Deputy Commissioner of Taxation v Southgate Investments Funds Limited

Basis for Deputy Commissioner's Summary Judgment Claim 7 I turn first to the motion brought by the Deputy Commissioner. I commence by noting that, in what follows, I make no findings of fact as to any substantive matter: see Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] 252 ALR 41 at 44 (Finkelstein J) and Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at 282. Rather, what follows is a summary of the evidence adduced by the Deputy Commissioner, principally given by way of an affidavit of Aris Zafiriou sworn on 8 October 2010, which, with its exhibits, was relied on by the Deputy Commissioner in support of the summary judgment motion. Mr Zafiriou is an Executive Level Officer in the Commonwealth Public Service employed in the Debt Section of the Australian Taxation Office at Melbourne. 8 According to Mr Zafiriou, Southgate wrongly failed to provide the Commissioner of Taxation with income tax returns for the years ended 30 June 2000, 30 June 2001, 30 June 2002, 30 June 2006, and 30 June 2007, with the result that, on 12 August 2010, the Deputy Commissioner issued notices of assessment to Southgate under s 167 of the ITAA 1936. Also on 12 August 2010, the Deputy Commissioner sought orders, amongst other things, restraining Southgate from removing assets from Australia or diminishing the value of such assets. The court granted the orders sought by the Commissioner that day. Although varied from time to time, the orders have in substance continued until now. The making of the orders and some of the background to the proceeding is discussed in Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 (appeal pending). 9 The notices of assessment related to income tax liabilities for the years ended 30 June 2000, 30 June 2001, 30 June 2002, 30 June 2006, and 30 June 2007. In respect of each income year, there was also a general interest charge pursuant to s 204 of the ITAA 1936 and Part IIA of the TAA 1953, which, so Mr Zafiriou deposed, "has been properly calculated in accordance with the provisions of the said Acts". Also according to Mr Zafiriou, as at 7 October 2010, income tax liabilities and general interest charges total $2,519,888.74, the notices of assessment being duly served on Southgate on or about 12 August 2010 "in accordance with the provisions of the ITAA 1936 and the Income Tax Regulations 1936". 10 Documents under the hand of a Deputy Commissioner of Taxation, being copies of the relevant notices of assessment pursuant to s 177 of the ITAA 1936, were exhibited to Mr Zafiriou's 8 October 2010 affidavit. Also exhibited to his affidavit was a certificate pursuant to s 255-45 of Schedule 1 to the TAA 1953, again under the hand of a Deputy Commissioner of Taxation, which stated that: 1. Notices of the following assessments were, or are taken to have been, served on SOUTHGATE INVESTMENT FUNDS LIMITED under a taxation law: (a) notice of assessment as to income tax for the year ended 30 June 2000, which issued on 12 August 2010; (b) notice of assessment as to income tax for the year ended 30 June 2001, which issued on 12 August 2010; (c) notice of assessment as to income tax for the year ended 30 June 2002, which issued on 12 August 2010; (d) notice of assessment as to income tax for the year ended 30 June 2006, which issued on 12 August 2010; (e) notice of assessment as to income tax for the year ended 30 June 2007, which issued on 12 August 2010. 2. The sum of $2,519,888.74 is at 7 October 2010, a debt due and payable by SOUTHGATE INVESTMENT FUNDS LIMITED to the Commonwealth of Australia 11 A copy of a notice of administrative penalty for failure to lodge income tax returns for these years, certified by a Deputy Commissioner of Taxation pursuant to s 298-30 of Schedule 1 to the TAA 1953, was also exhibited to Mr Zafiriou's 8 October 2010 affidavit. Mr Zafiriou deposed that: The Notice of Administrative Penalty was duly served on [Southgate] on or about the date of issue of the notice, being 12 August 2010, in accordance with the provisions of the TAA 1953 and the Taxation Administration Regulations 1976. 12 According to Mr Zafiriou's 8 October 2010 affidavit, Southgate has not paid the administrative penalty on or before the due date specified in the notice of administrative penalty; and, as at 7 October 2010, Southgate was indebted to the Commonwealth in respect of the administrative penalty in the sum of $364,733.24. This amount comprised the administrative penalties payable pursuant to s 284-75 of Schedule 1 to the TAA 1953, in respect of the failures to lodge income tax returns in the relevant years and general interest charges for late payment of administrative penalty calculated up to and including 6 October 2010. According to Mr Zafiriou, the amount of $364,733.24 "has been properly calculated in accordance with the provisions of the [TAA 1953]". 13 A certificate pursuant to s 255-45 of Schedule 1 to the TAA 1953 under the hand of a Deputy Commissioner of Taxation was exhibited to Mr Zafiriou's affidavit, which stated that: 1. Notices of the following assessments were, or are taken to have been, served on SOUTHGATE INVESTMENT FUNDS LIMITED under a taxation law: (a) notice of assessment of penalty for failing to provide a document for the year ended 30 June 2001, which issued on 12 August 2010; (b) notice of assessment of penalty for failing to provide a document for the year ended 30 June 2022, which issued on 12 August 2010; (c) notice of assessment of penalty for failing to provide a document for the year ended 30 June 2006, which issued on 12 August 2010; (d) notice of assessment of penalty for failing to provide a document for the year ended 30 June 2007, which issued on 12 August 2010. 2. The sum of $364,723.24 is at 7 October 2010, a debt due and payable by SOUTHGATE INVESTMENT FUNDS LIMITED to the Commonwealth of Australia. 14 At the hearing of the summary judgment motion, the Deputy Commissioner tendered a further certificate under s 255-45 of Schedule 1 of the TAA 1953 stating that: (a) The sum of $2,545,954.67 is at 8 November 2010 a debt due and payable by [Southgate] to the Commonwealth of Australia in respect of income tax and associated general interest charge. (b) The sum of $368,495.97 is at 8 November 2010 a debt due and payable by [Southgate] to the Commonwealth of Australia in respect of administrative penalties and associated general interest charge. 15 Having regard to these matters, the Deputy Commissioner claims to have established that Southgate is indebted to the Commonwealth of Australia in the amount of $368,495.97 as at 8 November 2010. The sum of $368,495.97 and $2,545,954.67 (referred to above) is $2,914,450.64, which is therefore claimed as a debt owed by Southgate to the Commonwealth and payable to the Commissioner. 16 Mr Zafiriou's 8 October 2010 affidavit also affirmed his belief that Southgate had no defence to the Deputy Commissioner's claim. 17 In submissions filed on the question whether summary judgment should be entered, Southgate referred to the affidavit of Vanda Gould of 1 September 2010 in support of the proposition that the correctness of the amounts assessed might be doubted. The Court was informed that Southgate had lodged objections to the assessments and the Deputy Commissioner had not yet made decisions on the objections.

Relevant provisions of the taxation legislation 18 The Deputy Commissioner maintained that, having regard to Mr Zafiriou's 8 October 2010 affidavit and its exhibits, the further certificate under s 255-45 of Schedule 1 of the TAA 1953 tendered at the hearing, and the relevant provisions of the taxation legislation (set out below), the Court should be satisfied that Southgate has no reasonable prospect of successfully defending the proceeding. 19 Provisions of the taxation legislation that are relevant to the Deputy Commissioner's summary judgment application in this proceeding are set forth in Bank Berhad (No 2) at [26]-[37]. I refer to those paragraphs here, without repeating them.

Summary judgment under s 31A 20 As noted at the beginning of these reasons, the Deputy Commissioner seeks an order pursuant to s 31A(1) of the FCA Act that there be judgment for it against Southgate. Section 31A relevantly provides: (1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is prosecuting the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding. (2) … (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. 21 Put simply, the Deputy Commissioner says that Southgate has no defence to the entry of judgment as claimed against it. Precisely how such a claim is assessed depends on the nature of the cause of action, as well as the identity of the parties, the pleaded facts and the evidence adduced: see Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at 407 [126] (Gordon J). Here, the relevant provisions of the taxation provisions referred to above are critical, together with Mr Zafiriou's 8 October 2010 affidavit evidence and its exhibits, and the further certificate under s 255-45 of Schedule 1 of the TAA 1953 tendered at the hearing. 22 In Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 at [37], Sundberg J said the following about s 31A: The principles governing the operation of s 31A of the Act were canvassed in detail by Lindgren J in White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 (White Industries) and Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 (Boston). In White Industries 160 FCR at [59], Lindgren J considered that a claim requires "real" as opposed to "fanciful" or "merely arguable" prospects in order for it to have reasonable prospects of success as required by s 31A. Justice Rares in Boston 236 ALR at [45] was of the view that, unless there are no real issues of fact - such that "only one conclusion can be said to be reasonable" - summary judgment (or dismissal) ought not be given pursuant to s 31A. The Full Court has recently considered the summary judgment standard in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 (Finkelstein, Rares and Gordon JJ) (Jefferson Ford). Although different views were taken as to the precise operation of s 31A, the following principles appear to have been endorsed: In applying s 31A, the court does not conduct fact finding but must assess the strength of the allegations made by reference to the pleadings, affidavits and any other evidence adduced, in order to determine whether the claim is sufficiently strong to warrant a trial: see Jefferson Ford 167 FCR at [23] (Finkelstein J), [74] (Rares J) and [130] (Gordon J); see also Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd [2008] FCA 1257 at [28] (Emmett J); Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [6] (Finkelstein J). Ultimately, the court must consider whether there are any real, as opposed to fanciful, issues of fact or law that require proper determination at a trial. In assessing whether there are reasonable prospects of success, the court should draw all reasonable inferences (but only reasonable inferences) in favour of the non-moving party: see Jefferson Ford 167 FCR at [132] (Gordon J). Moreover, where the evidence on a summary judgment application is of an ambivalent character, there will be a real issue of fact and therefore reasonable prospects of success for the purposes of s 31A: see Boston 236 ALR at [45]; Jefferson Ford 167 FCR at [73] (Rares J) and [130] (Gordon J). The moving party bears the onus of persuading the court that its opponent has no reasonable prospects of success: see Jefferson Ford 167 FCR at [127] (Gordon J); Boston 236 ALR at [45]. However, where the moving party establishes a prima facie case for summary judgment, the opposing party must be able to point to "specific factual or evidentiary disputes that make a trial necessary": see Jefferson Ford 167 FCR at [127] (Gordon J). As s 31A requires in effect a prediction as to the outcome of a claim, the court should be more reluctant to summarily dismiss a claim where real questions of fact and credit arise. In those cases, the court will not have all material evidence before it until trial, the credit of important witnesses will not have been tested and it will as a consequence be very difficult if not impossible to fairly assess the prospects of the claim: see Jefferson Ford 167 FCR at [20] (Finkelstein J); Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 at [6] (Gilmour J). This remains an accurate account of the operation of s 31A. 23 In the context of the case management system of this court, s 31A of the Act provides an efficient means of resolving litigation where the court is satisfied that the respondent has no reasonable prospect of a successful defence. The provision has previously been applied in income tax recovery proceedings: see Commissioner of Taxation v Grimaldi (No 5) [2009] FCA 765.

Consideration 24 Sections 175 and 177 of the ITAA 1936 are critical provisions for the Deputy Commissioner's summary judgment motion. The effect of s 177(1) is that notices of assessment have a conclusive evidentiary character both in respect of the due making of the assessment and, save in Part IVC proceedings, that the amount and all the particulars of the assessment are correct: see McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 281-282 (Taylor J) and FJ Bloeman Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 ('Bloemen') at 376. Part IVC proceedings are review proceedings in the Administrative Appeals Tribunal and appeals to this court concerning an objection decision. The current proceedings are not proceedings under Part IVC. 25 In Bloeman at 376, the High Court held that the effect of ss 175 and 177 was to confine a taxpayer to the appeal procedures for which the taxation legislation provides. As French J said in Deputy Commissioner of Taxation v Warrick (No 2) (2004) 56 ATR 371; [2004] FCA 918 ('Warrick (No 2)') at [84], "[t]he weight of High Court authority in relation to the operation of ss 175 and 177 stands against any challenge to the validity of an assessment where the purported assessment is a bona fide attempt to exercise the powers conferred by the Act, relates to the subject matter of the Act and is reasonably capable of reference to those powers". 26 In their joint judgment in Bloemen, Mason and Wilson JJ, with whom Stephen and Aickin JJ agreed, said (at 378) that the production of a notice of assessment: ... will put beyond contention the due making of the assessment so that the court cannot find that no assessment was made or that, if made, it was made for an inadmissible purpose. 27 Relevantly for present purposes, in Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 at 187-188, Mason CJ said that this statement in Bloemen: ... proceeds upon the footing that the paramount purpose of the Act is to ascertain the liability of taxpayers to tax and that the Act, with that object in view, sets up a legislative regime whereby the Commissioner assesses a taxpayer to tax, the taxpayer being liable to pay the amount stated in the notice of assessment, subject to a reference to the Administrative Appeals Tribunal or an appeal under Pt IVC to the Federal Court. In such an appeal, it is for the taxpayer to show that the assessment is excessive. In that context, the existence of an inadmissible purpose on the part of the Commissioner plays no part. The central element of the legislative regime is the making of an assessment by the Commissioner which ascertains the taxpayer's liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantive liability to tax. In such an appeal, the taxpayer is at liberty to challenge the exercise of any relevant discretion by the Commissioner. Thus, on appeal, the court will set aside the assessment if any relevant exercise of discretion by the Commissioner is affected by error of law, if he has taken an extraneous factor into account or if he has failed to consider a material factor. 28 These observations assumed that s 177 was in the nature of a privative clause, the operation of which was to be understood having regard to the principle derived from R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 ('Hickman'). In Richard Walter at 180, Mason CJ referred to the Hickman principle, clearly a reference to Dixon J's observations about privative clauses (in Hickman at 615) that: Such a clause is interpreted as meaning that no decision which is in fact given by the body concerned shall be invalidated on the grounds that it has not conformed to the requirements governing its proceedings or the exercise of its authority or has not confined its acts within the limits laid down by the instrument giving it authority, provided always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body. Applying this, Mason CJ saw s 177 as "consistent with the Hickman principle" on the basis that (at 188): Section 177 gives effect to the substantive provisions of the Act, in particular s 175, the effect of which is to ensure that the validity of an assessment does not depend upon compliance with any of the particular provisions of the Act or considerations of purpose. 29 In summary, on the one hand, the Hickman principle as stated by Mason CJ in Richard Walter does not extend the protection of ss 175 and 177 to assessments that are not made in good faith or to 'assessments' that, on their face, are not assessments at all. Nor do these provisions offer protection in the case where the Commissioner concedes that no attempt to ascertain or estimate the taxpayer's taxable income has yet been made: see R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 310. On the other hand, the effect of ss 175 and 177 is to preclude judicial review of assessment decisions in proceedings under s 75(v) of the Constitution or s 39B of the Judiciary Act 1903 (Cth) for error of law, failure to take into account mandatory relevant considerations and breaches of procedural fairness. In conformity with this understanding, Brennan J said in Richard Walter at 196: ... if s 175 confers validity on assessments made in a bona fide attempt to exercise the power to make them, it authorises the Commissioner to determine in good faith, rightly or wrongly, the application of the general provisions of the Act to the facts of the particular case subject to correction by the objection, review and appeal procedures. That accords with the policy of the Act which most clearly appears from the text of s 177(1). See also Richard Walter at 211, 213 (Deane and Gaudron JJ), 227 (Toohey J) and 242 (McHugh J). Further, in Warrick (No 2) at [86], French J rejected an argument that the decision of the High Court in Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476 required a reconsideration of the authorities with respect to ss 175 and 177. 30 The Commissioner is not prevented from suing for recovery of tax debts simply because the taxpayer has not had relevant objections determined or has not exhausted review or appeal rights: see TAA 1953, ss 14ZZM and 14ZZR and Clyne v Deputy Commissioner of Taxation (1983) 48 ALR 545 at 547; (1983) 57 ALJR 673 at 675. Judgment may, however, be stayed in appropriate circumstances: see below. 31 In support of the motion for summary judgment the Deputy Commissioner has relied upon the production of certified copies of the notices of assessments and the certificate of their service upon Southgate (although, at the hearing, the court was informed that service was not in issue between the parties). The notices of assessment were produced as exhibits to the 8 October 2010 affidavit of Mr Zafiriou. By virtue of ss 175 and 177, the production of the notices of assessment was conclusive evidence of their due making; and in this proceeding that the amount and all the particulars of the assessment were correct. Upon service of the notices Southgate became liable to pay the tax assessed and shown as due to the Commonwealth and, by s 255-5 of the TAA, recoverable in a court of competent jurisdiction. Pursuant to s 255-45 of Schedule 1 of the TAA 1953, the evidentiary certificate bearing a Deputy Commissioner's signature was relied upon as evidence that the sums of $368,495.97 and $2,545,954.67 were debts due and payable to the Commonwealth by it. These sums totalled $2,914,450.64. The Deputy Commissioner relied upon s 255-45 of Schedule 1 of the TAA as prima facie evidence of the matters stated therein. 32 The Deputy Commissioner noted that the notice of assessment for the year ending 30 June 2000 incorrectly recorded that the amount was due on 15 March 2001. Former s 204(1) of the ITAA 1936 (as applicable to the 2000 year of income) actually operated to make the amount due and payable on 11 September 2010 - 30 days after the date that the assessment notice was served: see s 174 of the ITAA 1936; reg 40 of the IT Regulations; Deputy Federal Commissioner of Taxation v Sheehan (1986) 86 ATC 4718 at 4728-9; and Re Thai; Ex parte Deputy Federal Commissioner of Taxation (1994) 50 FCR 172 at 130 ('Re Thai'). This mistake did not affect the validity of the assessment: Re Thai at 131. It was not in contest that the amount certified in the certificate under section 255-45 of Schedule 1 of the TAA 1953 as being a debt due and payable to the Commonwealth, and the amount sought by the Deputy Commissioner, had been calculated on the basis that the general interest charge on the income tax liability for the year ending 30 June 2000 was due and payable on 11 September 2010. 33 Counsel for the Deputy Commissioner also noted that there had recently been a change to the legislation imposing a general interest charge ('GIC') on taxpayers with overdue income tax debts and shortfall interest charge. This affected the provisions pursuant to which the Deputy Commissioner claimed GIC on unpaid income tax debts. Subsection 204(3) of the ITAA 1936 ('the former provision') had been repealed and replaced by s 5-15 of the Income Tax Assessment Act 1997 ('ITAA 1997') ('the new provision'). The change applied from 1 July 2010. There were transitional provisions for GIC remaining unpaid as at 1 July 2010: see Income Tax (Transitional Provisions) Act 1997, s 5-10 ('the transitional provision'). The effect of the change to the legislation is that in circumstances where GIC is unpaid as at 1 July 2010, the Deputy Commissioner relies upon the former provision, the new provision and the transitional provision to claim GIC on unpaid income tax debts. The change does not affect Part IIA of the TAA 1953, however, and, accordingly, the Deputy Commissioner continues to claim GIC pursuant to this provision. With respect to Southgate, the income debts for the years ended 30 June 2001 and later years were all payable prior to 1 July 2010. Accordingly, the Deputy Commissioner claimed GIC on these unpaid income tax debts pursuant to s 204 of the ITAA 1936, s 5-10 of the Income Tax (Transitional Provisions) Act 1997 and s 5-15 of the ITAA 1997. With respect to Southgate's income debt for the year ended 30 June 2000, this debt was payable after 1 July 2010. The Deputy Commissioner therefore claimed GIC on this unpaid income tax debt pursuant to s 5-15 of the ITAA 1997. 34 For the reasons already set out, the recovery proceedings cannot be resisted upon the basis of jurisdictional error short of the failure of the Commissioner to observe the criteria referred to under the rubric of the Hickman principle. Southgate does not allege, and there is no evidence of, any such failure. 35 As Southgate properly conceded in written submissions filed on 8 November 2010, the fact that objections remain undetermined and review and appeal rights are not yet exhausted has no bearing on the question of liability. This is the combined effect of ss 175 and 177 and the evidence of certified notices of assessment and the evidentiary certificates produced to the Court. The authorities clearly establish that the policy of the taxation legislation in circumstances such as these should be given effect notwithstanding that the taxpayer's challenge to the assessments in question may ultimately be vindicated in Part IVC proceedings. I conclude that Southgate has no reasonable prospect of defending the proceeding and, save for the question of a stay, judgment should be entered as the Deputy Commissioner seeks.

Should there be a stay? 36 In support of its stay motion, Southgate submitted that the Court should stay the Deputy Commissioner's motion for judgment and, if judgment is entered, should stay execution until after "the adjudication of objections to these assessments". The parties agreed that the principles were the same for both forms of stay. Southgate supported its motion by various affidavits, particularly an affidavit of Thomas Leslie Hollo of 8 November 2010 and an affidavit of Vanda Gould sworn on 8 November 2010 (with annexures). Southgate also referred to the affidavit of Daud Yunus sworn on 30 August 2010 and two affidavits of Vanda Gould of 6 September 2010, the last three being filed in opposition to the making of freezing orders. Southgate's written submissions also referred to another affidavit of Mr Gould of 1 September 2010. 37 The amounts assessed to Southgate and the general interest and charges accruing with respect to them are debts due to the Commonwealth and payable to the Deputy Commissioner: see TAA 1953, s 255-5(1). As noted already, Southgate can challenge the tax debts only via Part IVC of the TAA 1953. Counsel for Southgate correctly accepted that the fact the Deputy Commissioner had not yet determined Southgate's objection did not disentitle the Deputy Commissioner from pursuing recovery proceedings. The Deputy Commissioner also correctly accepted that the Court had jurisdiction to stay tax recovery proceedings or execution of judgment in such proceedings. Both parties accepted that the power to grant a stay is discretionary and is exercised, having regard to the policy of the taxation legislation, as reflected in a number of the provisions mentioned above. 38 The authorities emphasize that the power to grant a stay is exercised sparingly in respect of any proceeding for the recovery of a tax debt based on the issue and service of an assessment, and that it is incumbent on the taxpayer to justify the exercise of power. Reference may be made in this connection to Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 ('Broadbeach') at 491-493 (Gummow A-CJ, Heydon, Crennan and Kiefel JJ); Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation (2006) 64 ATR 316 at 322-323 (Nettle JA); Snow v Deputy Commissioner of Taxation (1987) 14 FCR 199 ('Snow') at 139 (French J); and DFCT v Mackey (1982) 45 ALR 204 at 287 (Moffit P) and 289 (Hutley JA); (1982) 82 ATC 4571 at 4573 and 4575. 39 The harshness with which such provisions as 177(1) of the ITAA 1936 can operate in circumstances like the present is obvious enough: compare Broadbeach at 492. But, as the plurality observed in that case, s 177(1) and related provisions of the taxation legislation "implement a long-standing legislative policy to protect the interests of the revenue". The fact that pending objections have not been determined will not preclude a recovery action, as their Honours in Broadbeach made clear when they cited with approval the decision of Asprey J in Deputy Commissioner of Taxation v Niblett (1965) 83 WN (Pt 1)(NSW) 405 ('Niblett') at 411, who, as their Honours in Broadbeach said (at 492), "struck out pleas of non-liability to a recovery action instituted by the Deputy Commissioner in the Supreme Court of New South Wales while objections were pending under what was then s 185 of the [ITAA 1936]". Also at 492, their Honours in Broadbeach set out the following passage from Asprey J's judgment: It may be thought to be a hardship that a taxpayer should have to pay the tax assessed when an objection to the assessment has not been decided upon but there are obvious financial considerations of high policy that must be weighed in the balance against cases of individual hardship with which the Commissioner through the appropriate use of his powers under [the Assessment Act] can cope … Where the meaning of the words of a statute is clear 'it is not open to the Court to narrow or whittle down the operation of the Act by seeming considerations of hardship or of business convenience or the like' - Attorney-General v Carlton Bank [1899] 2 QB 158 at 164. These observations are also pertinent to the present case. 40 At the general level, the approach of Ireland J in Deputy Commissioner of Taxation v Ho (1996) 131 FLR 188 ('Ho') is consistent with the approaches of Asprey J in Niblett and the plurality in Broadbeach. In Ho as in the current case, the relevant notice of assessment was a default assessment, although, in contrast to the current case, there was some doubt as to whether a valid objection had been lodged. Ireland J stated (at 192): Whilst most cases in which a stay of recovery proceedings was sought were commenced after an objection had been lodged and rejected by the Commissioner and thus appeals were in fact pending, either to the Administrative Appeals Tribunal or Federal Court, I do not consider this to be any basis of distinction. There is no difference in substance that the appeal from the Board of Review is pending on the one hand and that an objection is yet to be lodged on the other. Again this is, in my opinion, the direct effect of ss 14ZZM and 14ZZR. By virtue of the definition of "taxation decision" in s 14ZQ, ss 14ZZM and 14ZZR operate inclusive of an objection against a notice of assessment. 41 Referring to this reasoning, counsel for Southgate argued that Ireland J erred in Ho in assimilating, for present purposes, an undetermined objection to a tax review or appeal pending in the Administrative Appeals Tribunal or the court. Counsel argued that the lack of express provision in respect of an undetermined objection meant that in the case of an undetermined objection (as in the present case) "the bar is slightly lower" for a stay applicant. In this context, counsel also drew attention to the Commissioner's legislative obligation to determine the objection: see TAA 1953, s 14ZY. 42 Whilst I consider that there is some force in Southgate's proposition that, contrary to Ireland J's view, the effect of the definition of "taxation decision" in s 14ZQ is not to assimilate an objection to the "review" or "appeal" of which ss 14ZZR and 14ZZM speak, this does not in fact diminish to any material extent the need for the taxpayer to justify the exercise of power to grant a stay in the taxpayer's favour. The policy of the legislation is not affected by the fact that an objection is pending and undetermined. In any event, as Southgate itself acknowledged, the absence of an express provision dealing with undetermined objections could at best from its point of view do no more that slightly lower the bar for a stay. For the reasons that follow, even if this were correct, Southgate would not cross the bar. 43 The parties agreed (though, as can be seen, not unreservedly) that the principles governing the grant or refusal of a stay were as stated by French J in Snow at 139 as follows: 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 or appeal is a factor relevant to the exercise of the discretion. At a general level, this statement of principles was re-iterated by French J in Warrick (No 2) at [105]-[106] and has been repeatedly cited with approval by other judges. 44 In written submissions relating to the stay of motion for judgment dated 8 November 2010, Southgate argued that a stay was appropriate because: (1) its assets could only be sold at significant financial loss; (2) Southgate has strong grounds of appeal in the Part IVC proceedings; and (3) Southgate has done everything possible to progress its Part IVC appeal. 45 Southgate also argued that it would suffer prejudice, or possible prejudice, in the event a judgment was entered by virtue of the principle that the cause of action merges in the judgment and the difficulty it would face in setting the judgment aside. The Deputy Commissioner responded that, if the judgment debt had been wholly or partly satisfied at the time Southgate succeeded in its Part IVC challenges, then the Commissioner would make restitution and would, if requested, provided appropriate confirmation of that outcome, with a view to nullifying any adverse commercial impact. The Commissioner's conduct in this regard was, plainly enough, consistent with the overarching policy of the taxation legislation. Even if I were to accept that Southgate would suffer some commercial injury by the entry of judgment against it, such injury would not amount to exceptional hardship sufficient to militate in favour of a stay. This kind of commercial injury is not akin to the "extreme personal hardship" that has justified a stay in other circumstances: cf Deputy Commissioner of Taxation v Denlay [2010] QCA 217. 46 Also as to hardship, Southgate submitted in writing that Mr Gould's 8 November 2010 affidavit showed that Southgate held shares in the Australian Stock Exchange "which are trading at a discount to their purchase prices". Southgate also said: It is also significant that a number of the shareholdings in 'small cap' listed entities represent a large proportion of these entities' issued capital. The sale of the shares under forced circumstances, which would also be a matter of public knowledge, is likely to result in still further losses. The hardship likely to result is that [Southgate] would incur a financial loss of disproportionate size to the face value of its tax liabilities, when … Southgate has a high likelihood of successfully challenging the primary liability. Even if I were to accept that there was some evidentiary basis for these submissions, claims of commercial hardship of this kind do not militate strongly in favour of a stay, particularly having regard to the evident policy of the taxation legislation and the observations below as Southgate's 'merits' argument. 47 As to the merits of Southgate's Part IVC challenges, in written submissions, Southgate claimed that the propositions that its "dealings in shares have constituted trading rather than capital investment, and also that [its] central management and control … is located in Australia" "can be only partly true, and both may be shown to be incorrect". Southgate argued that its Part IVC challenge could eliminate its tax liability altogether. Southgate also stated that the quantum of the liability was in issue and that the Deputy Commissioner's failure to allow it the benefit of a trading stock election cast doubt over the correctness of the assessments. At the hearing, Southgate relied on Mr Gould's 8 November 2010 affidavit and its annexure in support of the proposition that Southgate was not to be properly characterized as a share trader. Counsel for Southgate submitted that, as a matter of general impression, the pattern of transactions was not that of a share trader, referring to John v Commissioner of Taxation (1989) 166 CLR 417 at 430; Smith v FCT 2010 ATC 10-146; FC of T v Shields 99 ATC 4783 and 99 ATC 2037; and Williams v Federal Commissioner of Taxation (1972) 128 CLR 645 at 656. Also, by reference to the table which formed the annexure, counsel submitted that the quantum of the assessments was clearly wrong. Furthermore, Southgate challenged that proposition that it was an Australian tax resident, arguing that the Deputy Commissioner placed too much emphasis on the aspect of benefit, instead of focussing on the place where high level decisions were made. In this connection, Southgate referred to Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation (1940) 64 CLR 15 at 17. 48 As French J observed in Snow, there is a difference in judicial opinion about the significance of the merits of the taxpayer's challenge to an assessment or assessments: compare Ho at 191, Mackey at 4575 with Cywinski v DFCT (1989) ATC 4512 ('Cywinski') at 4517-8 (Kaye J, with whom Gobbo J agreed). Here, as noted, the Part IVC process is at the stage of undetermined objections. Perhaps there are cases in which consideration of the merits may assist in determining whether or not to grant a stay. This is not such a case. It would be inappropriate for me in this case to enter on the very questions that the Commissioner or, perhaps, at a later date the Administrative Appeals Tribunal or this court on a taxation appeal may be called on to determine. Furthermore, the material on which Southgate relies is insufficiently detailed to permit me to take any clear view. As most, Southgate's case might support the proposition that it has arguable grounds for challenging the assessments in question. Even if I were to accept this proposition, however, this would not justify the grant of a stay, given the clear policy of the taxation legislation, as discussed in the authorities previously mentioned: see, for example, Cywinski at 4518. 49 As to the parties' conduct in progressing the tax objections and this proceeding, Southgate relied on Warrick (No 2) in support of the proposition that a stay should be granted. In that case as in this a Deputy Commissioner instituted recovery proceedings for unpaid income tax and penalties and subsequently applied for summary judgment. French J held that the taxpayer in that case had no arguable defence to the recovery action, but also held (at [2]) that "because the Australian Taxation Office … delayed in resolving the taxpayer's objections without any satisfactory explanation, execution of the judgment [would] be stayed" until a specified date that permitted the objections to be determined. French J concluded (at [106]) that: … the priority given to recovery of the revenue should be qualified by an appropriate recognition of the taxpayer's right to object and to have his objection determined and the Commissioner's duty in that respect … I … consider that no satisfactory explanation has been given for the delay in and failure to deal with the objections to the assessments. In my opinion, execution of the judgment should be stayed for a period sufficient to enable Mr Warrick to require the making of an objection decision pursuant to s 14ZYA of the TAA and to take advantage of the deemed refusal at the expiry of 60 days from that period to institute a review process. The stay will be subject to liberty to apply. The result was that the Court granted a stay from 13 July 2004 until 28 January 2005 when the objections were to be adjudicated. 50 In this case, Southgate relied on the fact that it had lodged its objections on 14 September 2010, within about a month of receiving the notices of assessment. Southgate submitted that it had acted expeditiously notwithstanding its foreign domicile and that, as in Warrick (No 2), the objections were yet to be determined. Southgate noted that it was unable to apply under s 14ZYA of the TAA 1953 to cause the Commissioner to determine the objection (in default of which there would be a deemed disallowance) because the Commissioner had since made a request for further information. Southgate estimated that it would be unable to make such an application before the end of January assuming Southgate was able to provide the Commissioner with the information sought within the relevant time. Southgate's contention was that the Deputy Commissioner had moved expeditiously for judgment; that it had lodged its objections with the Commissioner speedily; but the Commissioner had moved at a more leisurely pace with respect to determining its objections. 51 In the case of Southgate, it may be that, in contrast to the Bank in Bank Berhad (No 2), it was served with the notices of assessment before the recovery proceeding was instituted: see Mr Zafiriou's 12 August 2010 affidavit at par [81]. 52 The Deputy Commissioner informed the court that the objections would not be determined before March 2011 - some seven months after the assessments were issued and these proceedings were instituted. The Deputy Commissioner stated and Southgate conceded that this date was the date agreed between them at a meeting in September. Further, as the Deputy Commissioner pointed out, once the proceedings were instituted and the freezing orders sought and obtained, the Deputy Commissioner was obliged to move in the recovery proceedings with some alacrity. In these circumstances, including the fact that the date for determining Southgate's objections was an agreed date, the analogy with Warrick (No 2) breaks down. 53 I have reached the conclusion that the present case comes squarely within the principles in Niblett, as stated by Asprey J and referred to with approval in Broadbeach: see [39] above. As Asprey J said, it might well be thought to be a hardship that the taxpayer should have to pay the tax assessed when the objections to the relevant assessments have not been decided but there is the clear policy of the taxation legislation to be weighed in the balance. 54 Southgate also referred to some miscellaneous matters in written submissions, including the fact that it had paid substantial withholding tax. It also submitted that the freezing order gave the Deputy Commissioner "a higher than usual level of security in respect of the prospective debts", noting too that interest continued to accrue. I do not consider that these considerations would in the circumstances discussed justify the grant of a stay.

Application to re-open 55 Accordingly, as things stood after the hearing on 9 November, I would have dismissed Southgate's motion for a stay. Some seven days later, however, on 16 November, Southgate applied, by notice of motion bearing that date, for orders: 1. That the respondents be granted leave to re-open their case in respect of the applications for a stay of judgment and execution of judgment so that they may adduce fresh evidence; and 2. That the applicant be granted leave to adduce evidence in reply; and 3. That the court consider such further evidence on the papers, without oral submissions. 56 In support of this motion, Southgate relied on an affidavit of Thomas Leslie Hollo sworn on 16 November 2010. Notwithstanding paragraph [3] of the notice of motion, counsel for Southgate stated that the entirety of the evidence that the Southgate wanted to rely on was contained in the 16 November affidavit of Mr Hollo, with its exhibits. The Deputy Commissioner also stated that he had placed all his evidence in reply in an affidavit of Sue-Anne Thompson of 21 November 2010, to which correspondence was exhibited. The parties made submissions to the Court on this basis. 57 The 16 November affidavit of Mr Hollo and the 21 November affidavit of Ms Thompson, which were filed in the respondents' proceeding, were identical to the affidavits sworn by the same deponents on the same day and filed in VID 672 of 2010 (Bank Berhad (No 2)). The evidence of these deponents is set forth in reasons for judgment in that case and I shall not repeat it here. The submissions made on behalf of the respondents here were the same as those made on behalf of the Bank in that case. The Deputy Commissioner's submissions were also the same. For the reasons stated in Bank Berhad (No 2), I would not grant the respondents leave to re-open to adduce further evidence concerning their agreement or acquiescence to the March 2011 deadline for determining its taxation objections. 58 Accordingly, I would dismiss Southgate's motion for a stay. I would order that there be judgment for the Deputy Commissioner against Southgate in the amount of $2,914,450.64. Save for the orders made at the hearing on 9 November 2010, I would order that the respondent's motion, notice of which is dated 8 November 2010, be otherwise dismissed. Further, I would order that the respondent's motion, notice of which is dated 16 November 2010, also be dismissed. I would further order that Southgate pay the Deputy Commissioner's costs. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.