Deputy Commissioner of Taxation v Shears

Judgment 1The defendant failed to lodge tax returns with the Australian Taxation Office (ATO) for a number of years. As a result, he ended up in a dispute with the plaintiff (to whom I shall sometimes refer as the DCT for ease of comprehension). In 2009, orders were made against him in this Court in favour of Mr Norman Hilton, after the defendant had entered a submitting appearance. That was on the basis that the defendant owed Mr Hilton $398,180 ("the sum") because of a loan from Mr Hilton to the defendant that the defendant had not repaid. I shall refer to that determination as "the first judgment". 2On 20 October 2011, the plaintiff filed a statement of claim in this Court. No defence was filed by the defendant. In July 2012, substituted service was effected upon the defendant pursuant to an order of this Court. Again, no defence was filed. Default judgment was entered on 21 January 2013. Part of that judgment was founded on the proposition that the sum referred to above was not a loan from Mr Hilton, but rather income of the defendant upon which he was obliged to pay tax. I shall refer to that default judgment as "the second judgment". 3Contact was established between the plaintiff and defendant, and negotiations instituted between the two of them. Eventually, in October 2013, the plaintiff accepted that the sum was a loan, not income that attracted income tax, and therefore that it should be "deducted" from the judgment debt. However, the plaintiff has not applied to amend the second judgment. 4Meanwhile, the defendant has commenced proceedings in the Federal Court of Australia to impugn the assessment upon which the second judgment was based, pursuant to Part IVC of the Taxation Administration Act 1953 (Cth). 5The defendant has filed a notice of motion that seeks a plethora of orders. In a nutshell, they are founded upon two propositions. 6First, the second judgment cannot stand with the first judgment. That is because the first judgment is founded on the fact that the sum was a loan, but the second judgment is partly founded on the fact that the sum was income. The plaintiff relied upon Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589, and Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 in support of that proposition. The same submission was reformulated as the second judgment constituting a "collateral attack" on the first. 7Secondly, the defendant knew nothing of the proceedings brought by the plaintiff against him. The order for substituted service was obtained ex parte. In the circumstances, the second judgment should be reopened, on the basis that there are real issues in dispute between the plaintiff and the defendant that require resolution by litigation in this Court. 8In short, there are two issues that require resolution by me. The first is: when one considers the two judgments, is there a basis upon which the second judgment should be set aside? The second issue is: should the second judgment be set aside, because there is a real issue to be litigated in this Court? More detailed chronological background 9The defendant has worked for many years as a published author and journalist. He is now in financial difficulties, and claims to be homeless. 10It is not in dispute that he failed to file income tax returns in Australia for a number of years. By way of letter of 5 November 2010, the plaintiff sought to have him do so. The defendant did not comply with that request. 11A self-described deed of 6 December 2007 appears to evidence a loan from Mr Hilton to the defendant and a Ms Isobelle Gidley. 12On 2 July 2008, Mr Hilton filed a notice of motion in this Court. He sought repayment of the sum of $561,474.35, along with ancillary orders. That larger sum was sought on the basis of interest accrued. 13On 5 August 2009, the orders sought in that notice of motion were made against the defendant (the first judgment). There was no evidence before me that the first judgment has ever been enforced by Mr Hilton against the defendant. 14In July and September 2011, the plaintiff issued notices of assessment to the defendant with regard to the financial years ended 30 June 2005, 2006, 2007, 2008 and 2009. 15On 20 October 2011, the plaintiff filed a statement of claim. The plaintiff sought the sum of $1,659,918.95. That was founded in part upon the proposition that the sum was not a loan but rather income that accrued to the defendant. No defence was ever filed in response. 16On 20 December 2011 the defendant sought to object to the various notices of assessment. (In fact, the position of the defendant before me was that his objection was lodged later, but I am content to proceed on the evidence of the plaintiff, which is more favourable to the defendant). Negotiations took place between the plaintiff and the defendant. The plaintiff ultimately advised the defendant that his objections were rejected as invalid on 17 April 2012. 17On 10 July 2012 the defendant lodged further objections to the various notices of assessment pursuant to Pt IVC of the Taxation Administration Act. 18On 20 July 2012, this Court granted an ex parte application of the plaintiff for substituted service. Substituted service was effected by two modes of service on 26 July 2012, and by a further mode of service on 7 August 2012. No defence was filed by the defendant after substituted service was effected. 19On 21 January 2013, default judgment was entered against the defendant on the statement of claim of the plaintiff (the second judgment). 20On 10 October 2013 the plaintiff issued its decision in respect of the objections lodged on 10 July 2012, allowing the objections in part. In short, the plaintiff accepted that the sum was a loan, not income. On 18 October 2013, the plaintiff issued amended notices of assessment. 21Despite the acceptance by the plaintiff of the proposition of the defendant that the sum is a loan and not income, and therefore the liability of the defendant to the plaintiff is not as large as the sum that founds the second judgment, the plaintiff has never taken any steps to amend or correct the second judgment. 22On 29 November 2013, the plaintiff filed a bankruptcy notice based upon the debt owed by the defendant. It is noteworthy that that notice is founded not upon the original amount of the second judgment but upon a reduced figure, in order to reflect the fact that the plaintiff is no longer claiming that the sum is income. 23On 7 May 2014, the plaintiff commenced proceedings in the Federal Court seeking to review the foundations of the second judgment. Summary of orders sought in the motion of the defendant 24The amended notice of motion of the defendant filed on 29 April 2014 originally sought 19 orders, 17 of which were pressed before me at the hearing. I respectfully consider that there is a degree of overlap and repetition between those orders. Accordingly, I shall not repeat all of them verbatim in this judgment. Instead, I shall proceed to summarise each of them very briefly, and in the order in which they appear in the notice of motion. I shall not seek to elucidate the sundry contingent and ancillary relationships between the various orders sought. 25In short, the defendant sought: a declaration that the sum was a loan and therefore not taxable income; an order setting aside the second judgment; a declaration that the second judgment was obtained with knowledge or "wilful blindness" that the claims were "false claims"; a declaration that the second judgment was obtained with full knowledge or "wilful blindness" that the proceedings were an abuse of process; an order setting aside the second judgment on the basis that it was obtained "irregularly, illegally, or against good faith"; in the alternative, an order that any further proceedings by the plaintiff against the defendant be permanently stayed; an order that the proceedings be "dismissed" on the basis that there had been a "conscious and deliberate" abuse of process; in the alternative, a temporary stay pending the outcome of the Federal Court proceedings; in the alternative, an order that the second judgment be set aside on the basis that it was obtained "in the absence" of the defendant; in the alternative, an order that any rehearing of the proceedings be temporarily stayed until the Federal Court proceedings are determined; an order, if these proceedings are stayed until the end of the Federal Court proceedings, that the defendant be permitted to file a "defence and/or cross claim" and join other parties as necessary; in the alternative, if the motion is dismissed, that leave to appeal be granted; costs; any other orders that the Court deems appropriate; an order dismissing the plaintiff's statement of claim of 20 October 2011 on the basis that it is a "collateral attack" on the first judgment; an order dismissing the statement of claim of 20 October 2011 on the basis of "persistent nonappearance" by the plaintiff; and, finally, indemnity costs against the plaintiff. 26Clearly, many of the allegations underpinning the orders sought should not be made lightly by a responsible lawyer of this Court. Submissions 27I respectfully consider that the written and oral submissions of the solicitor for the defendant can be summarised as follows. 28First, the two judgments are inconsistent and cannot stand together. That is because the first judgment assumes that the sum was a loan from Mr Hilton to the defendant, thereby giving rise to the liability that underpins that judgment. And yet the second judgment is partially founded upon the assumption that the sum was income upon which the defendant was liable to pay tax. The authorities demonstrate that it cannot be the case that inconsistent judgments of the same court can stand together. It follows that the second judgment is an abuse of process and steps should be taken by the Court to put an end to that abuse. 29The solicitor for the defendant in oral submissions explained that this submission was based upon "separation of powers doctrine, rule of law, et cetera" and "the inherent powers of a superior court of jurisdiction, such as the Supreme Court of New South Wales". 30Secondly, the defendant knew nothing of the second judgment that was founded upon substituted service, which was itself founded upon an application of which the defendant had no knowledge. He has a real issue to be litigated with regard to it. In those circumstances, it should not be permitted to stand. 31In response, with regard to the first contention, the solicitor for the plaintiff submitted that his client had merely sued upon an assessment in an entirely orthodox way. And he had done so in circumstances in which the applicable statute states that the assessment is to be regarded as conclusively correct. 32He submitted that there was no inconsistency between the two judgments that would lead to me interfering with the second of them. 33Finally, with regard to reopening the second judgment, he submitted that that would be futile, because of the statutory provision denying a defence in a State court to a defendant when the plaintiff sues upon a notice of assessment. Determination (i) The first contention 34Turning to the first contention on behalf of the defendant, in Port of Melbourne Authority v Anshun Pty Ltd, the High Court of Australia spoke of three bases upon which a subsequent claim may be precluded by an earlier judgment. 35The first basis was res judicata, whereby a cause of action that has been determined and is sought to be re-litigated will be barred. 36The second was issue estoppel, whereby a question of fact that has been determined and that underpinned a previous judgment cannot be impugned. 37The third basis was less straightforward. It will be recalled that in Port of Melbourne Authority v Anshun Pty Ltd a worker was injured on the docks arising out of the use of a crane. He sued both the owner of the crane (Anshun Pty Ltd) and the hirer of the crane (the Port of Melbourne Authority) in the tort of negligence. The owner and the hirer each sought contribution from the other. However, the owner did not rely in those proceedings upon a contractual indemnity said to have been given by the hirer to the owner. In subsequent proceedings, the owner did seek to rely upon that contractual indemnity. 38It can be seen that, in those circumstances, neither res judicata nor issue estoppel applied. That is because neither the cause of action founded upon contractual indemnity nor the question of fact as to whether such a contract had been entered into had been determined in the first proceedings. 39Nevertheless, the High Court held that the second proceedings were barred by the first. At 602, the majority said: In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. 40I have provided a very brief conspectus of that seminal case for the simple reason that, to my mind, underpinning the whole of the analysis in Port of Melbourne Authority v Anshun Pty Ltd is the implicit proposition that the principles discussed in that judgment apply to situations where the parties are identical. (Of course, in the first proceedings the plaintiff was the injured worker, but in the contribution proceedings arising from his claim, and in the proposed contractual indemnity proceedings, the parties were the same: namely, the hirer and the owner of the crane.) 41Here, of course, the parties are not identical. In the first judgment the plaintiff was Mr Hilton. In the second judgment, the plaintiff was the DCT. The DCT had nothing to do with the first proceedings and perhaps even knew nothing of them. The defendant in the proceedings before me was one of the defendants in the first judgment, and the defendant in the second judgment. 42In short, to my mind, analysed on its own, Port of Melbourne Authority v Anshun Pty Ltd has nothing to say about the circumstances of this case, and does not avail the defendant. 43However, seemingly cognisant of that difficulty, the defendant also relied upon the decision of the Court of Appeal of this state in Habib v Radio 2UE Sydney Pty Ltd. My attention was invited to the following passage at [83]: An Anshun estoppel also arises where an omission to plead a claim or defence will contribute to the existence of conflicting judgments, including those which are contradictory, though they may not be pronounced on the same cause of action as long as they appear to declare rights which are inconsistent in respect of the same transaction: Anshun (at 603 - 604). Thus an Anshun estoppel will apply even though the parties to the second proceedings are not the same as in the first. Although there may be "no question ... of oppression and unfairness" where the parties in the second action "were not parties to the earlier action", the new proceedings may threaten the integrity of the administration of justice if they raise the prospect of conflicting judgments: Spalla (at [64] - [65]), referring to Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 (at [36]). [Emphasis added.] 44In short it was submitted that the law has developed since the decision in Port Melbourne Authority v Anshun Pty Ltd, and relevant inconsistency can indeed arise in circumstances such as these, where the parties in the first and second proceedings are not identical. 45I respectfully reject that submission. An analysis of the two cases referred to in that passage of Habib v Radio 2UE Sydney Pty Ltd, along with the most important cases to which those cases refer, shows that it is only in highly restricted circumstances that the principles discussed in Port Melbourne Authority v Anshun Pty Ltd can be applied when the parties are different. 46In Reichel v Magrath (1889) 14 App Cas 665, a vicar tendered his resignation to a Bishop, who accepted it. Thereafter, the vicar changed his mind, and sought to maintain his position as vicar. The first proceedings, which he brought in support of that course, were dismissed. In subsequent proceedings, the newly appointed vicar sought a declaration that he was the rightful vicar, and an injunction to prevent the original vicar from depriving him of the use and occupation of the house and lands attaching to that appointment. The original vicar sought to resist those proceedings on the same basis; namely, that he was the true vicar and entitled to remain in possession. That defence was struck out. The House of Lords affirmed that decision, on the basis that it would be an abuse of process for the "defeated litigant" to be permitted to rely upon "the very same question which the Court has decided in a separate action". 47It can be seen that, in a highly formal sense, the opponents of the original vicar were different in the two sets of proceedings. But on any practical analysis, they were the same: namely, the Church authorities that were seeking to act upon the resignation of the first vicar and install his replacement. 48In Hunter v Chief Constable of the West Midlands Police and Others [1981] AC 529, a number of persons had been convicted of murder (it is notorious that years later the convictions were found to be unsafe). During the trial objection had been taken to the admission of confessions said to have been made by those persons to the police. In determining that the confessions were admissible, the trial judge had found that they had been made voluntarily. As a result of the way that the trial was run before the jury, the verdicts of guilty were to the same effect. Appeals against the convictions were dismissed. 49In subsequent civil proceedings, the convicted persons sought to sue the police in tort for the assaults said to have been committed upon them. 50The House of Lords held that it would be an abuse of process for the convicted persons to be permitted to make a "collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made" (at 541). 51Subsequently, the decision has come to be understood as authority for the more restricted proposition that one cannot mount a collateral attack upon a criminal conviction in subsequent civil proceedings. 52Again, it is correct to say in a theoretical sense that the parties were different. In the first proceedings, the opponent of the convicted persons was the Crown. In the second proceedings, the opponent of the convicted persons was the police. But again it can be seen that there was a high degree of association between those two entities in the circumstances of that particular case. And in any event, to the extent that the judgment is to be understood as prohibiting subsequent collateral civil attack on a criminal conviction, it says nothing about the circumstances of the dispute between the DCT and the defendant. 53Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 does not require any analysis, except to say that it was a completely orthodox application of the principles discussed in Port of Melbourne Authority v Anshun Pty Ltd. 54In Spalla v St George Motor Finance Ltd [2004] FCA 1699, French J (as his Honour then was) discussed the concept of relitigation as abuse of process commencing at [58]. At [59], his Honour said: The Federal Court, like every Court of Justice, has an implied incidental power to prevent abuse of its processes. There are many ways in which the processes of a court may be abused. One form of such abuse is to invoke the procedures of the court to attempt to relitigate controversies which have already been decided by the court. The court may be protected against such use of its procedures by the doctrines of res judicata and issue estoppel and their analogical extension to issues which ought reasonably to have been litigated in original proceedings as enunciated in Henderson v Henderson (1843) 3 Hare 100; 67 ER 313 and Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 55Of course, in this case there is not the slightest question of the DCT having had an obligation to raise matters in the original proceedings. That is for the simple reason that neither the DCT nor any body or person associated with the DCT was a party. 56Finally, in Arthur JS Hall & Co v Simons [2002] 1 AC 615, the House of Lords undertook a detailed consideration of whether the immunity from suit enjoyed by advocates should be maintained in the context of torts said to have been committed either in civil or criminal proceedings. As part of that process, Hunter v Chief Constable of the West Midlands Police and Others was discussed in the way to which I have referred above at [52]. There was little suggestion in the decision in Arthur JS Hall & Co v Simons of the principle in Hunter v Chief Constable of the West Midlands Police and Others being expanded beyond collateral civil attacks upon subsisting prior convictions. Nor was there any suggestion of the principle being expanded beyond situations in which the parties in the original and subsequent proceedings are either identical, or closely related or associated. 57In short, the foregoing very brief conspectus of the authorities demonstrates that they do not support the basal contention of the defendant with regard to the two judgments. All of them proceed on the presupposition of identity of parties, or, at the least, very close and practical association between them. 58A further practical reason for rejecting the submission of the defendant is as follows. If his analysis were correct, any debtor could forestall a valid claim by a creditor by: having an associate file a false claim against him or her; having the associate obtain judgment against the debtor; but ensuring that the associate never enforces the judgment debt. On the submission of the defendant, the existence of such judgment would prohibit completely the litigation and enforcement of the rightful debt. 59Of course, there is absolutely no evidence that that is what has occurred here, and I am not suggesting for a moment that it has. But consideration of that entirely hypothetical example permits one to test whether the submission of the defendant can be correct. To my mind, it cannot be, both as a matter of established legal principle and as a matter of common sense. 60I respectfully reject the first basis for the orders sought in the motion. (ii) The second contention 61Turning to the second basis, the plaintiff filed a statement of claim in the usual way. An application for substituted service was made ex parte. That is inherently not an unusual way for such applications to be made. That is for the reason that the applicant for such an order is implicitly accepting that the opponent cannot be served in the usual way. The order sought was granted, and service was effected in accordance with those orders. No defence was filed. There can be no criticism of the plaintiff for proceeding in that orthodox way. 62Having said that, it is well known that a default judgment can be set aside, even if entered completely regularly, if there is a real issue for determination in the litigation: r 36.16(1) of the Uniform Civil Procedure Rules 2005 (NSW). 63However, as against that proposition of the defendant, I accept the submission of the plaintiff that there is no real issue to be determined in this Court, and therefore granting the order setting aside the second judgment would be fruitless. That is because of the longstanding interpretation of s 177 of the Income Tax Assessment Act 1936 (Cth). That section is relevantly as follows: 177 Evidence (1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. ... 64Courts have repeatedly confirmed that the section means what it says. It prohibits determination of whether a debt is founded on an assessment that is actually correct in proceedings to enforce the debt to the DCT brought in the Supreme Court: see FJ Bloeman Pty Ltd v Federal Commissioner of Taxation; Simons v Federal Commissioner of Taxation [1981] HCA 27; 147 CLR 360 at 375; Deputy Commissioner of Taxation v Cameron (1990) 91 ATC 4056; Deputy Commissioner of Taxation v Ho (1996) 131 FLR 188 at 190. 65Secondly, if the DCT issues an amended assessment after a judgment has been entered, the fact that the defendant owes the DCT less than the judgment debt does not render the judgment irregular: Deputy Commissioner of Taxation v Tabuso [2013] NSWSC 688. 66The recourse of an aggrieved taxpayer is to the Administrative Appeals Tribunal or the Federal Court, not by way of a defence to proceedings in this Court. It is noteworthy that relief in the Federal Court is precisely what the defendant has sought. 67In Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; 247 ALR 605, the plurality of the High Court of Australia held that the only exception to that proposition is if there has been no assessment at all, thereby leaving the way open for prerogative relief: see in particular [24]-[25], [47]-[48] and [55]-[56]. But there is nothing to suggest that that is the case here. 68In short, I accept the submission of the plaintiff that, even if for the sake of argument one accepts the contention of the defendant that he knew nothing of the proceedings and disputes the debt, it would be fruitless to reopen the second judgment. I repeat that the recourse of the defendant is in the Federal Court, not the Supreme Court of New South Wales. 69Thirdly, as for stays of enforcement of a judgment debt of this Court whilst Federal Court proceedings are being resolved, the authorities establish the proposition that that will only occur in the most exceptional circumstances: Deputy Commissioner of Taxation v TDE Nominees Pty Ltd (No 2) [2011] NSWSC 1528; Deputy Commissioner of Taxation v Ho. I do not consider that any exceptional circumstances have been shown to exist here. 70Fourthly, I am concerned that the second judgment in favour of the plaintiff remains in the larger amount, even though the plaintiff now accepts that it is entitled only to a lesser amount. I have considered whether I should stay enforcement of the second judgment in anything above the lesser amount as a result of that concern. On reflection, I have decided not to do so for four reasons. 71The first reason is that there is nothing to suggest that the plaintiff is seeking to enforce the whole of the second judgment. It is noteworthy that the bankruptcy proceedings that have been brought by the plaintiff against the defendant are founded on the lesser amount. 72The second reason is that the defendant did not seek such an order in his motion. Nor did I discuss such an order with the solicitor for the plaintiff. I think that to make such an order in those circumstances could deny the plaintiff procedural fairness. 73The third reason is that it could be that, unassisted by submissions, I would be falling into error by making such an order. 74The fourth and final reason is that I would be very much surprised if the plaintiff sought to enforce a judgment that it has accepted before me is erroneously large. 75In short, I have decided not to make any order staying the enforcement of the whole of the second judgment. (iii) Other contentions 76Dealing with other issues raised by the motion, I see no basis upon which I could or should grant leave to appeal. Section 101 of the Supreme Court Act 1970 (NSW) speaks of leave being granted by the Court of Appeal with regard to certain proceedings at first instance, not by the judge that heard those proceedings. 77Separately, it is true that it is somewhat surprising that the plaintiff obtained a judgment against the defendant whilst negotiations were ongoing. But I do not regard that as an abuse of process or evidence of bad faith. 78It can be seen from my chronological review that, when the plaintiff filed the statement of claim against the defendant, the objection process had not yet commenced. Furthermore, the second judgment in the larger amount was obtained before the plaintiff decided to accept that the sum should not be regarded as income. And in any event, merely because the parties may be negotiating does not preclude one of them from enforcing its rights in this Court. To give but one example familiar from the Common Law Division of this Court, it can hardly be an abuse of process for a mortgagee to pursue enforcement against a mortgagor merely because the latter is putting forward various proposals to the mortgagee, or seeking to refinance. Conclusion 79In short, I do not propose to make any of the orders sought in the motion of the defendant, for the reason that I have rejected all of the submissions upon which they are founded. Costs 80Finally, having rejected all of the bases of the orders sought by the defendant, there is no question of indemnity costs or costs being ordered in his favour. As for the costs of the plaintiff, neither party submitted that costs should not follow the event. Nor did the solicitor for the plaintiff submit that he should have any special order. Orders 81I make the following orders: (1)All of the orders sought in the amended notice of motion of the defendant are dismissed. (2)The defendant must pay the costs of the plaintiff of the proceedings before me.