Deputy Commissioner of Taxation v Meakes

Supreme Court of NSW|2014-04-10|Before: Hulme J, Mr P

Judgment 1R A HULME J: The Deputy Commissioner of Taxation ("the DCT") wants to have set aside an order that the defendant, Mr Timothy Meakes, make repayments of a judgment debt by way of instalments. The order was made in chambers by a Deputy Registrar. 2It is contended that the order should be set aside because there was no power to make the order; or the making of the order should be reviewed and the order discharged pursuant to r 49.19 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), or it should be rescinded pursuant to r 37.4. 3I am satisfied that there was no power to make the order. It will be set aside.

Background 4The DCT commenced proceedings by filing a statement of claim on 13 June 2012 in relation to a sum of $1,004,845.35 that was due and unpaid. This was an amount standing in deficit in a "Running Balance Account" (an "RBA") and comprised amounts due in respect of primary tax debts payable under the BAS provisions, primary tax debts payable as administrative penalties as well as general interest charges. 5There were a number of payment arrangement proposals put forward by Mr Meakes before and after the filing of the statement of claim, the final one being on 6 March 2013 whereby he proposed paying $30,000 per month. That proposal was rejected by the DCT and default judgment was entered on 20 March 2013 in the sum of (in round terms) $940,000. 6On 28 May 2013 the DCT caused a bankruptcy notice to be served on Mr Meakes. 7Mr Meakes filed an application to pay by instalments on 18 June 2013. It was granted on 4 July 2013 by a Deputy Registrar pursuant to r 37.3 of the UCPR. The order requires payment of $41,500 per month. 8By two notices of motion filed on 18 July 2013 the DCT sought the orders referred to above. 9The basis of the DCT's application was summarised in written submissions as follows: "The Deputy Commissioner submits that r 37.3 of the UCPR and s 107 of the CPA [the Civil Procedure Act 2005 (NSW)] (whether separately or in combination) did not confer a power to permit Mr Meakes to pay his judgment debt by instalments. This is because both provisions are inconsistent with Commonwealth legislation that contains an exclusive regime for the payment and recovery of Commonwealth tax-related liabilities. As a result, r 37.3 and s 107 are not 'picked up' by the Judiciary Act 1903 (Cth) in these proceedings (which are in federal jurisdiction)." 10At the direction of a Registrar the DCT served notices pursuant to s 78B of the Judiciary Act 1903 (Cth). No Attorney-General sought to intervene.

Mr Meakes seeks a stay of enforcement of the judgment 11On 2 October 2013 Mr Meakes filed a notice of motion whereby he sought a stay of enforcement of the judgment conditionally upon him paying $41,500 per month until the judgment debt had been paid in full. That application was made in the event that the DCT succeeded in having the instalment order set aside, discharged or rescinded. It was based upon a contention that this Court has, within its inherent jurisdiction, power to grant a stay of execution on conditions in order to avoid hardship. 12Mr Meakes acknowledged that this contention was contrary to authority that is binding: Agostino v Ziemkowski [1971] 1 NSWLR 946. The DCT made no submissions in opposition but reserved the right to do so on any appeal. I will say no more about this except to say that if I found in favour of the DCT I would also refuse Mr Meakes' application.

Provisions for the making of an instalment order under State law 13The Civil Procedure Act 2005 (NSW) provides (in s 107) that a court in which judgment has been entered may, subject to and in accordance with the uniform rules, make an order allowing for the payment of the judgment debt by instalments. Execution of the judgment (except by way of garnishee order) is stayed while it is the subject of an instalment order. 14The relevant rules are in Pt 37 of the UCPR. Rule 37.2 provides for a judgment debtor to apply to the court for an instalment order. Depending upon the circumstances in which an application is made, it is to be considered either by a registrar (r 37.2(3)(a)) or by the court (r 37.2(3)(b)). In this case, the application was dealt with, and granted, by a Deputy Registrar but the DCT maintains (and I accept) that its arguments about lack of power apply equally to both provisions. 15There is a requirement for the judgment creditor (and debtor) to be notified of the making of an instalment order (r 37.3(2)) and there is provision for filing an objection to an order (making or refusing to make an order) within 14 days (r 37.3(3)). Such objections are to be determined by the court (r 37.4). 16Unless there has been a previous application for an instalment order, execution of the subject judgment is stayed (a) from the time of application until the time of determination; or (b) from the time an objection to a refusal by a registrar to make an order is filed until the court determines such objection (r 37.5). 17An instalment order ceases to have effect if the judgment debtor fails to comply with the order (r 37.7). Affidavit material read at the hearing confirmed that Mr Meakes had complied with the order.

Provisions for the payment of instalments under the Taxation Administration Act 1953 (Cth) 18Part 4-15 in Sch 1 of the Taxation Administration Act 1953 (Cth) is headed "Collection and recovery of tax-related liabilities and other amounts" and is said (in s 250-1) to deal with "the methods by which the Commissioner may collect and recover amounts of taxes and other liabilities". 19The term "tax-related liability" is defined in s 255-1(1): "A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable)." 20A "taxation law" is defined in s 995.1 of the Income Tax Assessment Act 1997 (Cth): "taxation law' means: (a) an Act of which the Commissioner has the general administration (including a Pt of an Act to the extent to which the Commissioner has the general administration of the Act); or (b) legislative instruments made under such an Act (including such a Pt of an Act); or (c) the Tax Agent Services Act 2009 or regulations made under that Act." 21Section 250-10 contains tables by way of indices of each tax-related liability under the Income Tax Assessment Act 1936 (Cth) and other legislation. Item 85 in the table concerned with other legislation refers to an "RBA deficit debt" under s 8AAZH(1) of the Taxation Administration Act. The sum for which the DCT sued Mr Meakes amounted to such a debt and so it was a "tax-related liability". 22Section 250-25 describes the objects of Pt 4-15 as being "to ensure that unpaid amounts of tax-related liabilities and other related amounts are collected or recovered in a timely manner". 23Division 255 is headed "General rules about collection and recovery". 24Section 255-5 provides that an amount of a tax-related liability that is due and payable is a debt due to the Commonwealth and is payable to the Commissioner. It also provides that the Commissioner (etc) may sue to recover an amount of a tax-related liability that remains unpaid after it has become due and payable. 25Subdivision 255-B is headed "Commissioner's power to vary payment time". It comprises: S 255-10 - power for the Commissioner to defer the time at which an amount of a tax-related liability is, or would become, due and payable. S 255-15 - power for the Commissioner to permit payment by instalments (see below). S 255-20 - power for the Commissioner to bring forward the time at which an amount of a tax-related liability becomes due and payable. 26Section 255-15 is in these terms: "(1) The Commissioner may, having regard to the circumstances of your Particular case, permit you to pay an amount of a tax-related liability by instalments under an arrangement between you and the Commissioner (whether or not the liability has already arisen). (2) The arrangement does not vary the time at which the amount is due and payable."

Submissions for the DCT 27It was submitted that s 255-15 forms part of "a comprehensive Commonwealth legislative regime (in Pt 4-15 of the Admin Act) for the collection and recovery of Commonwealth tax-related liabilities". 28The current proceeding is within federal jurisdiction. Accordingly, two provisions of the Judiciary Act were said to be relevant. Section 64 provides: "In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject." 29Section 79(1) provides: "The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable." (Emphasis added) 30It was submitted that this Court has no power under s 107 of the Civil Procedure Act and r 37.3 of the UCPR to order the payment by instalments of a judgment debt founded on a Commonwealth tax-related liability. Those provisions can have no direct application to such a case because in exercising federal jurisdiction, the laws of a State or Territory only apply to the extent Commonwealth law provides: see, for example, Pedersen v Young [1964] HCA 28; 110 CLR 162 at 165. And because Pt 4-15 of the Taxation Administration Act provided a comprehensive legislative regime for the collection and recovery of tax-related liabilities and other amounts, no room was left for the operation of State legislation such as that contained in r 37.3 of the UCPR and s 107 of the Civil Procedure Act. 31A number of authorities were relied upon for this submission but principally Pollack v Commissioner of Taxation (1991) 32 FCR 40. There, it was held (Pincus and Gummow JJ, Beaumont J dissenting) that neither s 64 nor s 79 picked up provisions of the former District Court Rules 1973 (NSW) concerning the payment of judgment debts by instalments. 32It was contended that the reasoning of Gummow J in Pollack was consistent with the recognition in Deputy Commissioner of Taxation v Moorebank Pty Ltd [1988] HCA 29; 165 CLR 55 at 64 of the Commonwealth scheme for the collection and recovery of Commonwealth tax. 33Reference was made to earlier first-instance decisions to the same effect as the reasoning of Pincus and Gummow JJ: Deputy Commissioner of Taxation v Zarzycki (1990) 96 ALR 146; 21 ATR 575; Re Mazuran; ex parte Deputy Commissioner of Taxation (Cth) [1990] FCA 330; 97 ALR 391; 21 ATR 758; and Deputy Commissioner of Taxation v Homewood (1991) 21 ATR 1426. 34The cases relied upon by the DCT were concerned with earlier versions of State legislation and of Commonwealth provisions that are now in Pt 4-15 of the Taxation Administration Act. The power to order the payment of a judgment debt by instalments considered in Pollack was in Pt 31A of the District Court Rules and the Commissioner's power to permit the payment of tax by instalments was in s 206 of the Income Tax Assessment Act 1936. But the DCT submitted that "there are no relevant differences between the current and the former Commonwealth legislative scheme identified in Pollack, Zarzycki and Moorebank". 35It was submitted that in the event this Court found that s 107 of the Civil Procedure Act and r 37.3 of the UCPR were to be given direct operation, it would still be necessary to hold that those provisions did not confer a power to order that the judgment debt be paid by instalments because of the engagement of s 109 of the Constitution. This was said to be because the comprehensive nature of the Commonwealth regime identified in Pollack, Zarzycki and Moorebank was inconsistent with the relevant State laws. Utilising the expression used by Dixon J in Victoria v The Commonwealth [1937] HCA 82; 58 CLR 618 at 630, the State provisions would "alter, impair or detract from the operation of a law of the Commonwealth Parliament".

The leading case 36The starting point for resolution of these issues is an examination of the principal authority relied upon by the DCT, namely Pollack v Commissioner of Taxation. 37At issue in that case was whether a District Court Registrar had power under the relevant District Court Rules to order that a judgment debt be paid by instalments. The conclusions of the two judges in the majority who held that there was no such power is encapsulated in the following extracts. Per Pincus J (at 54): "The essential point is, in my opinion, whether the Commonwealth Parliament should be taken to have intended that citizens' obligations to pay tax debts should be capable of being alleviated by orders of State courts under the general provision of their Rules, as well as by the means specifically provided by the Tax Act. In my opinion, the answer to that question is no and for the reason that application of the State Rules would be likely to impose on taxpayers obligations inconsistent with those arising under the Tax Act." Gummow J (at 62): "In the present case, the legislative scheme, of which ss 170, 201, 206, 208 and 209 are essential elements, provides for the imposition of liability to pay tax for the recovery of unpaid tax and for the giving by the Commissioner of permission for payments by instalments to discharge that liability. In my view, the legislative scheme leaves no room for the operation, by force of s 64 of the Judiciary Act, of the scheme in Pt 31A of the District Court rules for the making of judgment debts, recovered by the Commissioner for unpaid tax, payable by instalments. This is so, not only in respect of stays and orders for payments by instalments which are made upon subsequent application under Pt 31A, r 2, but those made under r 1 when judgment is given. In both classes of case, the rules would trespass upon the field covered by the Tax Act, were they to be rendered applicable by s 64 of the Judiciary Act." 38It was unnecessary for the resolution of that case to determine this particular issue but both judges dealt with it in detail because, as Pincus J put it (at 52), "the matter was elaborately argued" or as Gummow J put it, "detailed and careful arguments were presented to the Full Court". So, while strictly obiter dicta, it is highly persuasive. This is the more so when it is considered with the background of the earlier first-instance decisions where similar conclusions were reached.

Consideration of the submissions for Mr Meakes 39The submissions for Mr Meakes accepted that if s 107 and the relevant rules were inconsistent with any Commonwealth enactment, s 109 of the Constitution would invalidate them to the extent of that inconsistency. It was also accepted that if the Commonwealth enactments "otherwise provided", s 64 and s 79 of the Judiciary Act would operate such that the State laws would not be picked up and applied. 40The submissions included a detailed examination of the ambit of the relevant State and federal laws. It would be unproductive to refer to the minutiae of the analysis. In short, it largely depends upon acceptance of the challenge to the DCT's submission that there were "no relevant differences" between the current legislation and that which was considered in Pollack and the earlier cases. 41With regard to the State laws, there is, in my view, no material difference between the regime that applied at the time of Pollack (the District Court Rules) and the current provisions of s 107 of the Civil Procedure Act and Pt 37 of the UCPR. I do not understand Mr Meakes to contend to the contrary except from an attempt to distinguish between "stay of enforcement" (Pt 31A r 1(6) District Court Rules) and "stay of execution" (s 107(2) Civil Procedure Act). I do not find the different terminology to be of any significance. It was submitted that "stay of enforcement" in the former "was understood to be a stay on judgment and not merely a stay on execution". No authority was cited. If there was a distinction, it was (with respect) not at all made clear in submissions. Observations were made in Pollack that the existence of a stay did not deprive the judgment debt of its character as a liability payable by the debtor (Pincus J at 52; Gummow J at 57). 42With regard to the federal laws, a summary of those prevailing at the time of Pollack was set out in the judgment of Pincus J (at 52): "The provisions relied on by the Commissioner as marking out the field covered are in the Income Tax Assessment Act 1936 (Cth) (the Tax Act) and their field of operation is, broadly, to define when tax becomes payable, how it may be recovered and the Commissioner's power to allow time to pay. The effect of the provisions relied on is stated sufficiently for present purposes in Moorebank (supra)(at 65): Under those provisions, income tax is made 'a debt due to' the Commonwealth: s 208. 'Any tax unpaid may be sued for and recovered in any Court of competent jurisdiction': s 209. Income tax assessed 'shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable': s 204. The Commissioner may, however, 'in any case' grant such extension of time for payment of tax, or permit payment of tax to be made by such instalments and within such time 'as he considers the circumstances warrant; and in such case the tax shall be due and payable accordingly': s 206. If any due and payable tax remains unpaid, additional tax becomes payable, by the person liable to pay the tax, at the specified annual percentage rate (formerly 10% but now 20%) computed from the time when the unpaid tax became due and payable or, where an extension of time has been granted, 'from such date as the Commissioner determines, not being a date prior to the date on which the tax was originally due and payable': s 207." 43Section 208 of the 1936 Act is replicated in s 255-5(1) in Pt 4-15 and s 209 in s 255(2). When assessed income tax is due and payable, previously covered in s 204, is now dealt with in s 250-10. The power previously given to the Commissioner by s 206 to grant an extension of time for payment and to permit payment by instalments is now given in s 255-10 and s 255-15. The current regime's only difference to the former is in relation to the additional tax becoming payable, previously dealt with in s 207 but now dealt with by the imposition of a "general interest charge": see Sch 1 of the Taxation Laws Amendment Act (No 3) 1999 (Cth). That difference is immaterial to the present issue. 44A point was sought to be made by Mr Meakes about a discrete distinction between former s 206 and current s 255-15. The latter includes in s 255-15(2) that "the [instalment] arrangement does not vary the time at which the amount is due and payable" whereas s 206 contained no equivalent provision. Given that it is a statement of a negative, and there is no warrant to read the opposite into s 255-15, I do not see this as being of any relevance. 45The Explanatory Memorandum to the A New Tax System (Tax Administration) Bill 1999 provides general support for the DCT's proposition, to the detriment of that of Mr Meakes. It makes clear the need to use a broader term (tax-related liability) rather than simply "tax". It also indicates the new provisions were part of a process of consolidation and standardisation rather than effecting any material conceptual change. In speaking of the introduction of new Pt 4-15 it said, in part, in Chapter 2: "2.3 The standardised collection and recovery rules represent a consolidation of features of the existing recovery provisions throughout the various taxation laws and, as such, do not reflect any significant change to existing policy." 46Mr Meakes sought to identify a difference in the form of the current use of the term "tax-related liability" whereas the previous regime was concerned with the term "tax". I do not regard this as being significant. What was within the term previously used is certainly within the term currently used. The submission, as I understood it, was to the effect that a judgment debt with respect to tax is not within the concept of a tax-related liability. So, the State provisions apply to a judgment debt whilst the federal provisions apply to a tax-related liability; they covered different forms of liability. The State courts had authority over enforcement of the former and the DCT retained power in relation to the latter. Whilst the State legislation operated only to regulate the enforcement processes of its courts, this did not prevent the Commissioner from taking any form of action under Pt 4-15. 47It was observed by Jenkinson J in Re Mazuran; Ex parte Deputy Commissioner of Taxation [1990] FCA 330; 97 ALR 391; 21 ATR 758 at 767 that "tax" in s 206 did not include "judgment debt in respect of tax". But that did not prevent his Honour holding that the federal law left no room for the operation of Victorian provisions relating to the payment of judgment debts by instalments. Former s 206, like the current s 255-15, continued to operate in respect of the primary tax liability notwithstanding judgment in respect of that liability having been obtained by the Commissioner. 48A number of other submissions were made in an attempt to identify tax-related liabilities and judgment debts as different concepts of liability. One submission was that judgment debts are not added to the RBA. An RBA is a tax-related liability and, it was submitted, this further illustrates that there was a distinction between the two. However, I accept the submission advanced on behalf of the DCT that making such a distinction was necessary to avoid double-counting in the RBA of the primary tax debt and any judgment debt that might arise from it. 49A further answer to the attempt to draw this distinction between tax-related liabilities and judgment debts was that the two concepts are not separate and distinct. The latter depended upon the former; if one was extinguished, so too would be the other. 50A final answer to the major theme of the submissions for Mr Meakes is provided by Muc v Deputy Commissioner of Taxation [2008] NSWCA 96; 73 NSWLR 378. It was concerned with a limitation of actions issue but involved a comparison of the former and present regimes under the federal law. The fact that it was not concerned with State provisions for the payment of judgment debts by instalments does not , in my view, detract from the force of the conclusion expressed by Mason P (with the concurrence of Beazley (as her Honour then was) and Giles JJA) at [58]: "I therefore conclude that the generic collection and recovery rules introduced in 2000 ... are relevantly indistinguishable from the regime discussed in Deputy Commissioner of Taxation v Moorebank. The regime effectively covers the field ..."

Alternative submission on behalf of Mr Meakes 51An alternative approach was advocated in the written submissions for Mr Meakes. It proceeded through the following steps. 52When the Commonwealth confers jurisdiction on a Supreme Court of a State, that jurisdiction presumptively "brings with it the usual incidents of the exercise of jurisdiction by the Supreme Court": Gypsy Jokers Motorcycle Club Inc v Commissioner of Police [2008] HCA 4; 234 CLR 532 at 555 [19] (Gummow, Hayne, Heydon and Kiefel JJ); International Finance Trust Co Ltd v NSW Crime Commission [2009] HCA 49; 240 CLR 319 at [79] (French CJ); and Assistant Commissioner Condon v Pompano Pty Ltd [2013] HCA 7; 295 ALR 638 at [172] (Hayne, Crennan, Kiefel and Bell JJ) 53Such a presumption should be attributed to the Commonwealth Parliament absent "express words to the contrary or of reasonably plain intendment": Electric Light and Power Supply Corporation Ltd v Electricity Commission of NSW [1956] HCA 22; 94 CLR 554 at 560. Section 39(2) of the Judiciary Act should be read in the context of this presumption. 54It should, therefore, be construed as being intended to confer powers on the Supreme Court which are ordinarily an incident of the Court's jurisdiction when that Court is exercising federal jurisdiction. This includes the Court's power to permit judgments to be paid by instalments. 55Finally, it was submitted that "neither Pt 4-15 nor s 255-15, of Schedule 1 to [the Taxation Administration Act] contain express words of necessary intendment excluding the power of the Supreme Court to make instalment orders, which have the effect of denying the Commissioner access to the enforcement powers of the Supreme Court (while the instalment order is being complied with)". 56As counsel for the DCT pointed out in written submissions in reply, this is akin to a part of the reasoning in the dissenting judgment of Beaumont J (at 46-47) (cf Pincus J at 54; Gummow J at 58-61). More fundamentally, the problem with the argument is revealed by the words, "when the Commonwealth confers jurisdiction on a Supreme Court of a State". The present case is not concerned with the Commonwealth Parliament conferring jurisdiction on the Supreme Court of New South Wales (or any court for that matter). 57Moreover, as the DCT submitted, the authorities cited in support of this argument are concerned with "foundational incidents of the exercise of jurisdiction". Electric Light and Power was concerned with legislation providing for a particular issue to be determined by the Land and Valuation Court. Gypsy Jokers concerned legislation providing for proceedings in the Supreme Court of Western Australia for what was described in the joint judgment (at [8]) as "a new species of judicial review of administrative action". International Finance Trust was concerned with legislation in this State relating to the Supreme Court dealing with the civil forfeiture of criminal assets. Finally, Condon v Pompano concerned Queensland legislation providing for its Supreme Court to deal with applications for persons to be declared to constitute a criminal organisation. A power to permit payment of judgment debts by instalments is not within the scope of the issue those cases considered.

A further alternative submission on behalf of Mr Meakes 58A new submission was advanced orally. It was made by reference to the Financial Management and Accountability Act 1997 (Cth). It was submitted that by s 47 a "Chief Executive", which includes the Commissioner of Taxation, has an obligation to pursue recovery of each debt for which the Chief Executive is responsible unless under legislative authority the debt has been written off; the Chief Executive is satisfied the debt is not legally recoverable; or the Chief Executive considers that it is not economical to pursue recovery. By contrast, the Finance Minister is authorised under s 34 to do certain things, including allowing the payment by instalments of an amount owing to the Commonwealth. 59It was submitted that s 255-15 conferred express power for the Commissioner to allow a taxpayer to pay by instalments without the need for recourse to the Financial Management and Accountability Act. But it did not mean that only the Commissioner had that power. The Finance Minister had such power as well. This, it was submitted, supported the proposition that the power of the Commissioner to allow payment by instalments in s 255-15 was not exclusive. 60I do not find this argument persuasive. Just because there is an additional mechanism by which a Commonwealth entity has power to permit a debt being paid by instalments does not mean that the Commonwealth has allowed such discretion to be exercised by a State court.

Conclusion 61My conclusion reflects one of the final submissions made by senior counsel for the DCT: "[O]nce one cannot really distinguish the ratio of the majority in Pollack and the three Victorian cases which were followed, then this case follows, as night follows day. The provisions cover the same field, and as Gummow J said, and was said in the Victorian cases, there is simply no room for the operation of the State Act in relation to income tax debts. It is ultimately as simple as that. None of the cases even hint in the opposite direction." 62There was no power for the Deputy Registrar to make an instalment order pursuant to s 107 of the Civil Procedure Act and Pt 37 of the UCPR. It must be set aside. 63No order for costs was sought by the DCT.

Order 64I make the following orders: The order made on 4 July 2013 that the judgment debtor pay the judgment debt to the judgment creditor by instalments is set aside. The application to stay the further enforcement of the judgment conditionally is refused.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 July 2014

Financial Management and Accountability Act 1997(Cth)

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