Deputy Commissioner of Taxation v Tabuso

Judgment 1HIS HONOUR: John Tabuso moves the Court for orders that enforcement of a judgment entered on 19 October 2009 be stayed and that it be set aside in accordance with UCPR 36.15. That rule provides as follows: "36.15 General power to set aside judgment or order (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent." 2Mr Tabuso contends that the judgment in question was entered irregularly. That contention arises in the following context. 3By his further amended statement of claim filed on 20 July 2009, the Deputy Commissioner sought to recover amounts alleged by him to be payable by Mr Tabuso in respect of income tax calculated in accordance with certain nominated notices of assessment that had been issued. 4It is important immediately to observe that no complaint is made about the form of that further amended statement of claim at the time it was filed, or at any time up to and including the date that judgment was entered by consent. Nor does Mr Tabuso now say that the amended statement of claim failed in some particular respect to plead a proper cause of action or that it contained a fatal flaw or defect. 5However, Mr Tabuso contends that after the judgment was obtained, the Deputy Commissioner issued a series of amended assessments. Those amended assessments had the effect of reducing the amount that Mr Tabuso owed to the Deputy Commissioner to an amount that was less than the judgment debt. Mr Tabuso contends in those circumstances that by virtue of the issue of the amended assessments, the amended statement of claim, being the pleading pursuant to which the judgment was obtained, is somehow rendered illusory. Without examining precisely what that concept is intended to involve, it is Mr Tabuso's submission that it has had the result that the judgment was entered or obtained irregularly. This is said to be because "an essential legal element of the cause of action had not been resolved and was still subject to dispute." 6Counsel for Mr Tabuso sought to elaborate upon the concept of irregularity in the context of the present case in his written submissions. Those submissions are relevantly to the following effect. 7The further amended statement of claim is irregular in that, in the face of the issuing and service of notices of amended assessments in 2013, the material facts that formed the basis of the pleading becomes a fiction. The material facts pleaded now relate to a fictitious liability, a fictitious service requirement and a fictitious due date. 8By virtue of s 177(1) of the Income Tax Assessment Act 1953, the production of a notice of assessment by the Deputy Commissioner is, except in proceedings on appeal against the assessment, conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct. Upon production of the notices of assessment in recovery proceedings, that section operates to preclude the taxpayer from impugning their validity in those proceedings. They can only be challenged on appeal. 9It was submitted on Mr Tabuso's behalf that "the pleading [presumably the further amended statement of claim] cannot be sustained where an amended assessment seeks a lesser amount due and payable as a debt to the Commonwealth over the same period in which a judgment has been obtained." I was referred to Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; (2010) 78 NSWLR 20 at [75] where the Court held that the failure to plead service of the notices of assessment and the failure to specify the due date constituted an irregularity that brought the matter within the ambit of UCPR 36.15. 10On the topic of irregularity, Davies J had this to say in Zakaria v Dr Noyce [2012] NSWSC 981 at [24]: "[24] Ordinarily irregularity is concerned with a failure to comply with the Rules of Court: Arnold v Forsythe [2012] NSWCA 18 at [88]. That will extend to the position where, for example, default judgment has been obtained on a Statement of Claim that does not properly plead a debt or liquidated sum: Arnold at [59]; or does not plead an essential element of the cause of action: Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; (2010) 78 NSWLR 20 at [39] and [63]. In addition, a judgment entered for more than is due will be irregular: Alexander v Ajax Insurance Co Ltd [1956] VLR 436; H R Turner & Son Pty Ltd v Rhodes [1970] 1 NSWR 305." 11It must be remembered that Fenato related to a default judgment. It was also a case, of which there are many, where the pleaded cause of action relied upon the need for the plaintiff to establish or prove compliance with a series of technical steps or preconditions to the recovery of the sum sued for. One of the elements that had to be established before the Chief Commissioner in that case could recover the unpaid amount of land tax was the service of a notice of assessment upon the taxpayer. That was so because no payment of land tax is required within 30 days after service under s 39(3) of the Land Tax Management Act (1956). That was a fundamental element of the cause of action. There were others of a similar nature as well. A failure to plead such matters means that, if the matter had proceeded to a contested hearing, the point could have been taken that the plaintiff's pleading failed to disclose a cause of action, or alternatively that if the plaintiff proceeded, or was able, to prove only the matters referred to in the pleading, the case would fail. 12The proof of service of director penalty notices in accordance with s 222AOF of the Income Tax Assessment Act is also one of these types of provisions. This is discussed in Deputy Commissioner of Taxation v Robertson [2009] NSWSC 597; (2009) 234 FLR 35 and Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58; (2010) 239 FLR 29. 13Even in such cases it would be possible for a defendant to consent to a judgment that would not be vulnerable to the same fate as the judgment in Fenato. That is because the consent of the defendant must be taken to be an acceptance that the pleading defect was capable of correction but that the defendant either waived the right to take the point or acquiesced in a process that resulted in a judgment to which the defendant was prepared to consent. It seems to me that the present case is an example of precisely that process. It will generally be inappropriate for the power of the Court to set aside a judgment that has been irregularly obtained to be exercised where the so-called irregularity has been waived or condoned: Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) [2009] NSWCA 387; (2009) 78 NSWLR 190. 14The wisdom that informs the decision in cases such as Fenato is that a plaintiff cannot be permitted to rely upon a judgment obtained in the absence of the defendant if the process upon which it is based is defective. It is a legal recognition of the notion that litigants will not be permitted to achieve a result improperly in the absence of a contradictor, if the impropriety would have been detected and revealed had the defendant been present. It is also analogous to the situation that will lead to the immediate discharge of an ex parte injunction on the application of the defendant that is found to have been granted in circumstances where a full and frank disclosure of the material facts has not been made to the Court that granted it. The injunction will not automatically go if the defendant ultimately appears and consents to its continuation. 15The terms of the judgment are instructive in this context. They are as follows: "1. Judgment for the plaintiff against the defendant in the sum of $1,157,654:42. 2. The defendant to pay the plaintiff's costs as fixed in the amount of $2,500. The Court notes the following: 3. The defendant has lodged an objection dated 15 September 2009 in respect of; Notices of Assessment for the years ending 30 June 2001, 30 June 2002, 30 June 2003; Notices of Amended Assessment for the years ending 30 June 2001, 30 June 2002 and; Notices of Assessments of Penalty for having a Tax Shortfall Amount for the years ending 30 June 2001, 30 June 2002, 30 June 2003 (the 'Objection') 4. The plaintiff agrees not to execute on the judgment until twenty-eight days after the determination of the Objection by the ATO. 5. The defendant acknowledges that interest is still payable on the judgment debt in accordance with s 101 of the Civil Procedure Act 2005, despite the plaintiff agreeing to a stay execution of the judgment in accordance with paragraph 4 herein." 16The judgment was entered by consent. It specifically noted the ongoing dispute between the Deputy Commissioner and the taxpayer. It was entered in the context of a possible amendment or alteration to the amount for which Mr Tabuso was liable to the Deputy Commissioner. It also specifically provided for what amounted to a stay upon execution of the judgment until after the determination of the nominated objections. 17Mr Tabuso submitted that in the light of the legislative framework, which I take to refer to the Income Tax Assessment framework, and the pleading requirements under the Uniform Civil Procedure Rules, that the Deputy Commissioner's amended notices of assessment must supplant the earlier notices so that the Deputy Commissioner "surrenders [his] rights on to any judgment so entered." He maintained further that in circumstances where the notices of assessment make due and payable an amount of tax that is far less than the amounts pleaded in the further amended statement of claim as a debt due and payable to the Commonwealth, "a serious question about the judgment debt arises." No authority is cited for these particular propositions. 18The only basis upon which Mr Tabuso has sought to set aside the judgment entered by consent is that it was entered irregularly. I disagree. The general principle requiring irregularly obtained default judgments to be set aside does not apply if the irregularity is causally unrelated to the entry of judgment: see Commonwealth Bank of Australia v Buffett (1993) 114 ALR 245. Nothing arising out of the later and specifically contemplated continuing relationship between the parties in the present case can have had the slightest causal connection with the entry of the judgment. It certainly could not be described as an irregularity as relevantly understood. The emphasis must be upon the plaintiff's irregular conduct. That is directed to the circumstances surrounding the entry of the judgment. It is not concerned with later events. Mr Tabuso's apparent concern that, as the result of anticipated later events, he owes less than the judgment debt does not correspond to the proposition that the judgment was entered irregularly. 19It follows that Mr Tabuso's notice of motion should be dismissed with costs.