Is there a good arguable case?
6 As to the requirement of r 7.35(1)(b) that he have a good arguable case, the Deputy Commissioner submitted that his claim was based on notices of assessment (or amended notices of assessment) for income tax (or for administrative penalties imposed, or the general interest charge levied upon such tax). He pointed to s 177(1) of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act') which makes such a notice conclusive evidence of the due making of the assessment and that the amount of all particulars of the assessment is correct: see FJ Bloeman Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 at 376 per Mason and Wilson JJ; Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146.
7 One might have thought that, where an applicant had the singular advantage of a procedural right to tender a notice which operated as conclusive evidence of that kind, there was present - to use the language of r 7.35(1)(b) - a good arguable case. But this was not so according to Ms Seiden who, with Mr Hyde Page of counsel, appeared for Chemical Trustee. To begin with, it was submitted that the conclusive effect of s 177 was only enlivened where what had been tendered was a valid notice of assessment. There would not be such a notice if the assessment constituted an abuse of process or was not a bona fide exercise of the power of assessment. The Court was invited to draw the conclusion that such was the case because:
(a) on the day the present proceedings were commenced (18 September 2012) a senior official from the Australian Taxation Office swore that he had made inquiries of the persons responsible for the process of preparing the amended assessments and had been informed that they would not be concluded for a further four weeks following which there would be an internal review. Ultimately, he thought that the new assessments would not appear for eight to twelve weeks;
(b) despite that, the new assessments were issued three days later on 21 September 2012; and
(c) it followed that the internal review had not occurred and that, given the haste of what had occurred, an inference should be drawn that the assessments had been issued to further the present application for a freezing order. This was said to be an abuse of process.
8 It seems to me likely that this is why the notices were brought forward. I do not think, however, that this would involve an abuse of process. The point of the freezing order is to protect the subject matter of the assessments. I do not accept that it is an abuse to issue an assessment with a view to procuring a freezing order. The subordinate nature of the freezing order is underscored by the fact that, if the notices are ultimately set aside in proceedings brought under Part IVC of the Taxation Administration Act, the freezing order will be set aside. Indeed, the issue of a notice of assessment will always proceed the application for a freezing order. No doubt the Deputy Commissioner was spurred into action because other freezing orders made in respect of an earlier judgment were about to expire, but I do not see this as a problem.
9 A second reason why the Deputy Commissioner was submitted not to have a good arguable case was because, at least in respect of part of the tax, he had not shown that another taxpayer had not already paid the tax. It was said that Chemical Trustee was the off-shore beneficiary of the Regatta Point Unit Trust; that the Commissioner had assessed the net income of that trust in the hands of the trustee under s 98 of the 1936 Act; and that the trustee had paid that tax. Tendered before me as Exhibit 4 was a trust beneficiary statement of account issued by a Deputy Commissioner which showed that the trustee had a tax debt of $1,135,326,11 on 3 September 2012.
10 It seems to me that I must reject this argument. The evidence does not show that the trustee of the Regatta Point Trust has paid the tax which is now being sought from the beneficiary Chemical Trustee. It shows, to the contrary, that the trustee of the Regatta Point Trust has not paid the tax. Once that is accepted, and the evidence tendered in its support admits, so far as I can see, of no other interpretation, this point collapses. In any event, I would have rejected the argument as advanced. The onus does not lie upon the Deputy Commissioner to prove, in a proceeding based upon a notice of assessment, that the tax has not been paid by someone else. His assessment is conclusive. No doubt the taxpayer in such a case may seek to prove the tax to have been otherwise paid, but negativing such a case in advance is no part of the Deputy Commissioner's onus of proof.
11 The third argument was that the Deputy Commissioner could not recover the sums in question because his entitlement to do so had merged in an earlier judgment. On 25 November 2010 a Judge of this Court gave judgment in favour of the Deputy Commissioner against Chemical Trustee in the sum of $4,833,259.45: Deputy Commissioner of Taxation v Chemical Trustee Limited [2010] FCA 1297. This was the result of a summary judgment application brought by the Commissioner in which he relied upon notices of assessment issued for the 2001, 2002, 2003, 2004, 2006 and 2007 years on 12 August 2010 together with additional sums for shortfall penalties and the general interest charge. This judgment was subsequently varied on 8 June 2012 by the removal of the general interest charge: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No. 3) [2012] FCA 594 at [9]-[17]. On 27 August 2012, Chemical Trustee satisfied that judgment by what appears to have been the payment of a final instalment.
12 Before that occurred, the Deputy Commissioner issued further notices of amended assessment in respect of the same years together with a notice of assessment of shortfall penalty. This occurred on 9 July 2012. Thereafter he issued another set of amended notices last Friday (21 September 2012). Some of these related to the same years which had been the subject of the judgment of 25 November 2010. There were, however, notices of assessment also issued in respect of the income years 2000, 2005 and 2008-2011, which were not the subject of the earlier judgment. The tax levied in respect of these years was in itself substantial ($6,264,585.60).
13 In respect of the years of income which had resulted it the original notices of assessment underlying the judgment granted on 25 November 2010, Chemical Trustee submitted that it had paid the judgment sum in full on 27 August 2012 and that all of the Commissioner's rights to recover in respect of those years had merged in the judgment.
14 There were three steps in this argument. The first was that the liability of a taxpayer to income tax arose from the operation of the 1997 Act and not from the issue of a notice of assessment. The second was that what had, therefore, been in issue when the Deputy Commissioner secured summary judgment based upon notices of assessment for the 2001-2004 and the 2006-2007 years was the liability of Chemical Trustee to income tax in those years. The third step was that whatever rights the Deputy Commissioner had had under the 1997 Act in respect of those years had merged in the judgment. A variant of this step was that issue estoppels arose from the judgment.
15 Each of these steps is plainly arguable. The first finds support in this Court's decision in Re Mendonca; ex parte Commissioner of Taxation (1969) 15 FLR 256; the second may be the case as a matter of fact; the third receives support from the High Court's decision in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502.
16 However, the question is not whether Chemical Trustee's submission is arguable; rather, it is whether the Deputy Commissioner has a 'good arguable case': r 7.35(1)(b). It does not follow that because one side's case is arguable that the other's is not.
17 What is required of the taxpayer's submission is, therefore, that it be sufficiently compelling so as to mean that the Deputy Commissioner's case is not a good arguable one.
18 I do not think that Chemical Trustee's argument achieves that threshold. There are a number of potential answers to it which suggest themselves. It may well be true that the 1997 Act creates the liability in a taxpayer to pay tax but it is only when a notice of assessment issues that the obligation becomes payable: s 5-5. Section 255-5(1) of Schedule 1 to the Taxation Administration Act permits recovery as a debt tax liabilities but only those which are both due and payable. One view of what occurred in the earlier summary judgment was that what was determined was the Deputy Commissioner's entitlements under s 255-5(1) and that this was necessarily circumscribed by the notices of assessment which provided the critical element which made the liabilities under the Act actually payable.
19 Such a view would likewise tend to suggest that Chamberlain is distinguishable because in that case what was involved was a single notice of assessment.
20 In those circumstances, I do not think that this argument means that the Deputy Commissioner does not have a good arguable case. I do, however, accept that the argument put forward by Chemical Trustee is a substantive one requiring resolution.
21 Finally, Chemical Trustee submitted that the combined effect of these three distinct arguments was sufficient to reduce the Deputy Commissioner's case to below that of a good arguable case. This is a question of assessment. I regard the first two arguments as having little weight. Consequently, this argument rises basically no higher than the third argument which is not, for the reasons I have given, sufficient.