed. Secondly, in the circumstances in which the relevant assessments were amended under s 170 of the 1936 Act, the Commissioner was required to have formed the opinion that there was fraud or evasion.

53 The respondents submitted that the production of the notices of assessment did not conclusively prove the formation of an opinion regarding the returns filed, nor the formation of the opinion that there was fraud or evasion. The respondents relied on Federal Commissioner of Taxation v Dalco,[44] Deputy Commissioner of Taxation v Richard Walter Pty Ltd[45] and Giris Pty Ltd v Federal Commissioner of Taxation[46] in this regard.

54 Dr Orow submitted that, to the extent that the Commissioner sought to rely on the decisions of the Full Court of the Federal Court in Chhua v Federal Commissioner of Taxation[47] and Binetter v Federal Commissioner of Taxation,[48] such reliance was misplaced. Alternatively, to the extent that these decisions were inconsistent with Dalco,[49] the decisions were wrong and should not be followed by this Court.

55 It was said to follow that the Commissioner should have pleaded the formation of the respective opinions for which ss 167(b) and 170 of the 1936 Act provide, that the Commissioner had not put before the Court the evidence of the formation and factual bases of the opinions, and that it was open to the respondents to seek discovery of those factual bases and to test the opinions at trial. The respondents submitted that this was sufficient to warrant the refusal of summary judgment.

56 The respondents submitted under proposed ground 2 that the Commissioner did not point to any error of discretion within the scope of appellate review explained in House v The King.[50] Dr Orow also relied on a concession that was made by the Commissioner in Broadbeach, that in a winding up application 'the court might properly have regard to whether the taxpayer had a "reasonably arguable" case in proceedings under pt IVC of the [TAA], if those proceedings then still be on foot'.[51] This was said to suggest that that a court could take into account the existence of a reasonably arguable pt IVC proceeding in determining whether it should order summary judgment in a recovery proceeding.

57 The respondents also relied, in the context of the Commissioner's second proposed ground, on the third ground of their notice of contention as set out at [55] above.

Commissioner's submissions on the notice of contention

Ground 1: Depriving the Supreme Court of its constitutional jurisdiction to enforce the law

58 The Commissioner submitted that the impugned provisions do not prevent an assessment of tax from being challenged, nor do they deny the availability of federal judicial power to supervise the limits of the Commissioner's statutory powers. Rather, the provisions were said to give effect to legislative choices as to the forum and type of proceeding in which an assessment may be challenged and the timing of the challenge. The Commissioner submitted that the legislature can attach special incidents or characteristics to tax debts different from ordinary debts.[52]

59 The Commissioner contended that recovery proceedings give rise to justiciable issues that have to be resolved and are not merely a rubber-stamping of the Commissioner's decision. The defence of part payment was given as an example. It was submitted that the court had to determine that the correct parties were before it, whether there was a tax-related liability and the amount of such a liability. The court would also need to consider the content of a prima facie certificate under s 255-45 of sch 1 of the TAA, under which issues of valid service and the amount outstanding would be addressed.

60 Furthermore, it was submitted that nothing in the Constitution requires the legislature to give a court authority to decide every right, duty, liability or obligation inherent in a controversy merely because it has jurisdiction over some aspect of the controversy.[53] It was also contended that the provisions did not infringe the rule of law, given the availability of rights of review under pt IVC.

61 The Commissioner contended that the 'incontestable tax' argument raised in the second ground of the respondents' notice of contention was foreclosed by the High Court's decision in Futuris. The joint judgment stated that:

The recourse to the Federal Court (and thereafter by special leave, to this Court) which is provided by Pt IVC of the [TAA] meets the requirement of the Constitution that a tax may not be made incontestable because to do so would place beyond examination the limits upon legislative power.[54]

The Commissioner also relied on the quotation set out at [39] above, which rejected the possibility that s 177(1), the conclusive evidence provision, imposed an incont[55]table tax.55

62 The Commissioner attacked the respondents' submission that a recovery proceeding might result in bankruptcy, preventing the contesting of liability through the pt IVC proceeding. The Commissioner relied on Kitto J's judgment in Giris, holding that the fact that a tax may not be contestable in a 'purely practical sense' did not render it incontestable in the constitutional sense.[56] The bankruptcy argument was also said to be excessively speculative and ignored the possibility that a pt IVC proceeding might be continued by the trustee in bankruptcy.

63 The Commissioner then turned to the respondents' contention that a successful recovery proceeding would result in a merger of the causes of action, rendering the pt IVC procedure unavailable. The Commissioner submitted that judgment in a recovery proceeding would not prevent a pt IVC proceeding because the issues for determination are distinct. The relevant causes of action are established by separate statutory provisions and s 14ZZM of the TAA confirms that the operation of recovery proceedings and pt IVC proceedings are separate and independent. It was submitted that a tax-related liability does not merge into a judgment in a complete sense but retains its independent existence as a statutory obligation.

64 The Commissioner submitted that a successful pt IVC proceeding by a taxpayer would not constitute a sham despite an earlier successful recovery proceeding by the Commissioner. This was because a successful pt IVC proceeding after judgment in a recovery proceeding would result in an amended assessment resulting in credits against the respondents' debts to the Commonwealth. The Commissioner suggested that it might also be open to a taxpayer to seek to have the recovery proceeding judgment set aside or for the court to make a declaration following a successful pt IVC proceeding in the Federal Court.

65 The Commissioner responded to ground 3 of the notice of contention by submitting that s 175 has the effect that the alleged errors could not invalidate an assessment. It was submitted that this was authoritatively established for both ss 167 and 170.[57] The observations of Barwick CJ in Giris relied upon by the respondents were said to have no application to a recovery proceeding where s 175 of the 1936 Act and s 350-10 of sch 1 to the TAA apply. Accordingly, it was submitted that, since the validity of the notices of assessment could not be in issue in the recovery proceeding, there was no requirement for the Commissioner to plead the formation of the relevant opinions or to lead evidence of the factual bases of those opinions.

66 The manner in which s 175 of the 1936 Act and s 350-10(1) of sch 1 to the TAA (or its predecessor, s 177 of the 1936 Act) operate is well settled. Section 175, the 'no invalidity' provision, provides that failure to comply with provisions of the 1936 Act does not affect the validity of an assessment. This enlarges the field within which the Commissioner may validly act. In other words, despite non-compliance with the legislation, the Commissioner effectively exercises the power to make an assessment. As a result, failure to comply with the legislation does not constitute jurisdictional error. The Commissioner merely makes an error within jurisdiction. The joint judgment in Futuris put it this way:

Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act.[58]

67 The joint judgment in Futuris recognises two cases where s 175 does not have effect, because as a matter of construction there is no 'assessment' for the provision to operate upon. One is where there has been 'conscious maladministration of the assessment process'[59] or 'deliberate failures to administer the law according to its terms'.[60] Section 175 is construed so as not extending to protecting against such failures to comply with the legislation. This class of case is not relevant to the present matter.

68 The second kind of case involves assessments which are 'tentative or provisional'.[61] An instrument of that description simply falls outside the scope of s 175 because it is not an assessment. For the Commissioner to treat it as an assessment would amount to jurisdictional error. The present respondents allege error of this kind and it will be necessary to return to this subject.

69 Although strictly obiter, the joint judgment in Futuris also sets out the established construction of former s 177, the 'conclusive evidence' provision now found in s 350-10(1). This provision is not a privative clause.[62] It does not purport to place an assessment beyond review. In particular, it expressly acknowledges the existence of pt IVC proceedings. Nor does it seek to deny the possibility of judicial review for jurisdictional error. Read consistently with s 175, it does not preclude evidence of deliberate maladministration.[63] And like s 175, it operates only where an 'assessment' is produced. As such, s 350-10(1) does no more than give evidentiary effect to s 175 and thereby facilitate recovery proceedings.[64]

70 It is convenient now to turn to the constitutional issues raised by the respondents before returning to consider the jurisdictional error arguments.

71 The notion of an 'incontestable tax' arises in the context of s 51(ii) of the Constitution, which gives the Parliament power to make laws with respect to taxation. In order for an impost to satisfy the description of a tax it must not be an arbitrary exaction.[65] One aspect of this is that an administrative assessment of the amount to be paid cannot be made conclusive without recourse to the courts to prove the assessment wrong.[66] The making of such provision would convert a purported tax into an impost payable irrespective of whether the criteria of the law are met, depriving it of the character of a tax and meaning that the law imposing it is not a law with respect to taxation.[67]

72 The joint reasons in Futuris record, twice, that the provisions of pt IVC meet the constitutional requirement that a tax may not be made incontestable.[68] Dr Orow submitted that the subsequent decisions of the High Court in Plaintiff S157 and Graham cast these observations in a different light. In those decisions, the Court affirmed the constitutionally entrenched minimum requirement of judicial review for jurisdictional error. But that reveals no inconsistency with the reasoning in Futuris. To the contrary, Futuris presupposes the availability of the constitutional writs under s 75(v) of the Constitution, and the same remedies under s 39B of the Judiciary Act, for jurisdictional error. The decisions in Plaintiff S157 and Graham serve only to confirm that position. At the same time, they say nothing about the validity of provisions which define the scope of the Commissioner's jurisdiction in a way that leaves only a limited potential for the identification of jurisdictional error.

73 Dr Orow also relied on the practical difficulty a taxpayer might confront if pressed to bankruptcy as a result of recovery proceedings even while pursuing review or appeal proceedings under pt IVC. The prospect of the provisions operating in a harsh manner has long been acknowledged.[69] Moreover, whereas Mason ACJ was informed in Clyne that it was 'somewhat unusual' for the Commissioner to commence proceedings for recovery in reliance on a notice of assessment which is under challenge in what are now pt IVC proceedings,[70] Mr Hanks candidly informed us that this is no longer the case.

74 None the less, it has also long been recognised that the potentially oppressive manner in which the provisions operate reflects a legislative policy to protect the revenue against the prospect of taxpayers withholding payment and spending the proceeds on speculative appeals instead.[71]

75 In any event, the prospect of a taxpayer being made bankrupt and his or her trustee in bankruptcy then discontinuing the pt IVC proceedings does not establish that the tax is incontestable. Such an outcome is a product of the decision of the trustee in bankruptcy in a given case, operating under the bankruptcy laws. It is not a result brought about because the tax is incontestable in the sense explained above.[72] So much is clear from the fact that, if the trustee in bankruptcy sees advantage in pursuing the pt IVC proceedings, it remains open for those proceedings to continue.

76 For these reasons, the availability of review and appeal proceedings under pt IVC is fatal to the respondents' argument that the impugned provisions operate to impose an incontestable tax.

77 Dr Orow sought further to avoid this result by submitting that the doctrine of merger rendered the possibility of pt IVC proceedings no more than a 'sham'. As we understood the argument, it was submitted that once recovery proceedings were complete and judgment was entered, the tax debt ceased to have independent existence and there was therefore nothing remaining to provide the basis for pt IVC proceedings.

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.[73] 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.[74]

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.[75]

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.

84 We now turn to the other constitutional arguments advanced by the respondents.

Interference with integrity of Supreme Court and rule of law

85 The first ground in the respondents' notice of contention adopts and goes beyond the reasoning of the judge concerning the effect of the impugned provisions on the integrity of the Court, relying on the Kable principle. It will be recalled that the judge held that, if he were to grant summary judgment in reliance on the Commissioner's submissions, this would reduce the Court's function to that of an 'arm of the executive', citing the use of that expression by Gummow J in Kable.[76]

86 By the principle derived from the High Court's decision in Kable, a law which substantially impairs the institutional integrity of a State court so as to be incompatible with that court's role as a repository for the judicial power of the Commonwealth under Ch III of the Constitution is invalid.[77] Six members of the High Court explained the principle in the following way, in Attorney-General (NT) v Emmerson:[78]

The principle for which Kable stands is that because the Constitution establishes an integrated court system, and contemplates the exercise of federal jurisdiction by State Supreme Courts,[79] State legislation which purports to confer upon such a court a power or function which substantially impairs the court's institutional integrity, and which is therefore incompatible with that court's role as a repository of federal jurisdiction, is constitutionally invalid.[80]

87 The facts of Emmerson are instructive. Section 36A of the Misuse of Drugs Act 1990 (NT) provided that the Director of Public Prosecutions could apply to the Supreme Court for a declaration that a person was a drug trafficker. The section stated that, on hearing such an application, 'the court must declare a person to be a drug trafficker' if the person had been found guilty of certain offences over certain periods. Under s 94 of the Criminal Property Forfeiture Act 2002 (NT), if a person was declared to be a drug trafficker under s 36A, all property subject to a restraining order made under other provisions, and all property given away by the person, was forfeited to the Northern Territory. The Northern Territory Court of Appeal held that the combined operation of these provisions was invalid because the Court was enlisted to give effect to executive decisions or legislative policy in a manner which undermined its institutional integrity to a degree incompatible with its role as a repository of federal jurisdiction.

88 The High Court allowed an appeal against this decision. Gageler J did not address this question, dealing with the appeal on another ground. The remaining members of the Court looked at the powers and duties of the Court, the role of the Director in making an application and the judicial processes required to be undertaken to give effect to the statutory scheme. Their reasoning proceeded, first, by observing that Australian legislatures may empower courts to make specified orders if certain conditions are satisfied, even if that satisfaction depends on a decision made by a member of the Executive.[81] In the absence of contrary legislative intention, it can be inferred in such cases that Parliament accepts that the power will be exercised in accordance with standards characterising ordinary judicial processes.[82]

89 The joint reasons summarised the statutory scheme in this way:

The Supreme Court is authorised to determine whether the statutory criteria set out are satisfied and, if they are, the Court must make the declaration sought. The Forfeiture Act provides the consequences which follow from the Supreme Court's declaration. Together, these steps are an unremarkable example of conferring jurisdiction on a court to determine a controversy between parties which, when determined, will engage stated statutory consequences.[83]

90 Next, it was held that the fact that the controversy was initiated by an officer of the Executive did not deprive the Court of its independence.[84] Moreover, the ordinary judicial processes were to be followed:

A declaration can only be made by the Supreme Court on receipt of evidence sufficient to satisfy the civil standard of proof in respect of a person's requisite number of past convictions. There is nothing in the statutory scheme which indicates that the determination to be made by the Supreme Court is to be undertaken other than in open court, in circumstances where an affected party has a right to be heard, may have legal representation, and may make submissions and receive reasons. That the determination of whether the statutory criteria are satisfied may readily be performed, because of the ease of proof of the criteria, does not deprive the process of its judicial character.

The effect of a declaration is the creation of a legal status for the purposes of the Misuse of Drugs Act, reflecting the satisfaction of the statutory criteria.[85]

91 The legislation with which we are concerned presents a similarly narrow issue to the court. As the Commissioner submitted, the court must be satisfied of a number of matters before finding that an amount is due and payable. It must determine that the correct parties are before it and, based on relevant assessments, whether there is a tax-related liability and the amount of such a liability. It may also need to consider a prima facie certificate under s 255-45 of sch 1 to the TAA, under which issues of valid service and the amount outstanding may be addressed. In some cases, issues of part payment may also arise. On one view, as discussed at [112] to [115] below, a court in recovery proceedings may also decide whether a document is only a 'tentative' or 'provisional' assessment. Adapting the language used in Emmerson, the fact that some or all of the matters in issue may readily be determined because of the ease of their proof does not deprive the process of its judicial character.

92 The narrowness of the inquiry is a reflection of the character of the debt in question. It is a debt created by statute, based on narrowly prescribed criteria. As the Court stated in Broadbeach, the legislature may create an obligation to pay money, for which an action in debt is the appropriate remedy, and in doing so the legislature may attach special incidents or characteristics which do not pertain to debts under the general law.[86] The joint reasons gave as an example of such special characteristics the inability of a taxpayer to dispute the underlying assessment, including on the basis of there being a pending objection.

93 The legislative scheme in Emmerson may be contrasted with the income tax regime in so far as the Court in Emmerson only made the declaration, and it was statute that gave it operation, whereas the court in a recovery proceeding gives judgment and thereby itself gives the Commissioner's assessment operation. However, the distinction does not assist the respondents. The making of the declaration in Emmerson directly gave rise to the specified statutory consequences. In contrast, the giving of judgment under the income tax legislation recognises the existence of the statutory cause of action and gives effect to it. In both cases, the parties' rights and obligations flowed from the operation of the statute. If anything, the Kable argument in Emmerson was stronger, because the court there performed a necessary step in creating those rights and obligations, whereas in the income tax context, the court identifies and recognises the taxpayer's obligations and cannot be said to be involved in their creation.

94 The statutory character of the debt indicates that the fact that the court is not empowered to enter into the correctness of the assessment does not 'reduce the judicial function of fact finding to the merest formality', to use the language of Brennan CJ in Nicholas which the judge in the present case adopted.[87] The scope of the fact finding inquiry is limited because the criteria for the existence of the statutory debt are limited. The controversy before the court does not extend to the correctness of the assessment, but within the scope of that controversy the judicial function of fact finding is untrammelled.

95 For these reasons, the impugned provisions do not infringe the Kable principle. Nor do they infringe the rule of law, to the extent that the respondents alleged that as a separate basis for invalidity. The rule of law is satisfied, not only because the court applies the law to the question whether the statutory debt is established in a particular case, but also because there is elsewhere provided full opportunity for challenging the underlying assessment by way of review or appeal.

96 It follows that the first proposed ground of appeal succeeds, to the extent that it raises the Kable principle, and that ground 1 of the notice of contention must be rejected.

97 The first proposed ground of appeal also takes issue with the conclusion of the judge that the Commissioner's construction of the impugned provisions results in an impermissible conferral of judicial power upon the Commissioner.[88]

98 This argument largely depended on the success of the Kable argument. It was argued by the respondents that, because the court in a recovery proceeding had no function other than to give effect to the Commissioner's assessment, the Commissioner was exercising judicial power. The premise for that argument is wrong for the reasons already stated. The assessment is not an exercise of judicial power. It provides the foundation for the creation of a statutory cause of action and the court exercises judicial power to decide whether the conditions for the creation of that cause of action have been established.

99 In the circumstances, there is no foundation for the conclusion that the Commissioner exercises judicial power in making an assessment. It is therefore strictly unnecessary to consider the respondents' argument that the decision in Brandy demonstrates that the availability of remedies under pt IVC is insufficient to deprive the Commissioner's exercise of power of its judicial character. It lacks that character irrespective of the existence of pt IVC. However, the point should be made that the regime in Brandy was altogether different because the statute purported to give determinations of the Human Rights and Equal Opportunity Commission the force of a judgment of the Federal Court. This was a significant factor in the conclusion that the Commission exercised judicial power, and the existence of a review procedure did not convert the Commission's determination into one of an administrative kind. No such provision applies in the income tax context to give an assessment the force of a judgment of a court, for the reasons already explained.

100 It follows that the making of an assessment does not involve an exercise of judicial power, and this aspect of proposed ground 1 should also be upheld.

101 The impugned provisions are therefore not invalid on any of the grounds alleged by the respondents, or found by the judge. It remains to apply them to the other arguments upon which the respondents relied. Those grounds, raised by way of submissions and in the third ground of the notice of contention, involved the three jurisdictional errors pleaded by the respondents and set out at [16] above.

102 These arguments raise two related issues. The first is whether the alleged errors are in the nature of jurisdictional errors at all. The second is whether, even if they are, the court has jurisdiction to decide them in recovery proceedings. We shall deal with each of the errors in turn.

No evidence as to formation of Commissioner's opinions under ss 167 and 170

103 The first two heads of jurisdictional error contended that it was 'not open' to the Commissioner not to be satisfied with the respondents' tax returns and that there was no fraud or evasion so as to permit the amendment of any assessments. As a result, the Commissioner was not entitled to make assessments under s 167(b) of the 1936 Act or to amend assessments on the basis of fraud or evasion under s 170 of the 1936 Act. At the very least, the respondents submitted, the Commissioner should have pleaded the formation of the opinions required under ss 167(b) and 170, and can be required to put before the court evidence of the formation of those opinions, and their factual bases.

104 These arguments run counter to established authority. First, the Commissioner's function under s 167(b) of deciding whether he or she is satisfied with a return is a procedural step, and therefore part of the 'making' of the assessment rather than its correctness. As such, by virtue of s 355-10, it is conclusively proved by the production of the notice of assessment and is not open to challenge, including in pt IVC proceedings.[89]

105 Secondly, the formation of the opinion as to fraud or evasion is a condition precedent governing the power to make an amended assessment under s 170. As such, it is not part of the 'making' of the assessment but it does bear upon the correctness of the assessment. It follows that it falls within the exception within s 355‑10 and a taxpayer can challenge the formation of the opinion in pt IVC proceedings.[90] However, in recovery proceedings the taxpayer may not go behind the assessment, including by challenging the fulfilment of conditions precedent to the making of an assessment. Dixon CJ, McTiernan and Webb JJ explained in McAndrew v Federal Commissioner of Taxation:

The ground over which s 177(1) gives conclusiveness to the assessment is described as the due-making of the assessment and the correctness of the amount and all the particulars of the assessment. But·that appears to us to comprise the whole ground. It is the manifest policy, one may now almost say the historical policy, of the legislation on the one hand to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose. The question whether the conditions laid down by s 170(2) are fulfilled so that the Commissioner might amend the assessment is clearly within this policy.[91]

106 Consistently with this passage, the Full Court of the Federal Court held in Chhua that an assessment issued in circumstances of non-compliance with s 170 none the less constitutes an assessment for the purposes of s 175, subject to the two kinds of jurisdictional error identified in Futuris.[92] Dr Orow urged us to find that the decision in Chhua was wrong, but did not submit that it was 'plainly wrong' such that this Court would not be bound to follow it.[93] In any event, no reason appears to us for doubting the correctness of the above position.

107 None of the authorities relied on by the respondents support any different conclusion. In particular, the observations of Barwick CJ in Giris,[94] as to the court being able to examine the formation of the opinion of the Commissioner under s 99A of the 1936 Act involved no issue under ss 175 or 177.

108 It follows that, by virtue of s 355-10, the formation of the opinion for which s 167(b) provides is unable to be challenged in pt IVC proceedings or in recovery proceedings; and while s 355-10 does not preclude the formation of the opinion as to fraud or evasion for which s 170 provides being challenged in pt IVC proceedings, it, along with s 175, prevents such a challenge in recovery proceedings.

109 For these reasons, the first two alleged jurisdictional errors may not be pursued in recovery proceedings and the third ground in the notice of contention fails.

110 The final head of jurisdictional error sought to be advanced by the respondents was that the assessments in question were 'tentative'. It will be recalled that this was one of the kinds of jurisdictional error recognised by the High Court in Futuris.

111 There is some doubt as to whether a claim of tentativeness can be advanced in recovery proceedings, or whether it can only be raised by way of judicial review in proceedings under s 39B of the Judiciary Act or s 75(v) of the Constitution. There is obiter of the Full Court of the Federal Court to the effect that judicial review is the 'appropriate' course.[95] However, the authorities relied on for that observation are concerned with conscious maladministration, rather than tentativeness. Similarly, the New South Wales Court of Appeal held in Anglo American that a claim of conscious maladministration can only be pursued in judicial review proceedings and not in recovery proceedings.[96]

112 There is some basis for thinking that an argument that a purported assessment is 'tentative' or 'provisional' is in a different position. Like a claim of conscious maladministration, such an argument amounts to saying that there is no debt because there is no valid assessment. However, the nature of an argument as to tentativeness is that the flaw in the purported assessment appears on its face or from an accompanying document. In FJ Bloemen, Mason and Wilson JJ (with whom Stephen and Aickin JJ agreed) stated that:

the Supreme Court is bound, on production of a notice of assessment, to rule that the assessment was duly made both in statutory proceedings and in the exercise of its general jurisdiction. In a given case a question may arise as to whether the notice produced by the Commissioner is a notice of assessment, eg a notice expressed to relate to a definitive assessment as distinct from a provisional or tentative assessment. Unless it can be characterized as a notice of an 'assessment', s 177(1) will have no operation.[97]

113 In FJ Bloemen, Mason and Wilson JJ had earlier considered the decision in Batagol v Federal Commissioner of Taxation,[98] regarding the process of assessment and what constitutes an assessment. They concluded:

Batagol supports the view that the process of assessment is completed when the Commissioner inserts in the notice of assessment which is served on the taxpayer the amount of his taxable income and the amount of tax payable thereon. There is nothing in Batagol to suggest that the court will go behind the assessment of a taxpayer's taxable income and tax payable as expressed in the notice of assessment served on him, unless it appears from the notice or an accompanying document that the notice is not in truth a notice of assessment.[99]

114 These passages appear to contemplate that the question whether a document comprises an assessment may be determined in the court's ordinary jurisdiction (in other words, in recovery proceedings), if it is argued that the document relied on by the Commissioner can be seen on its face, or from an accompanying document, to be tentative or provisional in nature.[100] It is, after all, part of the function of a court hearing recovery proceedings to be satisfied as to the existence of an assessment. If the document produced, or an accompanying document, reveals that what purports to be an assessment does not meet that description, the Commissioner will have failed to establish part of his or her case.

115 It is not necessary, however, to decide this question in the present matter. That is because, while the respondents' pleading used the language of tentativeness, the allegation was not of the kind discussed above or recognised in Futuris. Instead, the respondents invited the Court to conclude that, because of the method used by the Commissioner to make the assessments, the assessments were not 'definitive'. More particularly, the respondents each pleaded that the assessments were made 'arbitrarily by aggregating deposits and transactions between the defendant and related parties without determining the source, character and statutory basis for the inclusion of those deposits and transactions in taxable income'. Far from being an assertion of tentativeness in the sense recognised in FJ Bloemen and Futuris, this amounts to a direct attack on the correctness of the assessments. As such, it was foreclosed by s 175 and s 350-10 and is not an available ground of jurisdictional error.

116 It follows that the Commissioner has established the first proposed ground of appeal. Further, because the notice of contention fails and the argument as to tentativeness is also without merit (even assuming it could be dealt with in recovery proceedings), it also follows that the respondents had no real prospect of success in the recovery proceedings and that summary judgment should not have been refused on the contrary basis.

117 It remains to consider the second proposed ground of appeal, which challenges the judge's conclusion that, even if the respondents' defences had no real prospect of success, summary judgment should be refused under s 64 of the CPA.

Proposed ground 2 - CPA s 64

118 Section 64 empowers the court to refuse summary judgment if it is satisfied that, despite there being no real prospect of success, the proceeding should not be disposed of summarily because it is not in the interests of justice to do so or the dispute is of such a nature that only a full hearing on the merits is appropriate. The judge relied on both grounds for exercising the discretion under this provision.

119 In our opinion, the Commissioner has shown House v The King error in this respect. First, if the proceedings had no real prospect of success, that was because, as we have held, the impugned provisions stood in the way of the defences relied on by the respondents under the description of jurisdictional error. In those circumstances, it could not be in the interests of justice for the Court to conduct a full hearing and then determine those defences. To do so would involve incorrectly applying the legislation which provides that the defences are unavailable.

120 Secondly, to the extent that the judge can be understood as saying that the question of constitutional validity, or the application of the impugned provisions to the pleaded defences, made a full hearing on the merits appropriate, that conclusion was not open in circumstances where those issues had been fully canvassed in both written and oral submissions before the judge. The dispute in this regard was one of law alone and the parties had run their cases. Nothing further would be achieved by a 'full hearing' of those matters.

121 Accordingly, the discretion miscarried. It was not in the interests of justice, or appropriate in light of the nature of the case, to permit the matter to proceed to a full hearing in circumstances where the defences had no real prospect of success. The Commissioner's second proposed ground should be upheld.

122 Leave to appeal should be granted and the appeal should be allowed. The orders of the judge should be set aside and in their place there should be summary judgment for the Commissioner in each proceeding. That result follows from the absence of any contest between the parties on the issues which properly arise in the proceedings. In that regard, it is of no relevance that, as the Commissioner accepted in Broadbeach, a court in a winding up application may take into account whether the taxpayer has a reasonably arguable case in pending pt IVC proceedings.[101]

123 We shall invite the parties to agree upon the appropriate amounts for inclusion in each judgment, bringing amounts by way of shortfall interest charge, administrative penalties and general interest charge up to date and also addressing the discrepancy in the summons in the case of Mr Buzadzic to which we referred at footnote 1 in these reasons, which may necessitate an amendment to the summons.

[1] This figure seems to be a typographical error for $4,781,735.66, being the amount deposed to in the affidavit upon which the Commissioner relied. Both amounts are larger than those in the writs, as the result of additional interest and charges accruing due to the effluxion of time.

[2] Deputy Commissioner of Taxation v Buzadzic [2019] VSC 141 [35] (Croft J) ('Reasons').

[4] See TAA, sch 1, s 250-10(2), items 37, 37AA, 140 and 70 respectively.

[5] [2018] HCASL 282.

[8] Ibid [32], quoting Kable v DPP (NSW) [1996] HCA 24; (1996) 189 CLR 51, 134 ('Kable').

[10] [2018] HCA 2; (2018) 262 CLR 333, 355 [80] (Gageler and Gordon JJ), quoting Chu Kheng Lim v Minister for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR 1, 27 (Brennan, Deane and Dawson JJ) ('Chu Kheng Lim').

[12] (1992) 176 CLR 1.

[13] Reasons [36], quoting Chu Kheng Lim (1992) 176 CLR 1, 36-7.

[14] Ibid [37], quoting Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; (1995) 183 CLR 168, 185 (Mason CJ) ('Richard Walter').

[16] [1998] HCA 9; (1998) 193 CLR 173 ('Nicholas').

[20] Ibid [40]-[41], quoting Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146, 182 [122], 183 [125]-[126] ('Futuris').

[21] Section 64 provides that a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success, the proceeding should not be disposed of summarily either because it is not in the interests of justice to do so or because the dispute is of such a nature that only a full hearing on the merits is appropriate.

[24] [1995] HCA 10; (1995) 183 CLR 245 ('Brandy').

[25] Futuris [2008] HCA 32; (2008) 237 CLR 146, 166 [65].

[28] (2008) 237 CLR 473, 492 [44] (Gummow ACJ, Heydon, Crennan and Kiefel JJ) ('Broadbeach').

[29] Commissioner of State Revenue v Gas Ban Pty Ltd (in liq) [2011] VSCA 89; (2011) 31 VR 397, 408-10 [51]-[57] (Nettle and Mandie JJA and Hargrave AJA); ACN 005 057 349 Pty Ltd v Commissioner of State Revenue (2015) 102 ATR 281, 332-3 [150]-[151]; [2015] VSCA 332 (Hansen and Tate JJA and Robson AJA).

[30] Chhua v Federal Commissioner of Taxation (2018) 262 FCR 228, 238-9 [29] (Logan, Moshinsky and Steward JJ) ('Chhua'); Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301, 315 [61]-[63] (Bennett, Edmonds and Gordon JJ) ('Gashi') and Federal Commissioner of Taxation v Dalco (1990) 168 CLR 613, 621, 623 (Brennan J) ('Dalco').

[31] Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation [2017] NSWCA 17; (2017) 347 ALR 134, 145 [43]-[44]; [2017] NSWCA 17 (Payne JA, with McColl and Meagher JJA agreeing) ('Anglo American').

[32] (1936) 55 CLR 499, 505 (Dixon, Evatt and McTiernan JJ).

[33] [2003] HCA 2; (2003) 211 CLR 476, 513-14 [103]-[104] (Gaudron, McHugh, Gummow, Kirby and Hayne JJ) ('Plaintiff S157').

[34] [2017] HCA 33; (2017) 263 CLR 1, 25-7 [44]-[48] (Kiefel CJ, Bell, Gageler, Keane, Nettle and Gordon JJ) ('Graham').

[35] [2008] HCA 33; (2008) 237 CLR 198, 204 [9] ('WR Carpenter').

[36] Relying on Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502, 508-11 (Deane, Toohey and Gaudron JJ) ('Chamberlain').

[37] [1997] FCA 533; (1997) 75 FCR 458, 469.

[38] [1995] HCA 10; (1995) 183 CLR 245, 258-62, 264 (Mason CJ, Brennan and Toohey JJ), 267-9, 271 (Deane, Dawson, Gaudron and McHugh JJ).

[39] [1996] HCA 24; (1996) 189 CLR 51, 115, 122 (McHugh J).

[40] (2011) 243 CLR 181, 208-11 [43]-[48] (French CJ and Kiefel J), 228-9 [105] (Gummow, Hayne, Crennan and Bell JJ).

[41] [2010] HCA 39; (2010) 242 CLR 1, 42-3 [61]-[62], 47-8 [69], 51 [78], 52 [82] (French CJ), 155-7 [423]-[428] (Crennan and Bell JJ), 162-3 [443]-[444] (Kiefel J).

[42] Brandy [1995] HCA 10; (1995) 183 CLR 245, 261-2.

[44] (1989) 168 CLR 614, 620 (Brennan J).

[45] [1995] HCA 23; (1994) 183 CLR 168, 182-3 (Mason CJ).

[46] [1969] HCA 5; (1968) 119 CLR 365, 374 (Barwick CJ) ('Giris').

[47] (2018) 262 FCR 228.

[48] [2016] FCAFC 163; (2016) 249 FCR 534.

[49] (1989) 168 CLR 614, 620 (Brennan J).

[50] (1936) 55 CLR 499.

[51] Broadbeach (2008) 237 CLR 473, 484 [13] (Gummow ACJ, Heydon, Crennan and Kiefel JJ).

[53] Abebe v Commonwealth [1999] HCA 14; (1999) 197 CLR 510, 525 [26] (Gleeson CJ and McHugh J).

[54] Futuris [2008] HCA 32; (2008) 237 CLR 146, 153 [9] (Gummow, Hayne, Heydon and Crennan JJ).

[56] [1969] HCA 5; (1969) 119 CLR 365, 379. The Commissioner also relied on Federal Commissioner of Taxation v Bosanac [2016] FCA 448; (2016) 103 ATR 51, 69 [73]-[78]; [2016] FCA 448 (McKerracher J) ('Bosanac').

[57] Dalco (1990) 168 CLR 614, 620, 622 (Brennan J); Chhua (2018) 262 FCR 228, 238 [29] (Logan, Moshinsky and Steward JJ).

[58] [2008] HCA 32; (2008) 237 CLR 146, 157 [24] (Gummow, Hayne, Heydon and Crennan JJ).

[64] Ibid 167 [67], quoting Richard Walter [1995] HCA 23; (1995) 183 CLR 168, 222-3 (Dawson J).

[65] MacCormick v Federal Commissioner of Taxation [1984] HCA 20; (1984) 158 CLR 622, 640 (Gibbs CJ, Wilson, Deane and Dawson JJ) ('MacCormick').

[66] Deputy Commissioner of Taxation (NSW) v Brown [1958] HCA 2; (1958) 100 CLR 32, 40 (Dixon CJ); Giris [1969] HCA 5; (1969) 119 CLR 365, 378-9 (Kitto J); MacCormick [1984] HCA 20; (1984) 158 CLR 622, 640-1 (Gibbs CJ, Wilson, Deane and Dawson JJ); WR Carpenter [2008] HCA 33; (2008) 237 CLR 198, 204 [9].

[67] MacCormick [1984] HCA 20; (1984) 158 CLR 622, 641 (Gibbs CJ, Wilson, Deane and Dawson JJ).

[68] [2008] HCA 32; (2008) 237 CLR 146, 153 [9], 166 [65] (Gummow, Hayne, Heydon and Crennan JJ).

[69] Broadbeach (2008) 237 CLR 473, 491-3 [41]-[45] (Gummow ACJ, Heydon, Crennan and Kiefel JJ), quoting among other cases FJ Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27; (1981) 147 CLR 360, 375 (Mason and Wilson JJ) ('FJ Bloemen') and Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857, 858-9 (Mason ACJ) ('Clyne').

[70] (1982) 56 ALJR 857, 858.

[71] Broadbeach (2008) 237 CLR 473, 492-3 [44]-[45] (Gummow ACJ, Heydon, Crennan and Kiefel JJ), quoting Deputy Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54, 57 (Bowen CJ in Eq).

[72] Bosanac [2016] FCA 448; (2016) 103 ATR 51, 69 [72]-[79]; [2016] FCA 448 (McKerracher J).

[73] [1988] HCA 21; (1988) 164 CLR 502, 510 (Deane, Toohey and Gaudron JJ).

[76] Reasons [32]-[33], quoting Kable [1996] HCA 24; (1996) 189 CLR 51, 134.

[77] Knight v Victoria [2017] HCA 29; (2017) 261 CLR 306, 317 [5].

[78] [2014] HCA 13; (2014) 253 CLR 393, 424 [40] (French CJ, Hayne, Crennan, Kiefel, Bell and Keane JJ) ('Emmerson').

[79] Constitution s 77(iii).

[80] Kable [1996] HCA 24; (1996) 189 CLR 51, 101-3 (Gaudron J), 114-16 (McHugh J), 138, 143 (Gummow J); North Australian Aboriginal Legal Aid Service Inc v Bradley [2004] HCA 31; (2004) 218 CLR 146, 163 [29] (McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ).

[81] Emmerson [2014] HCA 13; (2014) 253 CLR 393, 430-1 [57] (French CJ, Hayne, Crennan, Kiefel, Bell and Keane JJ).

[85] Ibid 433 [65]-[66] (emphasis added).

[86] (2008) 237 CLR 473, 493-4 [51]-[52] (Gummow ACJ, Heydon, Crennan and Kiefel JJ).

[87] Reasons [38]-[39], quoting Nicholas [1998] HCA 9; (1998) 193 CLR 173, 189-90 [24].

[89] George v Federal Commissioner of Taxation (1952) 86 CLR 183, 206-7 (Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ); Dalco (1990) 168 CLR 614, 620, 622 (Brennan J).

[90] McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263, 270-1 (Dixon CJ, McTiernan and Webb JJ) ('McAndrew'); Dalco (1990) 168 CLR 614, 622-3 (Brennan J).

[91] [1956] HCA 62; (1956) 98 CLR 263, 270.

[92] (2018) 262 FCR 228, 239-40 [32] (Logan, Moshinsky and Steward JJ).

[93] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151-2 [135]; R v Falzon [2018] HCA 29; (2018) 92 ALJR 701, 712 [49]; [2018] HCA 29.

[94] [1969] HCA 5; (1968) 119 CLR 365, 374.

[95] Gashi [2013] FCAFC 30; (2013) 209 FCR 301, 310-11 [43] (Bennett, Edmonds and Gordon JJ).

[96] [2017] NSWCA 17; (2017) 347 ALR 134, 145-6 [46]-[54]; [2017] NSWCA 17 (Payne JA, with McColl and Meagher JJA agreeing).

[97] [1981] HCA 27; (1981) 147 CLR 360, 378. The joint judgment in Futuris expressed a guarded qualification to this page of the judgment, but it appears not to have related to the question of tentativeness: [2008] HCA 32; (2008) 237 CLR 146, 165 [56].

[98] [1963] HCA 51; (1963) 109 CLR 243.

[99] [1981] HCA 27; (1981) 147 CLR 360, 372 (emphasis added).

[100] The joint reasons in Futuris similarly contemplate, in the context of judicial review proceedings, that tentativeness must appear on the face of the purported assessment or in related correspondence: [2008] HCA 32; (2008) 237 CLR 146, 163-4 [51]-[52].

[101] Broadbeach (2008) 237 CLR 473, 484 [13] (Gummow ACJ, Heydon, Crennan and Kiefel JJ).