Hua Wang Bank Berhad v Deputy Commissioner of Taxation

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 274 of 2013

JUDGE: COWDROY J DATE OF ORDER: 31 MAY 2013 WHERE MADE: SYDNEY

1. The Application for Leave to Appeal the decision of the primary judge in Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 4) [2012] FCA 1482 delivered on 21 December 2012 be dismissed.
2. The Applicant pay the Respondent's costs of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 272 of 2013

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 273 of 2013

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 274 of 2013

JUDGE: COWDROY J DATE: 31 MAY 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This is an application by the taxpayers for leave to appeal from a decision of the primary judge to grant summary judgments in favour of the respondent ('the Deputy Commissioner'): see Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 4) [2012] FCA 1482 ('Berhad No 4'). Leave to appeal Berhad No 4 is required by the combined effect of ss 24(1), 24(1A), 24(1D) and 31A of the Federal Court of Australia Act 1976 (Cth) ('the FCA Act'). 2 Following the primary decision, judgment was entered against each taxpayer in the following amounts: 1. $2,517,047.63 was entered against Hua Wang Bank Berhad (VID672/2010); 2. $4,137,124.60 was entered against Derrin Brothers Properties Limited (VID887/2010); 3. $5,599,093.96 was entered against Bywater Investments Limited (VID887/2010); and 4. $164,263.28 was entered against Southgate Investment Funds Limited (VID888/2010). 3 Each judgment debt represents the amount claimed by the Deputy Commissioner from each taxpayer for an unpaid general interest charge ('GIC') as detailed below.

PROCEDURAL BACKGROUND 4 The facts giving rise to these proceedings are based on notices of assessment dated 12 August 2010 issued by the Deputy Commissioner to the taxpayers ('the notices'). The notices included particulars of additional amounts comprising the GIC allegedly owing by the taxpayers pursuant to s 204 of the Income Tax Assessment Act 1936 (Cth), and s 298-25 and Part IIA of the Taxation Administration Act 1953 (Cth). 5 On 8 October 2010 the Deputy Commissioner applied for summary judgments against each of the taxpayers pursuant to s 31A of the FCA Act. On 25 November 2010 Kenny J ordered that there be judgments in favour of the Deputy Commissioner against each taxpayer for various amounts, each of which included a component of GIC claimed to be owing from 7 October 2010 to the date of judgment: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296; Deputy Commissioner of Taxation v Chemical Trustee Ltd [2010] FCA 1297; and Deputy Commissioner of Taxation v Southgate Investments Funds Ltd [2010] FCA 1298. 6 It was subsequently discovered that neither the parties nor the Court were aware that the taxpayers were not liable for the GIC component of the notice of assessments. This was later explained by Perram J in Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594 ('Berhad No 3'), where his Honour stated at [9]-[12]: [9] … Six weeks before the notices of assessment had been issued (12 August 2010) there had come into force, on 1 July 2010, the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) which by Sch 1, Pt 3, s 5-10 provided: 5-10 General interest charge (1) This section applies if, just before the commencement of this section, you were liable, under subsection 204(3) (the old provision) of the Income Tax Assessment Act 1936, to pay the general interest charge on an unpaid amount (the liability) of any tax or shortfall interest charge. (2) On that commencement, the old provision ceases to apply to the liability. (3) From that commencement, section 5-15 (the new provision) of the Income Tax Assessment Act 1997, as originally enacted, applies to the liability as if: (a) the liability remained unpaid at that time; and (b) so much of the charge under the old provision as remained unpaid at that time had been imposed under the new provision and remained unpaid at that time. [10] Subsection (1) of this provision directed attention to the liability of the taxpayer to pay the GIC immediately before 1 July 2010. To understand what happens next one must distinguish between the position of those taxpayers who are full self-assessment taxpayers and those who are not. By s 6 of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act"), full self-assessment taxpayers include companies and the trustees of certain types of trust. Where a full self-assessment taxpayer furnishes a return, s 166A(3) of the 1936 Act deems there to have been issued a notice of assessment under the Commissioner's hand "on and after [that] day". [11] Prior to 1 July 2010 ordinarily the issue of a notice assessment had the effect of making tax payable at a range of dates through the operation of s 204(1) of the 1936 Act but its effect was limited in its operation to the position of taxpayers who were not full self-assessment taxpayers. In this case, it is common ground that the taxpayers were full self-assessment taxpayers and that s 204(1) did not apply. Accordingly, the deeming by s 166A of the occurrence of the issue of a notice of assessment did not have its ordinary effect. In any event, none of the taxpayers had actually lodged returns so that the deeming by s 166A(3) on the lodging of a return was never enlivened. [12] Immediately prior to 1 July 2010, therefore, there was no mechanism under which the tax due by the taxpayers could be or had been quantified. 7 The taxpayers accordingly applied to the Court to vary the orders of Kenny J to excise the part of the judgment amount referable to the GIC. Although the proceedings had been initiated in the Victorian registry, they were transferred to the New South Wales registry. 8 Such application came before Perram J, by which time Parliament had amended the relevant legislation to make it plain that the levying of the GIC in cases of the kind under consideration did not require an anterior assessment of tax. Item 4 of schedule 2 to the Tax Laws Amendment (2011) Measures No 3 (at 2011) (Cth) ('item 4') having retrospective effect from 1 July 2010 provided: For the purposes of applying, at a particular time, former subsection 204(3) of the Income Tax Assessment Act 1936 in relation to any tax, it does not matter whether the tax had been assessed at that time. 9 In Berhad No 3 Perram J stated at [17]: When Kenny J gave summary judgement on 25 November 2010 her Honour did so in three separate proceedings (each of which is the subject of this judgment). It is apparent from paragraph [1] of each judgment that it included as a component the GIC. Leaving aside the effect of any subsequent retrospective legislation it follows that the taxpayers were not liable for those sums. 10 His Honour made two relevant findings. First, that each of the decisions given by Kenny J were interlocutory. The power pursuant to r 39.05(c) of the Federal Court Rules 2011 (Cth) to vary judgments and orders after they have been entered was accordingly available to his Honour. 11 The second finding was made with respect to the question of whether the judgments should be varied to excise the amount referable to the GIC. The Deputy Commissioner claimed that on the basis of item 4, the orders made by Kenny J insofar as they extended to GIC amounts should be maintained. In response the taxpayers claimed that it should have the opportunity to test such claim in a fully argued summary judgment application. His Honour said at [23]-[24]: [23] Although that argument by itself is not, at least on cursory examination, an especially compelling one procedural fairness requires nevertheless that the taxpayers be given a proper opportunity to put a case against the operation of item 4 if the Commissioner elects to pursue summary judgment for the GIC utilising it. [24] It follows that the GIC component of the judgments should be excised. 12 Accordingly, orders excising the GIC component of the judgments of Kenny J were made. 13 The proceedings again came before Perram J on 18 December 2012 for the purpose of, inter alia, the hearing of an application by the Deputy Commissioner for judgment, or alternatively summary judgment, against each of the taxpayers for the amount of GIC excised by the Court pursuant to Berhad No 3. 14 The taxpayers opposed the claims for GIC sought by the Deputy Commissioner, submitting that the issue of liability to pay GIC had already been determined by the decisions of Kenny J, and as such, the doctrine of res judicata operated such that Perram J could not re-determine the GIC issue. 15 Perram J rejected this submission. His Honour found that the tax liabilities of the taxpayers were subject to item 4. His Honour entered summary judgments in favour of the Deputy Commissioner, and orders to this effect were made by the Court on 6 February 2013: see Berhad No 4.

APPLICATION FOR LEAVE TO APPEAL 16 The taxpayers apply for leave to appeal Berhad No 4 on the basis that the Deputy Commissioner's applications for summary judgment ('the second summary judgment application') were 'blocked' (i.e. barred) by res judicata, Anshun estoppel or the abuse of process doctrine. 17 The taxpayers submit that leave should be allowed for the following reasons: (i) The 2010 application for summary judgment against the [taxpayers] for General Interest Charge ("GIC") was (as varied in 2012) properly determined in accordance with the legislative provisions that applied at the time of the 2010 application. (ii) The court's determination of the 2010 application in respect of GIC could not have taken cognisance of legislation that was not passed until 2011. (iii) A change to the legislative provision concerning the liability to GIC did no result in a fresh cause of action that the present Respondent was permitted to ventilate in 2012. (iv) The retrospective legislation relied on by the Respondent, properly construed, did not overturn the effect of a res judicata, Anshun estoppel or abuse of process. (v) Accordingly, the Respondent's 2012 application was blocked, either by a res judicata, Anshun estoppel or the abuse of process doctrine. 18 The draft notices of appeal are identical for each taxpayer. 19 The relevant test for whether leave to appeal from an interlocutory judgment should be granted is well established. It involves two primary considerations: 1. Whether, in all circumstances of the case, the decision is attended with sufficient doubt to warrant its being reconsidered by the Full Court; and 2. Whether substantial injustice will result if leave is refused, supposing the decision to be wrong. See Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-400; Bienstein v Bienstein (2003) 195 ALR 225 at [29]. 20 The Court will consider in turn the taxpayers' claims of res judicata, Anshun estoppel and abuse of process with respect to whether Berhad No 4 is attended with sufficient doubt. The issue of whether the taxpayers will suffer substantial injustice should the application be refused will then be considered.

Res judicata and Anshun estoppel 21 The taxpayers claim that the second summary judgment application was barred by both res judicata and Anshun estoppel. 22 The reference to Anshun estoppel is somewhat misdirected in light of the taxpayers' failure to distinguish such claim from res judicata. Although Anshun estoppel is sometimes described as an extension of the res judicata doctrine (see Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 at [39]), there is a subtle difference in the effect of the claims. Anshun estoppel is founded on the reasonableness of the conduct of a litigant, or another person, in relation to earlier proceedings: see Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2009) 263 ALR 556 at [60]; and Champerslife Pty Ltd at [39]. As was stated by Gibbs CJ and Mason and Aickin JJ in Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 at 602-603 ('Anshun'): …there will be no estoppel unless it appears that the matter relied upon… in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to have relied on it. 23 In contrast, Fullagar J in dissent in Jackson v Goldsmith (1950) 81 CLR 446 at 466 expressed the contrasting rule of res judicata as: … where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. This rule is not, to my mind, correctly classified under the heading of estoppel at all. It is a broad rule of public policy based on the principles expressed in the maxims "interest reipublicae ut sit finis litium" and "nemo debet bis vexari pro eadem causa." 24 His Honour's statement has subsequently been cited with approval in Anshun at 597 and Chamberlain v Deputy Federal Commissioner of Taxation (1988) 164 CLR 502 ('Chamberlain') at 507-08. 25 The applicants' submissions in support of leave listed at [17] above do not raise any claim that the Deputy Commissioner relied on a matter in Berhad No 4 that he did not rely upon in the proceedings before Kenny J in 2010. To the extent that the taxpayers seek to rely on a defence of Anshun estoppel on appeal, such defence has no prospects of success. 26 With respect to res judicata, the taxpayers submit that any issue as to their liability for GIC was exhausted by the decisions of Kenny J and therefore finally determined in 2010. The taxpayers accordingly submit that an application for summary judgment by the Deputy Commissioner that relies on item 4 does not give rise to a fresh cause of action. This submission relies upon the principles in Patterson v Richards [1963] VR 179, namely that a cause of action is constituted not by the law applicable to the action, but by the facts giving rise to relief. 27 The taxpayers' argument is predicated upon the issue of GIC liability being finally determined prior to Berhad No 4. To determine whether there are reasonable prospects of this proposition being correct, it is essential to have regard to the effect of the decisions of Perram J in both Berhad No 3 and Berhad No 4. 28 When the proceedings came before Perram J in Berhad No 3, the taxpayers' application to vary the judgments of Kenny J in respect of the alleged GIC liability was opposed by the Deputy Commissioner. Following the submissions of counsel for both the taxpayers and the Deputy Commissioner, his Honour said: If this judgment was set aside, then the merger of rights which has presently happened between the general interest charge as levied and the judgments, would be undone. 29 Counsel for the Deputy Commissioner concurred with his Honour's observation and stated that in such event the Deputy Commissioner would move immediately to seek GIC under item 4. The following exchange then occurred between his Honour and counsel for the taxpayers: MS SEIDEN: Certainly not, no. also, the question of what GIC the commissioner is actually going to try to seek on entering the judgment, to the extend [sic] that he considers he is entitled to GIC after the judgment date, the taxpayers would submit that, well, the tax debt itself has now merged into the judgment, and the commissioner no longer has all those provision about GIC. So until we actually see the application that the commissioner intends to make - - - HIS HONOUR: Well, they're currently merged in the summary judgment. MS SEIDEN: Indeed. HIS HONOUR: If the summary judgment is set aside, they will be un-merged. MS SEIDEN: That's right. HIS HONOUR: They never were merged, if that happens. MS SEIDEN: That's right. But until we see exactly what it is that the commissioner proposes, it's impossible for the taxpayers to say exactly what they would do… 30 This is a clear statement by his Honour that if the summary judgments of Kenny J were set aside, the rights which may have merged in the decision would no longer be merged. The taxpayers' counsel accepted that position. The making of the orders on 26 June 2012 in VID672/2010, VID887/2010 and VID888/2010 achieved that very result. It was then open to the Deputy Commissioner to file an application for summary judgment for payment of the GIC based upon his statutory entitlement under item 4. 31 It follows that from the moment the GIC issue was excised from the judgments of Kenny J by virtue of Berhad No 3, there was no final decision in relation to the GIC aspect of the Deputy Commissioner's claim. 32 The present circumstances may be contrasted with the decisions of Anshun and Chamberlain. In Anshun, Brennan J at 608 said: Unless a judgment recovered after litigation between parties is reversed or set aside, it binds the parties and determines their rights and liabilities inter se according to its tenor (Livesey v. Harding [1855] EngR 875; (1855) 21 Beav 227 (52 ER 846); Peareth v. Marriott (1882) LR 22 Ch D 182; Thompson v. Thompson (1923) 2 Ch 205, at p 214; Badar Bee v. Habib Merican Noordin (1909) AC 615 ). "It is most clear", said Lord Mansfield in Moses v. Macferlan (1760) 2 Burrell 1005, at p 1009 [1760] EngR 713; (97 ER 676, at p 678), "that the merits of a judgment can never be over-haled by an original suit, either at law or in equity. Till the judgment is set aside, or reversed, it is conclusive, as to the subject matter of it, to all intents and purposes." 33 In the absence of there being an existing judgment, the doctrine cannot apply to any subsequent judgment that might bear upon the subject matter. The same observation was made by the High Court of Australia in Chamberlain v Deputy Commissioner of Taxation at 511, Deane, Toohey and Gaudron JJ said: So long as the respondent chooses, as he does, to take no step to set aside the judgment and to raise no issue in the second action as to the circumstances in which that judgment was obtained, he must accept the consequences of res judicata. 34 The Deputy Commissioner in Chamberlain sought to proceed on a cause of action in respect of which he had already received judgment (for a much smaller sum) and then, as explained by Deane, Toohey and Gaudron JJ at 511, 'without seeking to have that judgment set aside or otherwise to impugn it on the ground that it had been entered or obtained by mistake, sought to sue again in respect of the same cause of action'. In these circumstances, the doctrine of res judicata clearly applied. 35 The situation in the present proceedings is the converse to that considered in Chamberlain. The effect of Berhad No 3 was to delete from the judgments of Kenny J the components of GIC. From that time, until summary judgment for GIC was entered in Berhad No 4, there was no extant judgment pertaining to GIC. Therefore the taxpayers' argument that the second summary judgment application was barred by reason of res judicata has no reasonable prospects of success. It follows that the decision of his Honour in Berhad No 4 is not attended with sufficient doubt to warrant its being reconsidered by the Full Court.

Abuse of process 36 The taxpayers submitted in writing, but did not further advance the claim in oral submissions, that the second summary judgment application brought by the Deputy Commissioner in Berhad No 4 constituted an abuse of process. Such argument was not put before Perram J in Berhad No 4. 37 The taxpayers refer to the decision of Walton v Gardner (1993) 177 CLR 378, where at 393 Mason CJ, Deane and Dawson JJ said: …proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings: see Reichel v Magrath (1889) 14 App Cas 665 at 668; Connelly v DPP [1964] AC 1254 at 1361-2. The jurisdiction of a superior court in such a case was correctly described by Lord Diplock in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536 as "the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people". [References inserted] 38 As explained in the reasons above, there was no extant decision prior to Berhad No 4 on the issue of GIC liability. On this basis it cannot be said that the second summary judgment application was 'unjustifiably vexatious and oppressive'. The decisions of Kenny J in 2010 were incorrect in relation to the GIC issue and properly excised by Perram J in Berhad No 3. That being the case, whether the taxpayers were liable for GIC remained to be determined. Perram J in Berhad No 4 made that determination and there was no abuse of process resulting from that decision.

Substantial injustice 39 The taxpayers submit that leave should be granted in view of the fact that they would otherwise be rendered liable for total payments in excess of $11,000,000. 40 Payment in excess of $11,000,000 between the four taxpayers is a substantial sum. This consideration does not however outweigh the Court's findings above that each ground contained in the draft notices of appeal has no prospects of success. 41 The Court accordingly dismisses the applications for leave to appeal with costs. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.