"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."

The objections to the assessments and their disallowance

4. Objections to the assessments were made on 1 May 1984. The grounds of objection included the following: that the assessments were invalid because they were not a bona fide exercise of the Commissioner's power and duty to assess; that the assessments were based on false information or information which did not relate to or form part of the financial records of the taxpayer; that the additional income was not assessable or not derived by the taxpayer; that the Commissioner had not properly exercised his judgment nor could an assessment be issued pursuant to s.167 of the Income Tax Assessment Act; that the assessments were not correctly made pursuant to ss.166 or 170 of the Income Tax Assessment Act as the Commissioner relied on false information which did not relate to or form part of the taxpayer's financial records, or (alternatively) without adequately ensuring that the information was truthful and reasonably related to the taxpayer; and that the Commissioner's reasons were inadequate or irrelevant and that the assessments were issued for a collateral purpose and without completion of the assessment process.

5. The objections against the amended assessments were disallowed on 13 July 1984. The taxpayer requested that the objections be referred to the Supreme Court of New South Wales. This was done in August 1985. The present appeals were transferred to this Court in September 1987 when this Court obtained jurisdiction.

The criminal charges, the trial and subsequent proceedings

6. After the institution of these appeals, the taxpayer was charged in the District Court on 14 September 1987 with conspiracy to defraud the Commonwealth. The indictment was as follows:

"For that he between about the lst day of January 1969 and

the 30th day of June 1981 at Sydney in the State of New

South Wales and elsewhere did conspire with James McCartney

Anderson to defraud the Commonwealth."

7. A plea of not guilty was entered. According to the report of the judgments in the Court of Appeal of the Supreme Court of New South Wales and in the Court of Criminal Appeal, to which reference will be made later, the Crown case was opened at the trial as follows:

"The Crown's case is that between 1969 and 1981 the accused

and Anderson were jointly interested or involved together in

the conduct of a number of nightclubs, bars and restaurants

in the Kings Cross area. The places which will be of

particular importance in the course of this trial are a bar

which was called the Venus Room and a nightclub called the

Carousel Cabaret or Les Girls. Other places in which the

accused and Anderson were interested in were Laramie's

Restaurant, La Bastille and Jim's Showbiz. In the scale of

things these other enterprises are of minor significance

only and the places about which you will hear most are the

Venus Room and the Carousel. The takings of these

businesses were principally in cash. The Crown case is that

the accused and Anderson agreed that not all of the cash

received from the conduct of the businesses in which they

were involved would be declared for income tax purposes by

an entity which conducted the business. It was part of the

agreement that the books and records of those businesses

would be so kept as to facilitate non-disclosure of the true

profit income position of the businesses in question.

It was also part of the agreement that Anderson and the

accused from time to time would skim part of the takings of

the businesses for themselves, which they would not disclose

for income tax purposes. It was part of the arrangements

that the records of the businesses would be so kept as to

facilitate non-disclosure to the Commissioner for Taxation

of the true financial position of these businesses."

(See R. v Saffron (1989) 17 NSWLR 395 at 400-1).

8. At the trial, the taxpayer did not give evidence, but made a statement from the dock.

9. The jury returned a verdict of guilty on 23 October 1987. The taxpayer was subsequently sentenced to three years' imprisonment.

10. During the course of the trial, certain questions of law were reserved for determination by the Court of Appeal pursuant to s.72 of the Judiciary Act 1903. Following conviction, the taxpayer also appealed to the Court of Criminal Appeal against conviction. The arguments on the reserved questions of law and on the appeal against conviction were heard together. On 7 October 1988, each reserved question was answered adversely to the taxpayer and the appeal against conviction was dismissed.

11. In the taxation appeals in this Court, pre-trial directions were given that the taxpayer and the Commissioner file statements of facts, issues and contentions. In the taxpayer's statement of facts, several restaurant and night club businesses carried on in Sydney, principally at Kings Cross, are mentioned, including the "Venus Room" and "Carousel" Cabaret, the latter business being said to be carried on by Apsley Investments Pty. Limited ("Apsley"), a company associated with the taxpayer (para.1). The taxpayer is said to be a shareholder of Apsley (para.1). It is stated that the Commissioner included in the taxpayer's assessable income for certain years "certain amounts as having been derived by the taxpayer from the carrying on of the said businesses" (para.2). In dealing with issues and contentions, the statement raised, inter alia, the following questions: (1) Was the taxpayer the owner of the businesses previously mentioned? (para.3(a)). (The taxpayer contends that he was not and that Apsley owned the "Carousel" cabaret (para.3(b) and (c)).) (2) Was the taxpayer in partnership with James McCartney Anderson in the ownership of any of the businesses? (para.4(a)). (The taxpayer contends to the contrary (para.4(b)). (3) If it be held that the taxpayer 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)). (The taxpayer contends to the contrary (para.5(b)). (4) If it be held that the taxpayer was in partnership, did he derive income from his interest in the partnership? (para.6(a)). (The taxpayer contends to the contrary (para.6(b)).) If it be held that the taxpayer did derive income, is he entitled to any allowable deductions for losses or outgoings incurred in carrying on the businesses? (para.7(a)). (The taxpayer 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 relating to alleged income from some other sources, penalty tax and remission of tax.

12. In the Commissioner's statement of facts, paras. 1 and 2 of the taxpayer's statement are admitted. The Commissioner agrees, in respect of the issues, that the issues included those stated in paras.5(a), 6(a) and 7(a) of the taxpayer's statement. The Commissioner contends that the taxpayer's taxable income for each of the years of income was that assessed. In respect of paras.5(b) and 6(b), the Commissioner contends that the taxpayer did derive the income. In respect of para.7(b) of the taxpayer's statement, the Commissioner contends that the taxpayer is not entitled to the deductions claimed. The further contentions of the taxpayer were rejected.

13. Prior to the hearing of the present appeals, the Commissioner was granted leave to amend his statement of facts, issues and contentions to add the following paragraph:

"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 (taxpayer) to contend that he did not derive the amounts

referred to in Schedules 1 and 2".

14. (Schedules 1 and 2 are reconciliations of additional income referred to in the 1984 and 1987 assessments.)

15. At the hearing of the appeals before the primary judge, a sworn statement of evidence by the taxpayer dated 16 November 1990, was tendered by the taxpayer and admitted, without objection (Exhibit A). In this statement, the taxpayer denies receipt of income from various sources including the businesses referred to in the statement of facts, issues and contentions. In respect of the "Venus Room", he states that the premises were owned by a company, Abbey Investments Pty. Ltd., of which he was a director. The business was owned by Mr Anderson and then a Mr Edwards, rent for the premises being paid to the company. In relation to the "Carousel" Cabaret, the business, he states, was owned by Apsley, of which he was a director. He denies receiving any part of the takings of these two businesses. There are similar denials of ownership or receipt of takings in respect of other restaurants/night clubs. The other sources of income alleged by the Commissioner are also denied.

16. The taxpayer verified the statement and was then asked the following question in examination in chief:

"Mr Saffron, do you deny that you and Mr Anderson made an

agreement to the effect that not all of the cash received

from the conduct of businesses in which you were involved

would be declared by an entity which conducted the business."

17. The taxpayer answered the question affirmatively, that answer being objected to by the Commissioner for the reasons given in para.3A of his statement of contentions. The answer was allowed by the judge subject to a ruling on the objection being given at a later stage. In this context, the present special case was stated to raise the question whether the answer to the matter put contradicted one of the matters of fact upon which the conviction of the taxpayer was based, or which was critical to that conviction, and was thus impermissible.

18. The Commissioner seeks to base his argument on the power of the Court to prevent an abuse of its process. The source of the power is said to be implied, or inherent, or, alternatively, found in s.23 of the Federal Court of Australia Act 1976. The Commissioner argues that, as a matter of public policy, it is an abuse of process to permit a party to civil litigation to adduce evidence contradictory of a matter necessarily decided against him by a court of competent jurisdiction. The conviction, the Commissioner submits, is conclusive of the facts on which it is based and those findings cannot be challenged in a subsequent tax appeal. Although the Commissioner acknowledges that the taxpayer may lawfully pursue these appeals, what he now seeks to challenge is the manner in which the taxpayer proposes to conduct his appeals. He contends that the finding of the Court of Criminal Appeal was that the jury must have accepted that there was an agreement to deprive the Commonwealth of its revenue at least in relation to two of the five businesses, viz. the Venus Room and Carousel. The Commissioner says that, by the question put to the taxpayer by his counsel, the taxpayer is seeking to set at nought his conviction.

19. On behalf of the Commissioner, particular reliance is placed upon the reasoning of Lord Diplock in Hunter v The Chief Constable of the West Midlands Police [1981] UKHL 13; (1982) AC 529. There, at the trial of six men on charges of murder, objection was taken to the admission in evidence of statements given to the police on the ground that they had been induced by violence by the police. Bridge J., in the absence of the jury, held, on a voir dire examination, that the prosecution had discharged the burden of proving beyond reasonable doubt that the men had not been assaulted by the police and admitted the statements. The jury convicted all six. Subsequently, the six men instituted civil proceedings against the police claiming damages for the alleged assaults. It was held by the House of Lords that where a final decision had been made by a criminal court of competent jurisdiction, it was a general rule of public policy that the use of a civil action to initiate a collateral attack on that decision was an abuse of the process of the court. Lord Diplock said (at 541):

"The abuse of process which the instant case exemplifies is

the initiation of proceedings in a court of justice for the

purpose of mounting a collateral attack upon a final

decision against the intending plaintiff which has been made

by another court of competent jurisdiction in previous

proceedings in which the intending plaintiff had a full

opportunity of contesting the decision in the court by which

it was made."

"It would call for a degree of credulity too extreme to be

expected even from judicial members of your Lordships' House

to fail to recognise that the dominant purpose of this

action, and the parallel actions brought by the other

Birmingham Bombers so far as they are brought against the

police, has not been to recover damages but is brought in an

endeavour to establish, long after the event when memories

have faded and witnesses other than the Birmingham Bombers

themselves may be difficult to trace, that the confessions

on the evidence on which they were convicted were induced by

police violence, with a view to putting pressure on the Home

Secretary to release them from the life sentences that they

are otherwise likely to continue to serve for many years to come."

20. It has also been recently held in England, applying the reasoning of Lord Diplock, that where issues of fact have been litigated exhaustively in sample cases, it is an abuse of process for a litigant, who was not a party in one of the sample cases, to re-litigate all the issues of fact on the same, or substantially the same, evidence (see Ashmore v British Coal Corporation (1990) 2 QB 338; House of Spring Gardens Ltd. v Waite (1991) 1 QB 241 at 254-5).

21. In Minister for Immigration v Daniele [1981] FCA 212; (1981) 39 ALR 649, Fisher and Lockhart JJ., in considering the role of the Administrative Appeals Tribunal in reviewing a deportation decision, said (at 653):

"The conviction is the genesis of the Minister's power to

deport. There are powerful reasons of public policy why the

Tribunal cannot ignore the conviction or seek to set it at

nought. That is not to say that the circumstances

surrounding the commission of the offence or matters

relating to the trial itself cannot be examined by the

Tribunal. However, such examination is for the purpose of

enabling the Tribunal to make its own assessment of the

nature and gravity of the applicant's criminal conduct and

not for the purpose of assessing the propriety of the

conviction or the fairness of the trial. Whether these

circumstances and matters are susceptible of examination,

and the extent of that inquiry will vary from case to case.

The matters which the Tribunal is called upon to determine

are wider than and different from the questions which a

trial judge and jury must determine."

22. In Minister for Immigration v Gungor [1982] FCA 99; (1982) 42 ALR 209, Fox J. and Sheppard J. each referred with approval to the above passage. Fox J. said (at 213):

"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...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."

23. Sheppard J. said that the Tribunal should not allow evidence to be led which had the effect of "going behind the conviction and setting it at nought" (at 233). He said (at 233-4)"

"In my opinion it was not open to the respondent to lead

evidence for the purpose of showing that he was a principal

in the second degree rather than in the first. Certainly it

was not open to the Tribunal to treat him as convicted on

the basis of that conduct rather than upon the basis of

conduct which made him a principal in the first degree. To

proceed as it did involved it in an error of law.

I do not believe that such a conclusion is greatly

restrictive of the Tribunal's difficult and important

function in deportation cases. If the view I have proposed

prevails, the Tribunal remains entitled, indeed bound, to

examine for itself what was involved in the entirety of the

conduct of the applicant before it. This examination will

include the receiving of evidence to put the tribunal in a

position to weigh and to make its own assessment of the

seriousness of the conduct which has led to the conviction.

Nevertheless, I concede that the view I favour may, in some

cases, have an inhibiting effect on the Tribunal. It may

also create a degree of difficulty for it, because it will

need to determine whether particular evidence sheds light on

the way conduct on the part of an applicant for review

should properly be viewed or whether its real effect, if

accepted, would be to go behind the conviction. It will be

necessary for the Tribunal to be aware at all times of the

purpose for which it receives (or has received) the evidence

and for which it uses the evidence. If the evidence in

question is in truth evidence which involves the applicant

in seeking to go behind the conviction or to have the

conviction set at nought, it ought to be put aside;

otherwise it will need to be weighed along with all other

evidence for the purpose of deciding whether to remit the

matter to the Minister for reconsideration in accordance

with the Tribunal's recommendation."

24. The Commissioner also relies upon the decision of Hill J. in Commissioner of Police v Butler [1989] FCA 408; (1989) 91 ALR 293 and Sioeli Siu Lai v Minister for Immigration (Morling J. unreported, 5 April 1992). As well, New Zealand and Canadian authorities were relied upon (see for example, Brant v Collector of Customs (1984) 1 NZLR 280 and Demeter v British Pacific Insurance 13 DLR (4th) 318).

25. The public policy considerations in this area were recently considered in the High Court of Australia in Giannarelli v Wraith [1988] HCA 52; (1988) 165 CLR 543 at 558, per Mason C.J.; see also per Wilson J. at 574.

26. Counsel for the Commissioner also referred to the United States doctrine of "collateral estoppel" or "issue preclusion". Under this doctrine, an issue necessarily decided in a cause of action determined by a court of competent jurisdiction, is conclusively determined if it is involved in a subsequent, different cause of action. The requirements for the doctrine are first, that there be an identity of issues between the two actions and secondly, that the party against whom the estoppel is asserted must have had a full and fair opportunity to contest the prior action. Mutuality of estoppel is no longer a prerequisite. A litigant may use collateral estoppel "offensively" in a suit against the party who lost on the decided issue in the first case (see Parklane Hosiery Co. v Shore [1979] USSC 8; 439 US 322 (1979)). The doctrine is justified by considerations of judicial efficiency and consistency of result. A recent statement of the doctrine was made in Klein v Commissioner of Internal Revenue 88O F 2d 260 (10th Cir., 1989) by Holloway C.J. at 262-3 as follows:

"Whether the application of collateral estoppel is

appropriate necessitates four inquiries: first, whether the

party to be estopped was a party to or assumed control of

the prior litigation; second, whether the issues presented

are in substance the same as those resolved in the earlier

litigation; third, whether the controlling facts or legal

principles have changed significantly since the earlier

judgment; and finally, whether other special circumstances

warrant an exception to the normal rules of preclusion."

27. The American position thus seems to be close to the Anglo-Australian "abuse of process" doctrine.

28. To determine whether process has been abused in the present context is essentially a question of fact: is the process of the Court being used for a legitimate purpose or is it being used for a foreign or ulterior object? (see I.O.C. Australia Pty. Ltd. v Mobil Oil Australia Ltd. (1975) 49 ALJR 176 at 182.) As Sheppard J. pointed out in Gungor, the relevant inquiry is with respect to the real purpose or object in carrying out the examination of the facts underlying the conviction. For the present, the question is whether the matter put to the taxpayer by his counsel was something done with the purpose or object of merely challenging the Commissioner's assessment, on the one hand; or, on the other hand, was it something done with the purpose or object of setting at nought the conviction?

29. The matter, I think, should be considered objectively. So viewed, I have come to the conclusion that, in all the circumstances, (and having regard in particular to the fact that the taxpayer's statement, Ex. A, has been tendered and received in evidence without objection), the putting of the additional question to the taxpayer was an abuse of the process of the Court and, thus, impermissible.

30. It is common ground that the taxpayer may legitimately pursue his statutory right of appeal against the assessments. By not objecting to the tender of Ex. A, the Commissioner has accepted that the material (now evidence) in that document may properly be advanced by the taxpayer in support. By that evidence, the taxpayer seeks to demonstrate that he did not derive the income assessed. This is the central question in the appeals which, it is common ground, may lawfully be agitated. But the additional matter sought to be put to the taxpayer by his counsel in the course of his examination in chief raises, I think, a question which is collateral to the tax appeals yet, as counsel for the taxpayer now concedes, it was critical to his conviction. In my opinion, there is no legitimate reason for the taxpayer's now pursuing this matter, collateral as it is, in the exercise of his statutory right to challenge the assessments by way of appeal to this Court. The proper inference is that the matter has been raised with a view to setting his conviction at nought.

31. I would answer the question raised by the special case accordingly.

32. Since writing the foregoing, I have had the advantage of reading the judgments of Davies J. and of Lockhart J. I agree with Lockhart J. that -

"The applicant may conduct his case in the income tax

appeal presently before this Court for the purpose of

enabling the Court to determine the true liability of

the applicant to income tax in each of the relevant

years of income involved in the appeal;"

I also agree with Lockhart J.'s statement that -

"But the applicant shall not conduct his case for the

purpose of challenging the propriety of his conviction for

the criminal offence of conspiring with Mr Anderson to

defraud the Commission or the fairness of the trial."

However, Lockhart J. has also held that

"...and for this purpose (i.e. for the purpose of

prosecuting his tax appeal) the applicant may present

a case denying that he and James McCartney Anderson

agreed that not all the cash received from the conduct

of businesses in which they were involved, including

the nightclub businesses known as the Venus Room and

the Carousel, would be declared for income tax purposes."

33. I regret that I cannot agree that the presentation of such a case involves a legitimate purpose. It will be recalled that the subject of the special case was a question put by counsel for the taxpayer in the course of his examination of the taxpayer in chief. In substance as well as in form, the question put asked whether the taxpayer had conspired not to declare income, i.e. to defraud the Commonwealth. It did not, for instance, ask whether the parties were in partnership, which would be a different matter. The question put is, in my view, merely a paraphrase or restatement of the terms of the indictment. As I have already said, on its face the question put by counsel was not directed to the issues in the tax appeal, but rather was directed to a collateral matter, viz., the setting at nought of his conviction. (It will be recalled that the issue of conspiracy was not raised by either party in the statements of issues.) Having so characterised the question, it must follow, in my view, that the putting of this question in chief was not a proper use of the Court's process. It was something done, not with the object of contesting the issue whether the taxpayer derived the income assessed, but with the different object of contradicting the fact that the taxpayer had been guilty of a conspiracy.

34. In short, in my view, counsel for the taxpayer could not, in chief at least, have asked the taxpayer whether he had conspired to defraud the Commonwealth. The question now put, in my opinion, is in substance the same question.

35. In this respect, I differ from Lockhart J. only in the application of the relevant legal principle. We are agreed on the principle itself.