Plaintiffs v Defendant

Supreme Court of Victoria|2010-02-26|Before: PAGONE J

TAXES AND DUTIES - Pt 10 Taxation Administration Act 1997 (Vic) - Application of relevant law - Executive branch of government - Administration of justice - Indemnity costs.

1 The plaintiffs seek a declaration that a notice of determination dated 22 June 2009 issued by the Commissioner of State Revenue ("the Commissioner") is ultra vires and a nullity. The declaration is sought on the basis that the Commissioner was obliged to apply Landrow Properties Pty Ltd v Commissioner of State Revenue ("Landrow") to the plaintiffs' objection decision. The Commissioner contended that the decision in Landrow does not fully govern the position of the parties and that the plaintiffs' entitlements must, or alternatively should, be determined under of the (Vic) ("TAA").

2 The assessments raised against the plaintiffs depended upon the application by the Commissioner of the "land rich" provisions of Chapter 3 of the Duties Act 2000 (Vic) ("the Duties Act"). The Commissioner assessed the plaintiffs for duty under those provisions on 1 October 2007 ("the assessment") in relation to a transfer on 27 March 2007 of units in the Peninsula Holdings Unit Trust to each of the plaintiffs. The plaintiffs objected to the assessment on 27 October 2007 and on 19 December 2008 Mandie J (as his Honour then was) decided Landrow on a basis which the plaintiffs contended is materially identical to their own circumstances. On 22 June 2009 the Commissioner disallowed the plaintiffs' objection notwithstanding the decision in Landrow. On 14 August 2009 the plaintiffs requested the Commissioner to refer the objection decision to the Victorian Civil and Administrative Tribunal ("VCAT") pursuant to section 106 in Part 10 of the TAA. That request was acted upon on 11 November 2009 and the Part 10 proceeding is pending in VCAT.

3 The plaintiffs do not allege bad faith or an absence of good faith on the part of the Commissioner in making the objection decision. Nor do they allege a consciously wilful disobedience of the law by the Commissioner. What they say, rather, is that the Commissioner was obliged to apply the law as declared in Landrow notwithstanding that the Commissioner's appeal in that case is yet to be heard. In addition, and crucially, they contended that they are entitled to orders in the Court's supervisory jurisdiction and that they are not required to pursue their rights in Part 10 proceedings. The Commissioner was aware that the decision in Landrow was relevant to the plaintiffs as can be seen from paragraph 51 of the determination of the plainitffs' objections in which he noted that the decision in Landrow was on appeal. His reasons did not articulate any further attempt to distinguish Landrow from the facts and circumstances of the plaintiffs and, for the purpose of this proceeding, I will assume in favour of the plaintiffs that an application of Landrow to their facts will result in the successful objection to the assessment.

4 The plaintiffs' case, at its highest therefore, is that the decision in Landrow completely governs their circumstances and that they may enforce compliance with the decision in proceedings collateral to those provided for in Part 10 of the TAA. Acceptance of the position that Landrow governs the plaintiffs' circumstances, however, does not necessarily carry with it the conclusion that the plaintiffs are entitled to relief in the Court's supervisory jurisdiction. The plaintiffs' challenge to the assessment can be made, raised and determined in proceedings under Part 10 of the TAA. That, in my view, is sufficient to dispose of this proceeding. A remedy has been provided by statue in which a taxpayer dissatisfied with a Commissioner's determination may seek to challenge the determination. The complaint raised in these proceedings is one which, if made good, would entitle the plaintiffs to a determination in their favour in such proceedings in that jurisdiction. It is in those proceedings that the plaintiffs should bring their claim and have it determined.

5 The relief sought by the plaintiffs is discretionary[2] and I would not exercise the discretion to grant the remedy on the facts of this case. The plaintiffs' complaint that the assessment does not accord with the law is plainly available in the Part 10 proceedings. That jurisdiction, once enlivened, permits the court or VCAT to enquire into all matters relevant to the correctness of the assessment[3] and not only the potentially more limited basis of the complaint brought in this proceeding. The existence of that jurisdiction provides an important guarantee to taxpayers to have their liabilities finally and fully determined. It is an ample jurisdiction designed to ensure a taxpayer's access to a full review of all matters going to the liability created and asserted by the Commissioner. Enlivening that jurisdiction will generally ensure that disputes are fully resolved in one process without the risk of a fragmentation or multiplicity of proceedings. The legislature has expressed a policy in favour of tax disputes being invoked in that jurisdiction and against collateral attacks.[4] It has given effect to that policy by creating a specially designed jurisdiction which the Court and VCAT exercises through rules and processes designed to provide specialist and efficient determinations. It enables each forum to hear and resolve all issues relevant to liability and not just a subset of them. All of these considerations weigh against the granting of the relief sought.

6 The plaintiffs' case in support of invoking the supervisory jurisdiction of the Court was that the Part 10 proceeding was not an adequate remedy because it would not provide the important function of holding the respondent accountable for the proper performance of public duties. The plaintiffs sought to rely heavily upon certain observations in Federal Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Ltd[5] which emphasised the importance of the executive branch of government obeying the law as declared by the Courts. Acceptance of the principles articulated in Indooroopilly does not necessarily result in the conclusion that a taxpayer will be entitled to the collateral relief which the plaintiffs seek in this case. Indooroopilly was not a case decided by the Court in the exercise of its supervisory jurisdiction: it was decided in proceedings brought under Part IVC of the Taxation Administration Act 1953 (Cth) being the Commonwealth equivalent to Part 10 of the TAA.

7 The plaintiffs sought to rely upon the following passages from Indooroopilly where Allsop J said:

I wish, however, to add some comments about the attitude apparently taken by, and some of the submissions of, the appellant. From the material that was put to the Full Court, it was open to conclude that the appellant was administering the relevant revenue statute in a way known to be contrary to how this Court had declared the meaning of that statute. Thus, taxpayers appeared to be in the position of seeing a superior court of record in the exercise of federal jurisdiction declaring the meaning and proper content of a law of the Parliament, but the executive branch of the government, in the form of the Australian Taxation Office, administering the statute in a manner contrary to the meaning and content as declared by the Court; that is, seeing the executive branch of government ignoring the views of the judicial branch of government in the administration of a law of the Parliament by the former. This should not have occurred. If the appellant has the view that the courts have misunderstood the meaning of a statute, steps can be taken to vindicate the perceived correct interpretation on appeal or by prompt institution of other proceedings; or the executive can seek to move the legislative branch of government to change the statute. What should not occur is a course of conduct whereby it appears that the courts and their central function under Ch III of the Constitution of the Commonwealth are being ignored by the executive in the carrying out of its function under Ch II of the Constitution, in particular its function under s 61 of the Constitution of the execution and maintenance of the laws of the Commonwealth.

It is the function of the courts exercising federal jurisdiction to declare the meaning of statutes of the Commonwealth Parliament in the resolution or quelling of controversies. To quote Marshall CJ in Marbury v Madison 5 US [1803] USSC 16; (1 Cranch) 137 (1803) at 177:

It is, emphatically, the province and duty of the judicial department to say what the law is.

This passage has been recognised as central to the administration of justice and to the relationship between the judiciary and executive in this country: Attorney-General (NSW) v Quin (1990) 170 CLR 1 at 35-36; Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5; (2000) 199 CLR 135 at [42]- [44] and Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 at [116].[6]

These observations were not made to add a new legal ground to challenge assessments not previously found in the law, nor to encourage collateral proceedings, nor to broaden the scope of judicial review beyond the constitutionally permitted bounds set down in R v Hickman; ex parte Fox[7] and recently affirmed in Federal Commissioner of Taxation v Futuris Corporation Limited.[8] The additional observations in Indooroopilly were not the basis upon which the taxpayer succeeded on the point in dispute and were not the articulation of a rule that the Court could not or would not depart from a decision if persuaded that an earlier decision was in error. In Indooroopilly the Court accepted as correct the earlier decisions which the Federal Commissioner of Taxation had sought to overturn rather than find for the taxpayer on some such ground as the need to make the Federal Commissioner accountable as contended for in these proceedings. Nothing in Indooroopilly was said to undermine the importance and integrity of the statutory remedy as the vehicle through which to challenge assessments.

8 The facts in this case are, in any event, quite different from those in Indooroopilly. In that case the Court was faced with a number of decisions by different judges which had supported the earlier decision which the Federal Commissioner of Taxation had sought to overturn. Those facts are very different from those with which I am now concerned where there is as yet only one decision and that decision is on appeal. The observations in Indooroopilly were not intended to prevent the executive from exercising its duty to apply the law. The observations were directed to conduct of the executive described as "ignoring the views of the judicial branch of government" when engaging in a course of conduct whereby it appears that "the courts and their central function ... are being ignored by the executive".[9] No such conduct is apt to arise where, as here, a public official obediently seeks the views of the Court and dutifully seeks to correct what the public official perceives to be error in a decision. The Commissioner in this case has not shown a disregard of the law but, rather, has taken dutiful steps to invoke the jurisdiction of the Court of Appeal to have the law declared by the arm of government entrusted with that task. There is no suggestion of a wilful disobedience to the law or of any action taken in bad faith or in the absence of good faith. Rather, the Commissioner has sought to protect the revenue by seeking to apply the law as he maintains it to be and as he seeks to have declared by the Court of Appeal as soon as the appeal in Landrow may be heard and determined. Even a successful litigant directly involved in a decision (in contrast to the plaintiffs who were not parties to the decision in Landrow) will not always be entitled to the fruits of successful litigation if, for example, it is necessary to prevent an appeal, if successful, from being nugatory.[10] The Commissioner in this case ought not to ignore, and probably cannot ignore, the impact to the State Revenue which a successful appeal in Landrow would have on other cases governed by the same circumstances, including the plaintiffs' case. The Court should not require the Commissioner, in the exercise of the Court's discretionary powers, to apply a decision which the Commissioner in good faith, and in the exercise of his statutory duties, seeks the Court to overturn on appeal. The law would be brought into disrepute if the executive, acting in good faith, was compelled by the Court's discretionary jurisdiction to apply the law as declared by a judgment which the Commissioner, acting in good faith, seeks dutifully to overturn on appeal. There are many examples of public officials properly discharging their duty by seeking to overturn previous decisions which otherwise had declared the law.[11] The proper administration of justice, and the proper exercise of the Court's constitutional duty to declare the law to be applied by the executive, may sometimes best be secured and advanced by a public official in good faith seeking to correct error.

9 It remains for me to consider what order for costs I should make in respect of the proceeding. The Commissioner seeks costs on an indemnity basis whilst the plaintiffs contended that I should order that each party pay their own costs if I dismiss their claim. Costs on an indemnity basis are exceptional but may be awarded[12] where the conduct of a party makes it appropriate that the successful party's costs be paid by the losing party on a fuller basis than would be the case with the usual order.[13] Such conduct includes the initiation of proceedings which are unreasonable or patently groundless.[14] In my view the current proceeding should never have been brought and those advising the plaintiffs ought to have advised against the proceeding. The complaint that the Commissioner's determination was wrong in law is one which could adequately be made in the Part 10 proceeding. That is the proper forum in which that, and all aspects relevant to the assessment, should be maintained and litigated. The plaintiffs' advisors plainly knew that the decision in Landrow was on appeal and, in my view, ought to have been aware that it was unlikely that the Court would exercise its discretion in favour of granting the orders sought. The plaintiffs' proceeding depended upon the court enforcing by discretionary relief in collateral proceedings a decision which the Commissioner has asked the Court of Appeal to rule to be wrong. The plaintiffs may be entitled to have that decision applied to them in Part 10 proceedings as a matter of law, and upon VCAT or the Court being satisfied that there is no occasion for a departure from it,[15] but it was not appropriate to seek such orders in proceedings collateral to the statutory remedy provided for and in the exercise of the Court's discretion. The Commissioner wrote to the plaintiffs' solicitors inviting them to adjourn the proceedings pending the outcome in Landrow and put them on notice that these proceedings were inappropriate in light of the statutory regime in Part 10 of the TAA. It is a case in which the plaintiffs should be required to pay the defendant's costs on an indemnity basis.

(2) The plaintiffs pay the defendant's costs on an indemnity basis.

URBAN CONSOLIDATION AND DEVELOPMENT PTY LTD (ACN 108 020 882)

[2] Kwan v Victoria Legal Aid [2007] VSC 122 (Unreported, Bell J, 26 April 2007).

[3] Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1989) 168 CLR 614.

[6] Federal Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; (2007) 158 FCR 325, 326 - 327, see also 346-8 (Edmonds J); (Stone J agreeing at 326 with his Honour's additional comments); see also Jerrinja Local Aboriginal Land Council v Minister Administering the Crown Lands Act [2007] NSWLEC 577, [95] (Jagot J); St George Bank Ltd v Commissioner of Taxation [2008] FCA 453; (2008) 69 ATR 634, [99] (Allsop J); Justice McHugh AC, 'Tensions between the Executive and the Judiciary' (Paper presented at Australian Bar Association Conference, Paris, 10 July 2002); Justice Spiegelman, 'Integrity and Privative Clauses' (Third Lecture in the 2004 National Lecture Series for the Australian Institute of Administrative Law, Brisbane, 2 September 2004).

[9] Federal Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; (2007) 158 FCR 325, 327 (Allsop J).

[10] Federal Commissioner of Taxation v The Myer Emporium Ltd [No 1] [1986] HCA 13; (1986) 160 CLR 220.

[11] John v Federal Commissioner of Taxation [1989] HCA 5; (1988) 166 CLR 417, 438-441 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ) overturning Curran v Federal Commissioner of Taxation [1974] HCA 46; (1974) 131 CLR 409.

[13] Australian Guarantee Corp Ltd v De Jager [1984] VicRp 40; [1984] VR 483, 502 (Tadgell J); Marchesi v Vasiliou [2009] VSC 213 (Unreported, Hansen J, 5 June 2009).

[14] PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24 (Unreported, Callaway, Buchanan and Chernov JJA, 14 March 2002).

[15] Uniqema Pty Ltd v Commissioner of State Revenue (2002) 50 ATR 91, [5]-[6]; Rice Holdings Pty Ltd v Commissioner of State Revenue (2001) 48 ATR 498; Commissioner of State Revenue v Uniqema Pty Ltd [2004] VSCA 82; (2004) 9 VR 523.

Administration Act 1997

Administration Act 1953

Court (General Civil Procedure) Rules 2005

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