Deputy Commissioner of Taxation v Hua Wang Bank Berhad

Federal Court of Australia|2012-06-08|Before: French J, Perram J

Berhad (No 2) [2010] FCA 1296 cited Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298 cited Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 not followed Kowalski v MMAL Superannuation Fund Pty Ltd (2009) 178 FCR 401 cited Luck v University of Southern Queensland (2009) 176 FCR 268 followed Secure Parking (WA) Pty Ltd v Wilson (2008) 38 WAR 350; [2008] WASCA 268 cited Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 not followed Wills v Australian Broadcasting Corporation (2009) 173 FCR 284 followed DM Gordon QC 'Effect of Reversal of Judgment on Acts done between Pronouncement and Reversal (Part I)' (1958) 74 LQR 517

Solicitor for the Applicant: Australian Government Solicitor

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 672 of 2010

JUDGE: PERRAM J DATE OF ORDER: 8 JUNE 2012 WHERE MADE: SYDNEY

The parties bring in short minutes of order by Monday 25 June 2012 to give effect to these reasons.
The matter be listed for further directions on Tuesday 26 June 2012 at 9.30 am.
The exhibits be returned. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 887 of 2010

JUDGE: PERRAM J DATE OF ORDER: 8 JUNE 2012 WHERE MADE: SYDNEY

The parties bring in short minutes of order by Monday 25 June 2012 to give effect to these reasons.
The matter be listed for further directions on Tuesday 26 June 2012 at 9.30 am.
The exhibits be returned. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 888 of 2010

JUDGE: PERRAM J DATE OF ORDER: 8 JUNE 2012 WHERE MADE: SYDNEY

The parties bring in short minutes of order by Monday 25 June 2012 to give effect to these reasons.
The matter be listed for further directions on Tuesday 26 June 2012 at 9.30 am.
The exhibits be returned. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 672 of 2010

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 887 of 2010

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION VID 888 of 2010

JUDGE: PERRAM J DATE: 8 JUNE 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 Before the Court there are four applications. These are: (i) an application by the taxpayers to vary judgments entered against them by Kenny J on 25 November 2010 (Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296; Deputy Commissioner of Taxation v Chemical Trustee Limited [2010] FCA 1297; Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298) by removing from them the amount for the general interest charge ('GIC') ('the Variation Application'); (ii) an application by the Commissioner to charge various parcels of shares held in the names of the taxpayers to enforce the judgments entered against them by Kenny J; (iii) an application by the taxpayers to stay proceedings brought by the Commissioner against them in which he seeks to enforce the judgments entered in his favour by Kenny J ('the Stay Application'); (iv) an application by the taxpayers to consolidate into one hearing both the taxpayers' appeal proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) ('the Administration Act') (in which they challenge the Commissioner's objection decisions) and the Commissioner's proceedings to enforce the judgments in his favour ('the Concurrent Hearing Application'); 2 The parties accepted that argument and decision on the application in (ii) should be deferred until the resolution of (i), (iii) and (iv). 3 The issues which arise an application (i), (iii) and (iv) are as follows:

The Variation Application 4 The taxpayers submitted that the judgments given against them by Kenny J included a component reflecting the GIC and that they had no liability to that charge on 25 November 2010; that the orders made by Kenny J were interlocutory and therefore susceptible to recall; alternatively that the orders involved a slip or misapprehension on her Honour's part or did not reflect the Court's intention. The Commissioner denied that taxpayers were not liable to the GIC; and submitted that, in any event, subsequent retrospective legislation meant that even if the judgments were now varied to remove the GIC element he would be immediately entitled to apply afresh for summary judgment in respect of the GIC. To this last contention the taxpayers argued that they might well have defences to any such an application and, in that regard, they noted that they presently had before the Commissioner an application that he ought remit payment of the GIC. The Commissioner also submitted that the taxpayers had delayed in the making of the application having been aware of the issue since at least May 2011 and should, therefore, be disentitled to relief on that ground alone.

The Stay Application 5 The taxpayers submitted that the standard to be applied where a stay of execution was sought was lower in the case of an interlocutory judgment than it was in the case of a final judgment. They also submitted that in respect of four of the taxpayers the likelihood that they would succeed in the Part IVC proceedings was so high that the judgments against them should be stayed even on the usual approach. The Commissioner denied that characterisation of the taxpayers' prospects. He also denied that the merits of the Part IVC proceedings were relevant matters. 6 Apart from the merits the taxpayers also pointed to a range of matters said to support a stay: the fact that now was a bad time for the securities to be sold to meet the judgments; the suggestion that the Commissioner had been dilatory in his pursuit of the matter; the fact that the Commissioner was proceeding contrary to his own written guidelines; that his position was fully secured by freezing orders over the securities; that case management principles supported a stay; finally, that third parties would be prejudiced if the judgments were not stayed. Each of these was denied by the Commissioner.

The Concurrent Hearing Application 7 The taxpayers submitted that, in so far as the taxpayers Hua Wang Bank and Bywater were concerned, an issue arose in relation to the charging summonses which also arose in respect of the Part IVC proceedings. In both matters Hua Wang Bank and Bywater sought to show that they were not the beneficial owners of the shares in question - in the former to show that the shares were not theirs to be sold; in the latter, to show that they had not made the gains the Commissioner alleges. If these matters were not tried together there was not only a risk of inconsistent verdicts but a certainty of duplication.

Result 8 The orders made by Kenny J on 25 November 2010 should be varied to excise the GIC. The application for a stay should be dismissed. The application for the charging summonses in relation to Hua Wang Bank and Bywater should be heard at the same time as the Part IVC proceedings.

Liability to the general interest charge 9 The orders made by Kenny J on 25 November 2010 were based on notices of assessment dated 12 August 2010. Those assessments were accompanied by particulars of additional amounts including elements for the GIC and, in each case, for an administrative penalty. The judgment sums included amounts for each of those elements. Six weeks before the notices of assessment had been issued (12 August 2010) there had come into force, on 1 July 2010, the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) which by sch 1, pt 3, s 5-10 provided: 5-10 General interest charge (1) This section applies if, just before the commencement of this section, you were liable, under subsection 204(3) (the old provision) of the Income Tax Assessment Act 1936, to pay the general interest charge on an unpaid amount (the liability) of any tax or shortfall interest charge. (2) On that commencement, the old provision ceases to apply to the liability. (3) From that commencement, section 5-15 (the new provision) of the Income Tax Assessment Act 1997, as originally enacted, applies to the liability as if: (a) the liability remained unpaid at that time; and (b) so much of the charge under the old provision as remained unpaid at that time had been imposed under the new provision and remained unpaid at that time. 10 Subsection (1) of this provision directed attention to the liability of the taxpayer to pay the GIC immediately before 1 July 2010. To understand what happens next one must distinguish between the position of those taxpayers who are full self-assessment taxpayers and those who are not. By s 6 of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act'), full self-assessment taxpayers include companies and the trustees of certain types of trust. Where a full self-assessment taxpayer furnishes a return, s 166A(3) of the 1936 Act deems there to have been issued a notice of assessment under the Commissioner's hand 'on and after [that] day'. 11 Prior to 1 July 2010 ordinarily the issue of a notice assessment had the effect of making tax payable at a range of dates through the operation of s 204(1) of the 1936 Act but its effect was limited in its operation to the position of taxpayers who were not full self-assessment taxpayers. In this case, it is common ground that the taxpayers were full self-assessment taxpayers and that s 204(1) did not apply. Accordingly, the deeming by s 166A of the occurrence of the issue of a notice of assessment did not have its ordinary effect. In any event, none of the taxpayers had actually lodged returns so that the deeming by s 166A(3) on the lodging of a return was never enlivened. 12 Immediately prior to 1 July 2010, therefore, there was no mechanism under which the tax due by the taxpayers could be or had been quantified. The Commissioner nevertheless submitted that an unquantified amount of tax became due and payable under s 204(1A). It provided: (1A) Subject to the provisions of this Part, the tax payable by a full self-assessment taxpayer for a year of income becomes due and payable as follows: (a) if the taxpayer's year of income ends on 30 June - on 1 December of the following year of income or on such later date as the Commissioner allows by notice published in the Gazette; (b) if the taxpayer's year of income ends on a day other than 30 June - on the first day of the sixth month of the following year of income, or on such later date as the Commissioner allows by notice published in the Gazette. 13 The consequence, as the argument was developed, was that the tax to which the taxpayers were liable became 'due and payable' on 1 December each year (it being common ground that the relevant income years ended on 30 June). The Commissioner then pointed to s 204(3) which engendered in each taxpayer an obligation to pay the GIC on tax which had become due and payable: (3) If any of the tax or shortfall interest charge which a person is liable to pay remains unpaid after the time by which the tax or charge is due to be paid, the person is liable to pay the general interest charge on the unpaid amount for each day in the period that: (a) started at the beginning of the day by which the tax or shortfall interest charge was due to be paid; and (b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid: (i) the tax or shortfall interest charge; (ii) general interest charge on any of the tax or shortfall interest charge. (Emphasis added.) 14 Consequently, so the Commissioner submitted, the taxpayers were liable to pay the GIC on and from 1 December following the end of each income year. Because the years of income in dispute (for at least one of the taxpayers) were those ending 30 June each year between 2000 and 2007, it followed that there had been an obligation to pay the GIC on 31 December in each of those years and this, in turn, meant that there existed, immediately prior to 1 July 2010, when sch 1, pt 3, s 5-10 of the Tax Laws Amendment (Transfer of Provisions) Act 2010 came into force, an obligation to pay the GIC. The last step was to observe that s 5-10, therefore, had something upon which to operate as at 1 July 2010. 15 I reject this argument. Full self-assessment taxpayers are nevertheless assessed for tax. The process of assessment, it is true, operates upon the taxpayer lodging a return and the deemed issue thereafter of an assessment under s 166A(3) but that is a mechanism of assessment nonetheless. Consequently there is no reason to think that the ordinary understanding in this country of how tax becomes due and payable is inapplicable. The description in s 204(1A) that tax is due and payable necessarily presupposes that a deemed assessment under s 166A has come into existence: cf. Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 at 626-627 [77]-[79]. The High Court itself appears to have been aware of the potentially anomalous position of self-assessment taxpayers in relation to the time at which tax became due and payable. Having referred in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 ('Broadbeach') to s 204(1A) (set out above) the Court went on to say (at 497 [64]): This provision makes special temporal provision for the tax payable by such taxpayers which, at first blush, does not depend upon the giving of a notice of assessment. That may be thought to depart from the scheme of s 204. But s 166A(3) of the Assessment Act deems an assessment to have been made by the Commissioner on the day the return by the self-assessed taxpayer is lodged and the return is then taken to be the notice of assessment. No relevant consequence follows in these appeals from the status of Broadbeach as a full self-assessment taxpayer. 16 This statement is at least consistent with the view that the process of assessment remains central in such a case. 17 When Kenny J gave summary judgement on 25 November 2010 her Honour did so in three separate proceedings (each of which is the subject of this judgment). It is apparent from paragraph [1] of each judgment that it included as a component the GIC. Leaving aside the effect of any subsequent retrospective legislation it follows that the taxpayers were not liable for those sums.

The Court's power to recall or vary the orders of 25 November 2011 18 Ms Seiden, who appeared with Mr Hyde Page of counsel, submitted that the judgments were summary in nature and hence interlocutory so that the Court's jurisdiction to recall or vary them was enlivened under r 39.05(c) of the Federal Court Rules 2011. It provides: 39.05 Varying or setting aside judgment or order after it has been entered The Court may vary or set aside a judgment or order after it has been entered if: … (c) it is interlocutory 19 The Commissioner denied that the orders had been interlocutory. The judgments were given by Kenny J pursuant to s 31A(1) of the Federal Court of Australia Act 1976 (Cth). It is true, as the Commissioner submitted, that the Full Court of this Court in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 concluded that a summary judgment on all claims under s 31A was a final order (at 376-377 [2] per Finkelstein J, 417 [173] per Gordon J). However, subsequent Full Courts have held that this was incorrect: Wills v Australian Broadcasting Corporation (2009) 173 FCR 284 at 287 [15] per Emmett J, 290 [28]-[29] per Rares J; Luck v University of Southern Queensland (2009) 176 FCR 268 at 283 [58] per Graham J, 294-295 [109] per Rares J. Mr Morris of counsel, who appeared for the Commissioner, submitted that neither of these cases had as its ratio decidendi the proposition that an order entering judgment because a defence had no reasonable prospects of success was interlocutory. I accept this is so. However, both contain considered dicta contrary to the position espoused in Jefferson Ford. Mr Morris submitted that I was bound by Jefferson Ford and that the later dicta could not relieve that condition. That argument, however, erroneously assumed that the ratio decidendi of Jefferson Ford is that a judgment under s 31A on all claims is interlocutory. In Jefferson Ford the judgments were not in respect of all issues and the Full Court's actual conclusion was that the judgments before it were therefore interlocutory. The passages in the reasons for judgment of Finkelstein J starting at [2], to the extent they dealt with the position of summary judgments given in respect of all claims, are therefore obiter dicta. The debate then is between conflicting dicta. I prefer the statements in Luck and Wills to those in Jefferson Ford and will follow them. The orders made by Kenny J were, therefore, interlocutory and power arises to recall them under r 39.05(c): cf. in relation to summary judgments made pursuant to s 31A(2), Kowalski v MMAL Superannuation Fund Pty Ltd (2009) 178 FCR 401 at 409-412 [32]-[44].

Whether the Court should exercise the power to recall or vary 20 The Commissioner next submitted that the course of excising the erroneously included GIC component of the judgments should not be taken for four reasons. First, the taxpayers had been properly represented before Kenny J and the law introducing s 5-10 from 1 July 2010 - the Tax Laws Amendment (Transfer of Proceedings) Act 2010 - had been in force for nearly five months when the application for summary judgment had been heard. Secondly, the taxpayers had known of the GIC point since May 2011 when the Commissioner advised them of it but they had taken no step to resolve the issue until the present applications were filed on 17 April 2012. Thirdly, the taxpayers were not prejudiced because if they succeeded in their Part IVC proceedings the money they had paid would be reimbursed. Fourthly, there had been enacted after the making of the orders remedial legislation clarifying retrospectively the taxpayers' liability to the GIC. 21 I do not accept these arguments. As to the first, it is apparent that all parties at the hearing overlooked the drafting deficiency in s 5-10. The extent of the taxpayers' and their advisors' default in that regard is usefully measured by precisely the same error having been made by the Commissioner and his advisors. As to the second contention, whilst it is true that the taxpayers were aware of the point from May 2011 there could be little utility in seeking to vary a judgment which the Commissioner was not yet seeking to enforce. It was only in December last year when the Commissioner's efforts to enforce the judgments against the shares held in the names of the taxpayers began to bud that such an application became a rational use of resources or court time. As to the third contention, I accept that success by the taxpayers in respect of the Part IVC proceedings would reverse the GIC but this does not mean that there is no prejudice. They are prejudiced by being out of funds to the extent that the judgments are enforced. 22 The fourth point is that of the remedial legislation. On 27 June 2011 the Tax Laws Amendment (2011 Measures No 3) Act 2011 (Cth) received the Royal Assent. Item 4 of Schedule 2 took effect retrospectively from 1 July 2010 and provided: For the purposes of applying, at a particular time, former subsection 204(3) of the Income Tax Assessment Act 1936 in relation to any tax, it does not matter whether the tax had been assessed at that time. 23 The Commissioner submits that this made the GIC due and payable even though it had not been assessed. Consequently even if the judgments were set aside he would be entitled to summary judgment for the GIC amounts on the basis of item 4. The taxpayers submitted that they should have the opportunity to contest that matter in a fully argued summary judgment application. The only proffered basis for that course was the fact of there presently being before the Commissioner their application to him to remit the GIC. Although that argument by itself is not, at least on cursory examination, an especially compelling one procedural fairness requires nevertheless that the taxpayers be given a proper opportunity to put a case against the operation of item 4 if the Commissioner elects to pursue summary judgment for the GIC utilising it. 24 It follows that the GIC component of the judgments should be excised. It is not necessary to deal with the argument, advanced by the taxpayers, that the slip rule applies.

The Stay Application 25 I turn next to the taxpayers' application for a stay of execution of the judgments entered by Kenny J. If successful these applications would operate to prevent any further hearing of the Commissioner's application for the charging orders over the securities held in the taxpayers' names.

Applicable principles 26 The Court has jurisdiction to stay the execution of one of its own judgments. This jurisdiction is a necessary incident of its authority over its own processes. It is also the subject of an express grant in r 41.11 ('A party may apply to the Court for a stay of execution of a judgment or order'). The exercise of that power involves a question of discretion. The exercise of that discretion is informed by s 14ZZR of the Administration Act which provides that '[t]he fact that an appeal 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 appeal were pending'. The Commissioner's submission on the effect of s 14ZZR revealed the presence of two inconsistent positions. On the one hand, he joined at paragraph 12 of the written submissions filed on his behalf with the position enunciated by the taxpayers as to how the discretion should be exercised. In particular, he accepted that the relevant principles were to be found set out in the judgment of French J in Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 ('Snow'). These were as follows (at 139): 1. The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer's appeal against his assessment. 2. The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it. 3. The merits of the taxpayer's appeal constitute a factor to be taken into account in the exercise of the discretion (although some judges have expressed different views on this point). 4. Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax. 5. A stay may be granted in the case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay. 6. The mere imposition of the obligation to pay does not constitute hardship. 7. The existence of a request for reference of an objection for review where appeal is a factor to the exercise of the discretion. 27 Factors 3, 4 and 7 might suggest that the Court was to infringe s 14ZZR's clear injunction that the Court was to proceed as if there were no appeal pending. (In fact, s 14ZZR was not then the relevant provision: cf. s 201 of the 1936 Act, which was in relevantly the same terms. Section 14ZZR was inserted into the Administration Act some years after French J's judgment in Snow by the Taxation Laws Amendment (No. 3) Act 1991 (Cth).) 28 In another part of his written submissions (at [26]), however, the Commissioner submitted that '[i]t [was] not conceded' that the merits of the taxpayers' Part IVC proceedings was a relevant consideration. I will proceed on the basis that the Commissioner intended the submission at [26] and not that at [12]. 29 I do not think that I should consider the merits of the taxpayers' Part IVC appeals. Section 14ZZR provides that the tax due and other amounts due under the judgments 'may be recovered as if no appeal were pending'. The first question is, therefore, whether the Commissioner's proceedings to enforce his judgment debts are properly to be described as attempts to 'recover' the tax due under them. In my opinion the answer to that question is that it is to be so described. A similar question arose in Broadbeach. There the High Court concluded that the statutory demand procedure under s 459G of the Corporations Act 2001 (Cth) was encompassed by the words 'may be recovered' in s 14ZZR (and also s 14ZZM) (at 496 [58]). I am unable to see how the process of levying execution might be viewed differently. 30 The consequence is that this Court is bound to proceed on the basis that the taxpayers' appeals under Part IVC are not pending. My reading of Broadbeach is that ss 14ZZM and 14ZZR have the consequence that there can be no genuine dispute about the existence of the debt due to the Commissioner under a notice of assessment. This is so because the Court must proceed on the basis that the 'appeal' giving rise to any such issue is not pending. I am not able to distinguish that reasoning from the present circumstance. To assess the merits of taxpayers' appeals I would need to accept that they were pending. But s 14ZZR says that the matter is to be approached on the basis that they are not. In turn, Broadbeach stands for the proposition that s 14ZZR means what it says. 31 There are decisions which suggest, to the contrary, that at least where the merits are particularly striking recourse to an assessment of the merits of appeal proceedings may legitimately be had. Snow is such a case, as is the Victorian Court of Appeal's decision in Cywinski v Deputy Commissioner of Taxation [1990] VR 193. In light of Broadbeach I do not think I can follow these decisions which must be taken to have been impliedly overruled on this issue by Broadbeach. 32 This is effectively the course urged in the Queensland Court of Appeal's decision in Deputy Commissioner of Taxation v Denlay [2010] QCA 217. In that case - which was concerned with an attempt by taxpayers to stay the enforcement of judgment debts for tax obtained by the Commissioner - Chesterman JA (with whom McMurdo P and Muir JA agreed) adopted as 'both comprehensive and accurate' (at [36]) the following statement by Nathan J in Deputy Commissioner of Taxation v Akers (1989) 89 ATC 4725: [T]he following general propositions emerge: (1). The Court's inherent jurisdiction to grant a stay is not vitiated by the terms of sec 201, but that discretion must be exercised in a way which gives the policy directions of the 'pay first, argue later,' provision effect. The discretion is dependent entirely upon the facts of a given situation, and they can never be defined. The discretion is circumscribed by sec 201. The onus is upon the applicant to establish the discretion should be exercised in his favour. (2). The Court should not go into the issues in dispute, but should apprise itself of such facts as will enable it to determine the nature of the dispute. It should not speculate upon the outcome. (3). The obligation to pay tax, does not of itself impose extreme personal hardship. (4). The possibility that the taxpayer may be bankrupted is not of itself an extreme personal hardship. (Emphasis added.) 33 As a decision of an intermediate appellate Court, this binds me not to go into the merits of the appeals beyond appraising myself as to what the appeals are about. I must not speculate upon the outcome.

Consideration 34 Very briefly the dispute is this. Each of the applicants is a foreign corporation. In the relevant years of income they have been assessed for income tax on profits made on the purchase and sale of shares in companies listed on the Australian Stock Exchange. Each of the applicants seeks to contest their assessments on the basis that they were not Australian residents for tax purposes. In addition, two of the applicants - Hua Wang Bank and Bywater - argue that they had no beneficial interest in the shares generating the profits and hence no beneficial interest in the profits themselves. The two main issues in the appeal proceedings (which are to be heard by me) are: (a) whether the applicants were Australian residents for tax purposes; and (b) whether Hua Wang Bank and Bywater owned their shares beneficially. 35 Apart from the merits, the taxpayers urged upon me eight reasons for staying execution of the judgments. The first of these related to freezing orders in respect of the shares which were made by Jessup J on 12 August 2010. By reason of those orders the position of the Commissioner was said to be secured. Consequently, so the argument went, the principal reason for the expeditious execution of the judgment debts, viz the risk that the passage of time might erode the assets available for execution, was not present. 36 That however is not the only rationale underpinning s 14ZZR. Rather, it is underpinned by the broader rationale identified by Nathan J in Akers above, that is, 'pay first, argue later'. There is no doubt an aspect of that which relates to reducing the Commissioner's credit risk by reducing so far as is possible his role as a creditor. I accept that the freezing orders which are in place can ameliorate that credit risk. They do not entirely eliminate it - the insolvency of the taxpayers might well lead to differing outcomes (depending on when it occurred). In that regard, it might be noted that the effect of the freezing orders does not give the Commissioner a proprietary interest in the shares; it is protective only. 37 On the other hand, I do not accept that that freezing orders serve the other aspect of the 'pay first, argue later' principle enshrined in ss 14ZZM and 14ZZR. That aspect is the conferral on the Commonwealth of the immediate right to the money in question for its own use. Far from assisting in that respect of the policy, the freezing orders may be seen as frustrating it. In that circumstance, I do not regard the existence of the freezing orders as having great significance - their persuasive value is diminished by the policy implicit in s 14ZZR. 38 The second matter relied upon by the taxpayers was that the judgments were interlocutory so that the threshold for a stay of the execution of such a judgment should be seen as lower. No authority was advanced in support of the argument. I do not accept it. I do accept that interlocutory judgments are, by reason of their nature, more susceptible to being set aside than final judgments. But until set aside I can see no reason why the principles governing their execution should be any different. 39 The third and fourth matters were interrelated. The shares in respect of which the charging orders were sought were all listed on the Australian Stock Exchange. Since the time that the Commissioner had obtained his judgments and the time at which he sought to enforce them against the shares 'the bottom [had] dropped out of the market'. This had two consequences: it illustrated the prejudice suffered by the taxpayers by reason of the Commissioner's delay in seeking execution of the judgments; it also illustrated that the taxpayers would suffer irreversible harm if the shares were sold. They would suffer irreversible harm because even if the tax were later refunded they would not be able to restore their holdings if the share price had recovered in the meantime. There might also be difficulties in reconstituting large parcels of thinly traded stocks. 40 There is no question that delay by a judgment creditor in enforcing a judgment can be a reason for staying the execution of a judgment. So much was accepted by French J in Busby v The Chief Manager, Human Resources Department, Australian Telecommunications Commission (unreported, French J, 25 February 1992) but it was made clear that the delay had not only to cause serious prejudice to the innocent party but also to be intentional or contumelious (at [6]). There is no adequate material before me to suggest that that requirement has been satisfied. Further, I do not accept that there has been the requisite delay either. The orders were made by Kenny J on 25 November 2010. The charging summonses were themselves issued on 29 February 2012 but this was the result of leave granted by Jessup J on 21 December 2011. Those applications for leave were made on 9 December 2011. The delay is, therefore, in the range of a single year. In the context of the ongoing preparation of the Part IVC proceedings I do not regard this as serious. 41 On the other hand, I do accept the existence of the prejudice asserted by the taxpayers. The share market is down at the moment (dramatically as this paragraph is edited) and it requires no great financial sophistication to grasp that the sale of the shares at present might realise less than they might in the future or would have in the past. 42 If the sale of the shares happens under the auspices of this Court's orders they will be lawful actions and the taxpayers will have no rights in tort against the Commissioner. Further, whilst the taxpayers would unquestionably have restitutionary rights against the Commissioner on reversal of the underlying judgments (cf. Commonwealth of Australia v McCormack (1984) 155 CLR 273 at 276), this probably extends only to what has come into his hands and not to what the former judgment debtor has lost as a result of the sale (see Secure Parking (WA) Pty Ltd v Wilson (2008) 38 WAR 350; [2008] WASCA 268 at [112] per Buss JA, with whom Martin CJ agreed, citing DM Gordon QC 'Effect of Reversal of Judgment on Acts done between Pronouncement and Reversal (Part I)' (1958) 74 LQR 517 at 521-525). I do not form a concluded view on this matter which was raised somewhat inconclusively during argument. It will suffice for present purposes to observe that there is a real risk that this may be the law and hence a real risk that the taxpayers may suffer the irreversible loss for which they contend. This is a significant matter. 43 The fifth matter relied upon by the taxpayers was the proposition that case management principles required that execution not now proceed. Shortly, this argument was that one of the issues in the Part IVC proceeding was whether Hua Wang and Bywater were the beneficial owners of the shares held in their names. The same issue would arise in the Commissioner's enforcement proceedings: there the argument would be that execution should not be levied against the shares in Hua Wang and Bywater's names because those entities as judgment debtors did not beneficially own the shares against which execution was sought. The taxpayers submitted that these should be heard together not only lest there be inconsistent findings but also to reduce the expense flowing from duplication. 44 I accept this argument insofar as it applies to Hua Wang and Bywater. The difficulties identified by those taxpayers are real and do justify postponing the question of execution to the final disposition of the Part IVC proceedings. I do not think, however, that this has any impact on the position of the remaining taxpayers. Indeed, I did not apprehend any different submission to be made on their behalf. The effect of this conclusion is not, however, that execution under the judgments should be stayed. It is only that the Commissioner's attempts to sell the shares should be heard at the same time as the Part IVC proceedings. Acceptance of this argument does not entail that the Commissioner should be prevented from enforcing the judgments against Hua Wang and Bywater through some mechanism which does not raise the issue of the beneficial ownership of the shares. 45 The sixth matter relied upon was the taxpayers' contention that in seeking to levy execution the Commissioner was proceeding contrary to his own stated policy regarding debt collection, namely, that stated in PSLA 2011/6. I do not accept this submission. The relevant portions of this policy are as follows: Disputed debts … 22. Generally, the longer a debt is in dispute, the greater the risk to the collection process. In order to assess the level of risk associated with a disputed debt, the following matters need to be considered: … Whether a minimum of 50% of the tax in dispute has been paid (which would indicate good faith) reducing the GIC and lowering the perceived level of risk. … 23. Risks identified in the debt collection process may often warrant the commencement of litigation for recovery of taxation debts. The delay caused by the lodgement of defences to debt litigation proceedings can pose a significant risk to the timely collection of revenue. … 26. Risk management is not an exact science. However, it is integral to the process of deciding what the Commissioner should do to avoid the undesirable outcome in which returns and statements are not lodged on time, debts are not paid promptly, and some debts are not paid at all. This decision-making process entails the evaluation of objective and subjective factors before reaching a conclusion as to the overall risk. 46 I do not accept that any of this requires the conclusion that the Commissioner has indicated he would not enforce the debts. 47 The seventh matter was the prejudice which might be suffered by third parties if execution were to proceed. This consisted of the harm to those persons who are said to be entitled to the shares held by Hua Wang and Bywater. Since I accept that the charging summonses should not proceed against them at this stage I need consider that matter no further. A second group of prejudiced third parties was said to consist of companies whose shares are held by the taxpayers. It was submitted that, in some cases, the sudden sale of a large parcel of shares on the open market may have deleterious consequences for those companies' share prices (and, it was hinted, security ratios connected thereto). 48 I do not consider that this issue lies in the mouth of the taxpayers. If and when the issue arises the third parties can seek to avoid - or perhaps ameliorate - the effects of any execution process. 49 The final matter was what was said to be delay by the Commissioner in pursuing the Part IVC proceedings. It was said the freezing orders have been in place since 2010, that the taxpayers' objections took 7 months to determine and that the Commissioner had spent three months examining the taxpayers' evidence. I do not accept this criticism. These proceedings are complex and hard fought. No doubt a little co-operation on both sides might quicken the pace somewhat but this is hardly likely to occur. I do not regard this timeframe as unreasonable in the circumstances.

Conclusions on the Stay Application 50 Leaving aside the position of Hua Wang and Bywater the only significant matter put forward by the taxpayers, in my opinion, is the loss which will occur if the shares are now sold. This prejudice has two elements. The first is the injustice which may result if that loss is suffered and it turns out, as it probably will, that the amount of this loss is not recoverable from the Commissioner. The second is the simple prejudice flowing form the fact of the shares being sold now rather than later (when the market might have recovered). 51 For myself the injustice of the first matter is plain and, left to my own views, I would have stayed execution of the judgments had they been ordinary civil judgments subject to appeal proceedings. To accede to my own views it would be necessary, however, to infringe the requirements of s 14ZZR as explained in Broadbeach. Unpicked, the argument of the taxpayers is this: if the Part IVC appeals succeed and the Commissioner is required to return to them the money he obtains on the sale of the shares nevertheless they are potentially left short if the market has subsequently recovered. They will end up with a smaller parcel of shares. The first step however is fatal. Section 14ZZR requires one to assume there is no Part IVC appeal. Hence the topic of the prejudice likely to flow if the appeal succeeds is not a matter which is open to be considered. It is not difficult to be sympathetic to the taxpayers about this but, as the High Court noted in Broadbeach, the 'asperity' with which these provisions operate is not new even if, as this case rather suggests, it is harsh. 52 The second matter is not foreclosed by s 14ZZR. Here the point is simply that the judgment debtor might be permitted an indulgence in the timing of the execution. This is not unfamiliar - sometimes a Court will direct that a writ of possession (in the case of land) lie in the registry for some short period to allow those in possession to make orderly arrangements for their departure. The exercise of this kind of discretion - which is effectively concerned with hardship - does not in any way depend upon impugning the judgment creditor's debt. As such it escapes the injunctions of ss 14ZZM and 14ZZR. To exercise the clemency inherent in this approach does not involve proceeding on the basis that any appeal is on foot. 53 If the evidence was that in the last few days the market value of the shares had been driven dramatically lower by an electronic trading error (like the 'Flash Crash' of 2010) and reasonable opinion expected full recovery within days, I might be minded to postpone execution for a short period. 54 But that is not the evidence. Although there is an expectation that, in the long term, the market in Australian equities will go up there is no reason to expect this to happen within any particular period of time. Put another way, I do not think the judgment creditor should be put out of enforcement until the market recovers.

Conclusion 55 It will follow that I do not think that execution of any of the judgments should be stayed. On the other hand, I do accept that the Commissioner's attempt to enforce the judgments against Hua Wang and Bywater should be heard at the same time as the Part IVC proceedings, for the reasons given above at [43]-[44]. I also accept that each of the judgments should be varied to remove the GIC charge. 56 I will direct the parties to bring in short minutes of order by Monday 25 June 2012 to give effect to these reasons. On the issue of costs my present view is that there should be no order as to costs, however, I will hear the parties briefly on Tuesday 26 June 2012 if they wish. I would anticipate fixing for hearing the Commissioner's remaining charging summonses on that day. 57 The exhibits may be returned. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Tax Laws Amendment (Transfer of Provisions) Act 2010(Cth)sch 1, pt

Measures No 3) Act 2011(Cth)

Income Tax Assessment Act 1936(Cth)ss 6, 166A, 204

At a glance

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Judgment (27 paragraphs)

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Legislation Cited (7)

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