Counsel and Solicitors D.H. Bloom QC and F.P. Carnovale

and D.K.L. Raphael

Counsel and Solicitors R.J. Burbidge QC and S.W. Gibb

for Respondent: instructed by Australian Government

Grant leave to the respondent to amend his statements of facts, issues and contentions by adding para.3A in the terms in MFI "2"; refuse leave to add para.5A in MFI "2".

Order that the respondent pay the applicants' costs of and incidental to the respondent's application to amend, including any costs thrown away by the applicants in that connection.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On application for leave to amend the Commissioner's statement of facts, issues and contentions

Before the Court are several appeals by taxpayers, Abraham Gilbert Saffron, and Apsley Investments Pty. Limited, a company associated with Mr Saffron. The appeals are brought against default assessments of income tax made pursuant to s.167 of the Income Tax Assessment Act 1936. The assessments were made, in some cases, in 1984 and, in others, in 1987. Although the appeals were instituted in 1987, their hearing was not commenced until certain criminal charges against Mr Saffron were dealt with (see Saffron v The Queen (1989) 17 NSWLR 395). In the case of Mr Saffron, the assessments issued in 1984 were made, inter alia, in respect of additional income, in substantial amounts, "based on an examination of information held in this office". The 1987 assessments were made in respect of substantial additional income as follows:

"Based on further information received in this office the

following amounts of money have been determined to have been

received by you from the cash takings of:-

- Venus Room

- Gilligans

- Carousel"

2. Apsley's 1984 assessments were made in respect of "additional income derived by Carousel Cabaret arrived at by deducting gross takings returned from gross takings shown in second set of books."

3. On 9 May 1990, directions as to the conduct of the proceedings were given. It was directed, inter alia, that Mr Saffron file and serve a statement of facts, issues and contentions by 26 June 1990 and that the Commissioner file his statement with respect to these matters by 10 July 1990.

4. (Similar directions were given in respect of Apsley's appeals. It is not now necessary to refer to the detail of these appeals as, for present purposes, the same considerations arise there as in the case of Mr Saffron's appeals.)

5. On 5 July 1990, Mr Saffron filed his statement of facts, issues and contentions. In respect of "Facts", Mr Saffron refers to several restaurant and night club businesses carried on in Sydney, principally at Kings Cross (para.1). Reference is made to a similar business carried on by Apsley (para.1). Mr Saffron is mentioned as a shareholder of Apsley (para.1). It is stated that the Commissioner had included in Mr Saffron's assessable income for certain years "certain amounts as having been derived by (Mr Saffron) from the carrying on of the said businesses" (para.2). In respect of "Issues and Contentions", the statement posed, inter alia, the following questions: (1) Was Mr Saffron the owner of the businesses previously mentioned? (para.3(a)) (Mr Saffron contends that he was not and that Apsley owned the "Carousel" cabaret (para.3(b) and (c)).) (2) Was Mr Saffron in partnership with James McCartney Anderson in the ownership of any of the businesses? (para.4(a)) (Mr Saffron contends to the contrary (para.4(b)). (3) If it be held that Mr Saffron owned any of the businesses, did he derive any of the amounts stated in the assessments as his assessable income from carrying on the businesses? (para.5(a)). (Mr Saffron contends to the contrary (para.5(b)).) (4) If it be held that Mr Saffron was in partnership, did he derive income from his interest in the partnership? (para.6(a)). (Mr Saffron contends to the contrary (para.6(b)).) If it be held that Mr Saffron did derive income, is he entitled to any allowable deductions for losses or outgoings incurred in carrying on the businesses? (para.7(a)). (Mr Saffron contends that he was entitled to allowable deductions equal to the amounts found to have been so derived (para.7(b).) Other issues and contentions were raised, but for present purposes, it is not necessary to refer to them.

6. In the Commissioner's statement in respect of the "Facts", paras.1 and 2 of Mr Saffron's statement were admitted. The Commissioner agreed, in respect of the "Issues", that the issues included those stated in paras.5(a), 6(a) and 7(a) of Mr Saffron's statement. With respect to the "Contentions", the Commissioner contends that Mr Saffron's taxable income for each of the years of income was that assessed. In respect of Mr Saffron's paras.5(b) and 6(b), the Commissioner contends that he did derive the income. In respect of para.7(b) of Mr Saffron's statement, the Commissioner contends that Mr Saffron is not entitled to the deductions claimed.

7. In December 1990, the appeals were fixed for a hearing to commence on 3 June 1991. In early May 1991, counsel for the Commissioner informed counsel for Mr Saffron that it was proposed to seek leave to amend the Commissioner's statement of issues to raise the following fresh contention. The Commissioner now wishes to argue that, by virtue of the conviction of Mr Saffron, it is no longer open to Mr Saffron to contest certain facts and matters in these proceedings. At the commencement of the hearing of the appeals, on 3 June, counsel for the Commissioner sought leave to amend the Commissioner's statement accordingly.

8. Mr Saffron opposes the amendments on discretionary grounds. On behalf of Mr Saffron it is said that, if the amendments are allowed at this late stage, the hearing of the appeals will be delayed and the appeals will take longer to hear. Mr Saffron has already paid significant amounts on account of the tax assessed and has also provided the Commissioner with security in that regard.

9. Leave to amend is sought by the Commissioner in two respects. First, it is sought to add a fresh paragraph, 3A, as follows:

"3A. Having regard to the facts necessarily determined in

Reg. v Saffron (23/10/87; Loveday J. and jury of 12)

and The Queen v Saffron (1989) 17 NSWLR 395, it is not

open to the Applicant to contend that he did not

derive the amounts referred to in Schedules 1 and 2."

10. Schedules 1 and 2 are reconciliations of additional income referred to in the adjustment sheets for the 1984 and 1987 assessments to the exhibits tendered at Mr Saffron's trial.

11. Secondly, leave is sought to add a fresh paragraph, 5A, as follows:

"5A Having regard to the grounds of the Applicant's

objections, it is not open to the Applicant to contend

as in paragraph 7(b) without leave."

12. Because it appears that the two amendments raise different issues, it is convenient to deal with proposed paras.3A and 5A separately.

13. According to the report of the judgments of the Court of Appeal and Court of Criminal Appeal on the reservation of questions of law and of the appeal against conviction in Saffron v The Queen, above, Mr Saffron was charged, and convicted upon the verdict of a jury, on an indictment which stated that, between 1 January 1969 and 30 June 1981, he conspired with Mr Anderson to defraud the Commonwealth (see 17 NSWLR at 399). The Crown case (see 17 NSWLR at 400-1) was that Mr Saffron and Mr Anderson were "jointly interested or involved together" in the conduct of a number of nightclubs, bars and restaurants including the Carousel Cabaret (Les Girls) and the Venus Room, in the Kings Cross area. The Commissioner now wishes to contend that inherent in the jury's verdict leading to Mr Saffron's conviction were findings of fact which are inconsistent with the case sought to be made by Mr Saffron in these appeals.

14. The Commissioner relies upon the reasoning of the Full Federal Court in Minister for Immigration and Ethnic Affairs v Gungor [1982] FCA 99; (1982) 42 ALR 209. It was there held, in an application to review a deportation order, that it was an error of law for the Administrative Appeals Tribunal to proceed to its conclusion on the basis of facts inconsistent with a previous conviction. Fox J. said (at 213):

"The policy must be that the conviction is a matter for the

criminal law and its procedures. Appeals are there

available. If new or fresh evidence comes to hand, the

criminal procedures can be availed of. There can in rare

cases be an application for a pardon, perhaps preceded by a

special judicial inquiry. While it stands, the conviction

must be conclusive, so far at least as concerns a Tribunal

reviewing a decision which takes the conviction and the

Minister's decision as its starting point. When I say

conclusive, I mean conclusive as to the guilt of the accused

in relation to the offence charged, and of the sentence

imposed. This is my understanding of the statutory

intention. Quite obviously, serious practical questions

arise if the position is otherwise. The Tribunal could

presumably arrive at its own decision as to whether the

person concerned did what he was charged with doing, and for

that matter, what sentence his offence merited. It would be

doing so on material gathered and considered at what could

be a long time after the trial, when some witnesses for the

prosecution were unavailable and memories were in any event

dimmed. Accepted trial procedures would be absent. The

Crown, as repository of the function of criminal prosecutions,

would not be a party. The Tribunal might in the end find

itself substituting its own view for that of the jury."

15. See also Commissioner of Australian Federal Police v Butler [1989] FCA 408; (1989) 91 ALR 293 at 302; Sioeli Siu Lai v The Minister, Morling J., 5 April 1991, unreported.

16. On behalf of Mr Saffron, it is submitted that Gungor may be distinguished for present purposes. However, it is not appropriate now to express any final view on that question. The present matter is interlocutory only so that it is not now appropriate to consider the substantive merits of the Commissioner's argument. If leave is granted, it will be necessary, at the final hearing, to determine the validity, or otherwise, of the point. For immediate purposes, it is merely necessary to identify the true character of the Commissioner's argument.

17. In my opinion, the principle applied in Gungor has its source in considerations of public policy. As Fox J. explained, it is not in the public interest that procedures in civil proceedings be made available to be used to disturb or even to question convictions obtained by the ordinary process of the criminal law and its procedures. In my view, the public policy foundations of the principle applied in Gungor should receive considerable weight in deciding whether to exercise the discretion to permit the Commissioner to amend at this late stage.

18. The matters urged to be taken into account in Mr Saffron's favour in the discretionary exercise have already been mentioned. It is true that the Commissioner has been guilty of extreme delay in raising the point. To some extent, the prejudice suffered by Mr Saffron in this respect can be met by ordering that any costs thrown away be paid by the Commissioner. However, it would appear that, if leave is granted, some further delay in concluding the final hearing will occur. The measure of this delay is difficult to judge. I have been given no real detail of the actual evidence to be adduced on the hearing of the appeals. I have been informed that the volume of documentary material to be relied on by the Commissioner will be substantial. It may be that much of this material may have been put to Mr Saffron in cross-examination in these appeals even if leave were refused. No clear picture has emerged, at this stage, to enable a comparison to be made between, on the one hand, the time needed for the hearing of the appeal on the footing that leave to amend is granted and, on the other, the hearing time if the amendment were refused.

19. Weighing all these considerations, I am of the view that the balance favours the grant of leave to amend by adding para.3A, but on terms that the Commissioner pay the costs of the applicants which are thrown away as a result of the amendment. As has been said, the weight to be given to the public policy considerations here is considerable. In my opinion, these considerations outweigh the factors relied upon by Mr Saffron by way of the detriment which he may suffer if the amendment is now allowed.

20. Although the argument on the present application proceeded on the footing that para.5A seeks to agitate the same point as para.3A, in my view, the amendment proposed in para.5A raises different issues of principle. There is not here any question of public policy. Rather, what is sought to be pleaded is a private kind of estoppel, apparently an estoppel by conduct. It will be recalled that by para.7(b) of Mr Saffron's statement, it is contended that Mr Saffron "is entitled to allowable deductions equal to the amounts found to have been so derived". This contention is not related to the conviction.

21. It is true that, ordinarily, any estoppel should be specially pleaded (see, e.g. Coppinger v Norton (1902) 2 IR 232 at 242; The Supreme Court Practice (1991) Vol. 1 at 287). This is especially so now that estoppel by conduct "has expanded beyond its evidentiary function into a substantive doctrine" per Mason C.J. in Commonwealth v Verwayen 95 ALR 321 at 332. Strictly speaking, we are not here concerned with a formal pleading. This is an informal pleading ordered pursuant to the Court's general powers to give directions with a view to identifying the real questions in dispute (see O.10 r.1; E.I. Du Pont de Nemours and Co. v Commissioner of Patents (1987) 16 FCR 423 per Sheppard J. at 424). The statements of facts, issues and contentions may not be pleadings in a technical sense. But they are intended to serve the same purpose as pleadings, that is, to identify the real issues. It follows, in my opinion, that if the Commissioner wished to set up an estoppel, he should have said so in his statement. He did not do so. In my view, it is too late to seek to do so now.

22. In Federal Commissioner of Taxation v Brambles Holdings Limited (1991) 91 ATC 4,285, Sheppard J. said (at 4,288):

"There are not usually pleadings in revenue matters in this

Court but directions hearings are held and a procedure has

been instituted whereby each party must state his facts and

grounds so that it is clear to the other party what evidence

and what grounds will be relied upon in the opposite case.

If that procedure is to have any meaning, litigants must

accept the fact that it will take a very exceptional case to

warrant the Court departing from the consequences of it."

23. I have already held that the public policy considerations underlying the matter raised by para.3A are sufficiently exceptional to permit a departure from the general rule. But there are no public interest factors present in the case of para.5A. It merely seeks to raise a personal estoppel. Moreover, no attempt was made on behalf of the Commissioner to explain the extraordinary delay in raising this matter. In the exercise of my discretion, I propose to refuse leave to make this amendment.