Southgate Investment Funds Limited v Deputy Commissioner of Taxation

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 826 of 2012

JUDGES: MCKERRACHER, JAGOT & GRIFFITHS JJ DATE: 12 FEBRUARY 2013 PLACE: SYDNEY

Introduction 1 The central issues in the appeal are the extent to which, if at all, a court considering an application to stay execution of a judgment arising from a tax assessment is entitled to take into account: (a) the merits of any appeal or review proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) which are on foot; and (b) prejudice or hardship that may be suffered by the taxpayer seeking a stay but which arises only in the event that its Part IVC proceedings are successful. 2 A related question is whether those issues are effectively determined by the High Court's decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 (Broadbeach). 3 The proceedings involve an application for leave to appeal from a decision of a judge of the Court. The primary judge dismissed an application to stay execution of a summary judgment of another judge of the Court, the effect of which was to order the applicants to pay the respondent outstanding income tax and related administrative charges. 4 The respondent did not oppose leave being granted. The hearing of the appeal was heard at the same time as the application for leave to appeal. 5 Although originally there were three applicants seeking leave to appeal, the Court was informed at the commencement of the hearing that two of those applicants had paid their debts to the Commonwealth in full, leaving Derrin Brothers Properties Limited (Derrin) as the only applicant/appellant. We were told that the other two applicants would withdraw their applications. Accordingly we need deal only with Derrin's application and appeal. 6 Before summarising the primary judge's reasons for refusing a stay, it is convenient to briefly set out the background facts and outline the rather complicated procedural history.

Background facts and procedural history 7 On 12 August 2010, a Deputy Commissioner of Taxation (for convenience, the Commissioner) instituted proceedings in the Court against certain parties, including Derrin, seeking, inter alia, the recovery of unpaid income tax and additional administrative charges. On 12 August 2010, Jessup J granted freezing orders which had the effect of preventing Derrin and the other parties from dealing in shares in public companies listed on the Australian Stock Exchange. Summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (FCA Act) was then sought by the Commissioner against each of the parties. In the case of Derrin, the amount sought was $9,624,253.17. Derrin applied for a stay of the Commissioner's motion for summary judgment and, in the alternative, sought a stay of any judgment given in the proceedings until after determination of tax objections lodged by Derrin under Part IVC of the TAA. In a judgment handed down on 25 November 2010, Kenny J ordered that there be judgment for the Commissioner against Derrin in the amount of $9,723,807.23 and dismissed Derrin's stay applications (Deputy Commissioner of Taxation v Chemical Trustee Ltd (2010) 81 ATR 237; [2010] FCA 1297). We shall return below to discuss her Honour's reasons for refusing a stay. 8 After their objections were rejected, on 16 May 2011 Derrin and other parties commenced Part IVC proceedings in the Court. On 21 December 2011, the respondent was given leave to file and serve charging summonses against Derrin and the other parties. On 21 February 2012, the proceedings were transferred to Perram J's docket. Charging summonses were filed on 29 February 2012. By interlocutory applications filed on 17 April 2012, Derrin and the other parties sought a stay of the execution of the summary judgments granted by Kenny J. 9 On 8 June 2012, Perram J gave reasons dismissing the applications for stay of execution. Orders to that effect were made by his Honour on 26 June 2012. It is those orders which are the subject of the appeal. 10 Derrin's Part IVC appeal is scheduled to commence on 16 September 2013 for a six week hearing before Perram J. It is important to note, however, that the evidence in the appeal had not closed as at the date of his Honour's decision refusing a stay.

Summary of primary judge's reasons for refusing a stay 11 As was common ground between the parties, the primary judge accepted that the Court had jurisdiction to stay the execution of one of its own judgments. His Honour identified the source of that jurisdiction as being a necessary incident of the Court's authority over its own processes. He also drew attention to the Rule 41.11 of the Federal Court Rules 2011, which provides for a party to apply to the Court for a stay of execution of a judgment or order. 12 His Honour then noted that the exercise of the power involved a question of discretion, the exercise of which was informed by s 14ZZR of the TAA. Section 14ZZR is in the following terms: The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax, or other amount may be recovered as if no appeal were pending. 13 Section 14ZZM is a corresponding provision concerning pending review proceedings in the Administrative Appeals Tribunal (AAT). "Taxation decision" is defined as "the assessment, determination, notice or decision against which a taxation objection may be, or has been, made" (s 14ZQ). Section 14ZZR of the TAA applies to the proceedings in the Court brought by Derrin. 14 As noted above, a central issue is the extent to which, if at all, the merits of a taxpayer's Part IVC appeal can or should be taken into account in exercising the discretion to grant a stay. The primary judge observed that, in the proceedings before him, the Commissioner advanced inconsistent submissions on that issue. At one point, the Commissioner also argued that the relevant principles were set out in French J's decision in Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 at 139 (Snow). One of the relevant matters identified by French J as bearing upon the exercise of the discretion to grant a stay was the merits of the taxpayer's appeal (although his Honour also noted that some judges had expressed different views on the point). Justice Perram observed that despite the Commissioner's apparent acceptance of that aspect of French J's judgment in Snow, the Commissioner also stated that he did not concede that the merits of the taxpayer's Part IVC proceedings were a relevant consideration and his Honour proceeded on the basis that that was the Commissioner's true position. 15 The primary judge then explained why he agreed with the Commissioner's argument that he should not consider the merits of Part IVC appeal. As will be seen below from our summary of his Honour's reasons, at the forefront of those reasons was the primary judge's conclusion that he was bound to take that view by the High Court's decision in Broadbeach. His Honour's reasoning was essentially as follows: (a) the Commissioner's proceedings seeking execution of the judgment debts in his favour were proceedings to recover the relevant tax or other amount for the purposes of s 14ZZR of the TAA (at [29]); (b) accordingly, the Court was bound to proceed on the basis that the Part IVC appeals were not pending having regard to Broadbeach. His Honour acknowledged that Broadbeach involved the statutory demand procedure under s 459G of the Corporations Act 2001 (Cth). He described how the High Court held that the existence of pending Part IVC proceedings did not mean that there was a "genuine dispute" about the existence of the debt due to the Commissioner. That was because, having regard to ss 14ZZM and 14ZZR of the TAA, "the Court must proceed on the basis that the 'appeal' giving rise to any such issue is not pending" (at [30]). His Honour said that he was unable to distinguish the High Court's reasoning from the present circumstances. That was because, "[t]o assess the merits of taxpayers' appeals I would need to accept that they were pending" (at [30]). His Honour described s 14ZZR as stating that the matter "is to be approached on the basis that they are not" and "Broadbeach stands for the proposition that s 14ZZR means what it says" (at [30]); (c) his Honour acknowledged that there were decisions to the contrary which suggest that, at least where the merits of a Part IVC appeal or review are "particularly striking", recourse to an assessment where the merits of appeal proceedings may legitimately be had. His Honour said that such decisions included Snow, as well as the decision of the Victorian Court of Appeal in Cywinski v Deputy Commissioner of Taxation [1990] VR 193 (Cywinski), but his Honour held that he could not follow those decisions as they were impliedly overruled by Broadbeach on this issue (at [31]); (d) his Honour considered that the correct approach was that taken by the Queensland Court of Appeal in Deputy Commissioner of Taxation v Denlay (2010) 80 ATR 109; [2010] QCA 217 (Denlay), a post-Broadbeach decision, in which that Court approved the following statement of some relevant general propositions by Nathan J in Deputy Federal Commissioner of Taxation v Akers (1989) 89 ATC 4725 at 4727: (1). The Court's inherent jurisdiction to grant a stay is not vitiated by the terms of sec 201, but that discretion must be exercised in a way which gives the policy directions of the 'pay first, argue later', provision effect. The discretion is dependent entirely upon the facts of the given situation, and they can never be defined. The discretion is circumscribed by sec 201. The onus is upon the applicant to establish the discretion should be exercised in his favour. (2). The Court should not go into the issues in dispute, but should apprise itself of such facts as will enable it to determine the nature of the dispute. It should not speculate upon the outcome. (3). The obligation to pay tax, does not of itself impose an extreme personal hardship. (4). The possibility that the taxpayer may be bankrupted is not of itself an extreme personal hardship. (Emphasis as added by Perram J in citing this passage.) (It is to be noted that s 201 of the Income Tax Assessment Act 1936 (Cth) (ITAA), was in substantially similar terms to ss 14ZZM and 14ZZR of the TAA). After recording the Queensland Court of Appeal's approval of Nathan J's statement of the relevant principles, the primary judge observed that, as a decision of an intermediate appellate Court, Denlay bound him "not to go into the merits of the appeals beyond appraising myself as to what the appeals are about. I must not speculate upon the outcome" (at [33]); (e) his Honour then proceeded to describe "very briefly" what the basic disputes were about. In the case of Derrin, he said that the main issue in its appeal was whether Derrin was an Australian resident for tax purposes in circumstances where it had been assessed for income tax and other administrative charges on profits in the relevant years of income made on the purchase and sale of shares in companies listed on the Australian Stock Exchange (at [34]); (f) apart from "very briefly" describing the nature of Derrin's dispute, the primary judge made no attempt to assess the merits of Derrin's Part IVC appeal, consistently with his Honour's view that he was not entitled to do so having regard to his conclusions as to the effect of both Broadbeach and Denlay. His Honour described the two main issues in the substantive appeal to be heard by him as: (i) whether the applicant companies were Australian residents for tax purposes; and (ii) whether two of the applicants (not Derrin) owned their shares beneficially (at [34]); (g) the primary judge then proceeded to deal with various other matters relied upon by Derrin and the other parties in support of their applications for the execution of the judgments to be stayed. Relevantly, those matters included an argument that, if the Commissioner sought to enforce the judgments against the shares the subject of the charging orders, Derrin would suffer irreversible harm if the shares were sold. That was because of market conditions. Derrin claimed that even if it succeeded in its Part IVC appeal and the tax was later refunded, it would not be able to restore its shareholdings if the share price recovered in the meantime. His Honour accepted that the share market was "dramatically" down at the time of the judgment and that sale of the shares at that time might realise less than in the future or in the past. Furthermore, his Honour found that there was a real risk that such a loss might be irreversible because of uncertainties concerning a taxpayer's restitutionary rights against the Commissioner if the underlying judgments were ultimately reversed (at [39]-[42]); and (h) having regard to that prejudice (which the primary judge described as an "injustice" if the loss proved to be unrecoverable from the Commissioner) his Honour considered that he would have stayed execution of the judgments if s 14ZZR of the TAA did not apply. But he concluded that he was not at liberty to take that view because s 14ZZR did apply and "requires one to assume there is no Part IVC appeal". Consequently, the topic of the prejudice likely to flow if the appeal succeeds was not a matter which would be considered (at [51]); and (i) the primary judge was prepared to take into account what he described as the "simple prejudice" flowing from the fact of the shares being sold then - rather than later - when the market might have recovered (ie independently of any question of the taxpayer's restitutionary rights against the Commissioner). His Honour described this aspect of the taxpayer's prejudice as not being foreclosed by s 14ZZR, because the proposition did not turn on the outcome of the appeal, but rather involved an indulgence in the timing of the execution of the judgments. He described that prejudice as involving hardship which did not depend in any way upon impugning the judgment creditor's debt. Accordingly, in determining whether or not to grant the indulgence sought, it was unnecessary to have regard to the fact that there were pending appeals. His Honour held, however, that this hardship did not warrant a stay in circumstances where there was no evidence to suggest that the market might recover within a specified period (at [50]-[54]). 16 Accordingly, the primary judge refused to stay execution of the judgments against Derrin (and the other parties).

Derrin's arguments summarised 17 Derrin's appeal focused on the primary judge's ruling that the merits of its Part IVC appeal could not be taken into account in considering its stay application. In brief terms, it argues that: (a) this Court should follow the decisions of the Victorian Court of Appeal in Cywinski and the NSW Court of Appeal in Deputy Commissioner of Taxation (NSW) v Mackey (1982) 45 ALR 284 (Mackey), both of which recognised the relevance of the merits of the underlying tax dispute in a stay application; (b) all decided cases denying the merits of a taxpayer's Part IVC appeal are first instance decisions and should not be regarded as authoritative; and (c) far from overturning either Cywinski or Mackey, Broadbeach affirmatively supports those decisions. 18 Derrin argues that Broadbeach is distinguishable because it related to a specific question arising under s 459G of the Corporations Act and did not touch upon the Court's discretion to stay the execution of a judgment. Emphasis is also placed upon the Commissioner's concession in that case, to the effect that, at a later stage in statutory demand proceedings (ie at the hearing of a winding-up application), the Court was entitled to take into account whether a taxpayer had a reasonably arguable case. Derrin argues that the winding-up of the company, representing the final stage of a statutory demand proceeding, was comparable to the execution of a judgment debt. 19 Derrin then argues that, consistently with Cywinski and Mackey, the Court could and should, without speculating, assess the merits of its Part IVC appeal because, so it is said, that appeal is bound to succeed having regard to the High Court's decision in Esquire Nominees Ltd v Federal Commissioner of Taxation (1973) 129 CLR 177 (Esquire Nominees). In particular, Derrin argues that the Commissioner's case in the Part IVC proceeding is inconsistent with Esquire Nominees on the issue whether Derrin was a resident of Australia during the relevant income tax years. 20 Finally, Derrin also challenges the primary judge's finding that s 14ZZR prevented him from granting a stay even though he accepted that execution of the judgment debt might cause prejudice in the following circumstances: Derrin's shares were sold, its Part IVC appeal succeeded, the Commissioner returned the money he obtained on the sale of the shares but Derrin was left short if the share market subsequently recovered. Derrin argues that the primary judge erred in holding that Broadbeach bound him to apply s 14ZZR in this way.

Commissioner's arguments summarised 21 In brief terms, the Commissioner contends that: (a) it is only permissible for the Court to have regard to the merits of the Part IVC appeal where the Court is able to form an opinion that the appeal is certain to either succeed or fail without speculating on the outcome by engaging in an examination of the factual or legal matters that may be in dispute in the appeal; and (b) in considering potential prejudice or hardship that may be suffered by the applicant if the execution is not stayed, the Court should not have regard to any potential prejudice or hardship that would only arise if a pending Part IVC appeal were successful. 22 As is apparent from the first of those arguments, the Commissioner does not submit that the Court is required to ignore completely the merits of a Part IVC appeal in all circumstances. Indeed, the Commissioner submits that the primary judge took a similar view, as was said to be reflected in his analysis of Denlay. In particular, reliance is placed upon his Honour's adoption of Denlay (and its approval of Nathan J's statement in Akers) when the primary judge proceeded on the basis that he must not "go into the merits of the appeals beyond appraising myself as to what the appeals are about", and that he "must not speculate upon the outcome" ([33]). 23 The Commissioner's submission regarding the primary judge's ruling on this point is reflected in [20] of his outline of written submissions on the appeal: It is apparent from these observations that what his Honour was saying was that the Court should not consider the merits of the Part IVC appeals where that would involve an examination of factual, evidentiary or legal matters in dispute in those proceedings, even where it might be possible for the Court to determine that the applicant had an arguable or even a good case. To enter into such a consideration would involve speculating upon the outcome. His Honour did not, however, say, in terms, that the Court must ignore the merits in circumstances where the Court was able to determine that the outcome of the Part IVC [sic] was certain, for example if there was a clear abuse of power by the Commissioner, or the Commissioner had clearly acted contrary to High Court authority. 24 An important question in the appeal is whether in fact the primary judge adopted and applied what the Commissioner contends is the correct approach to the merits of a Part IVC appeal in this context. As noted in [14] above, the primary judge proceeded on the basis that the Commissioner's "true position" was that the merits of the taxpayer's Part IVC proceedings were not a relevant consideration in determining whether or not to exercise the discretion to grant a stay. Although the Commissioner did not directly contest the primary judge's finding as to the Commissioner's "true position", the Commissioner adopts a more subtle position in the appeal which recognises that the merits of Part IVC proceedings are a relevant consideration in some circumstances. 25 The Commissioner submits that the authorities establish the following principles concerning the consideration of the merits of an appeal in a context such as this: (a) if "mere merit were a relevant consideration the policy of the statute would be defeated" (citing Cywinski at 198); (b) the merits are a relevant consideration if it can be shown that the taxpayer's appeal is frivolous or hopeless, on the one hand, or bound to succeed, on the other hand. Examples of the latter include where the Commissioner abused his powers, acted contrary to a High Court decision, or otherwise acted manifestly contrary to law (citing Cywinski at 198 and Mackey at 289); (c) in cases where a Part IVC appeal is neither totally without merit, nor incontestable because of demonstrated error of law, to attempt to assess the taxpayer's prospects of success would involve speculation, which is impermissible (citing Cywinski at 201 and Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation (2006) 64 ATR 316; [2006] VSCA 191 (Trade World). Such matters are to be determined by the court hearing the ultimate appeal which will have the advantage of hearing all the relevant and necessary evidence; (d) it is not a relevant consideration that the taxpayer has a merely arguable, or even strongly arguable, case on appeal (citing Mackey at 287, Cywinski at 200-201); and (e) exercise of the discretion in refusing a stay does not miscarry by reason only that the court is unable on the material before it to reach a view as to the taxpayer's prospects of success in overturning the assessment (citing Trade World (at [23] per Nettle JA and Cywinski). 26 The Commissioner submits that the material before the primary judge did not and could not have demonstrated that Derrin's appeal was bound to succeed on the basis of Derrin's claim that its case was on all fours with Esquire Nominees. It is emphasised that the evidence in Derrin's appeal had not yet closed and that there are significant factual and evidentiary disputes, as well as disputes as to relevant principles of law, in that appeal. In those circumstances, the Commissioner contends that to attempt to consider the merits or prospects of Derrin's appeal would necessitate resorting to speculation, which is impermissible. 27 On the issues of prejudice or hardship, the Commissioner defends the primary judge's ruling that he was precluded by s 14ZZR of the TAA from having regard to any prejudice or hardship that would only arise if the Part IVC appeals were successful. The Commissioner also filed a notice of contention seeking to uphold the primary judge's decision on the basis that Derrin's alleged hardship or prejudice was not of such a nature as to warrant a stay. We shall deal with that matter below.

Kenny J's refusal of a stay 28 As noted above, on 25 November 2010 Kenny J refused Derrin's application for a stay of proceedings for execution of the summary judgment given that day by her Honour in the Commissioner's favour. It is instructive to note the principles adopted and applied by her Honour in refusing that stay. In particular, it is evident that her Honour adopted a different approach to Perram J on the issue of the relevance of pending Part IVC proceedings. 29 Derrin's earlier application for a stay was made at a time when its objections against the relevant assessments were still on foot and undetermined. In other words, at that time, no appeal had been lodged in the Court pursuant to s 14ZZR of the TAA. 30 Her Honour reviewed many authorities relevant to the Court's power to grant a stay. The outcome of that review may be summarised as follows: (a) the power to grant a stay is to be exercised sparingly in the context of any proceeding for the recovery of a tax debt based on the issue and service of an assessment. The taxpayer carries the onus of establishing that such a stay is warranted (citing Broadbeach at 491-493; Trade World at 322-333 per Nettle JA; Snow at 139 per French J; Mackey at 287 per Moffit P and 289 per Hutley JA); (b) provisions such as s 177(1) of the ITAA and related provisions implement a long-standing legislative policy to protect the interests of the revenue, and that policy has the potential to operate and produce considerable hardship (citing Broadbeach at 492); (c) the fact that pending objections have not been determined will not preclude recovery action (citing Broadbeach at 492); (d) while the effect of the definition of a "taxation decision" in s 14ZQ of the TAA is not to assimilate an objection to an assessment with a review or appeal pursuant to ss 14ZZR and 14ZZM respectively, this does not diminish to any material extent the need for the taxpayer to justify the grant of a stay; (e) moreover, even if the bar is slightly lower in the case of a stay being sought where there is an undetermined objection, that bar was not overcome in the particular circumstances here; (f) French J's statement in Snow at 139 concerning the relevant principles governing the grant or refusal of a stay were generally agreed (although not unreservedly in the case of the issue of the relevance of the merits of an appeal). [For convenience, those principles are as follows: 1. The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against determination of the taxpayer's appeal against his assessment. 2. The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it. 3. The merits of the taxpayer's appeal constitute a fact to be taken into account in the exercise of the discretion (although some judges have expressed different views on this point). 4. Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment (sic) of the tax. 5. A stay may be granted in the case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay. 6. The mere imposition of the obligation to pay does not constitute hardship. 7. The existence of a request for reference of an objection for review where appeal is a factor relevant to the exercise of the discretion.] 31 Derrin argued before Kenny J that a stay was appropriate because: its assets could only be sold at significant financial loss; it had strong grounds of objection; and it had done everything possible to progress its objection. 32 On the issue of the merits of the Part IVC challenges, it is evident from [66] of her Honour's reasons for judgment that, at that time, Derrin raised arguments which did not rely on Esquire Nominees. In particular, it appears that Derrin argued that the strength of its then objections lay in the capital gains tax exemption in Division 855 of the Income Tax Assessment Act 1997 (Cth) and also that the Commissioner's failure to give Derrin the benefit of trading stock elections meant that the correctness of the assessments was "necessarily doubtful". 33 Kenny J expressly acknowledged in [68] that, as French J had observed in Snow, there is a difference in judicial opinion about the significance of the merits of the taxpayer's challenge to an assessment or assessments. Her Honour then made the following significant findings at [68]: Here, as noted, the Part IVC process is at the stage of undetermined objections. Perhaps there are cases in which consideration of the merits may assist in determining whether or not to grant a stay. I do not consider that these cases are in this category. It would be inappropriate for me in this case to enter on the very questions that the Commissioner or, perhaps, at a later stage the Administrative Appeals Tribunal or this court on a taxation appeal may be called on to determine. Furthermore, the material before me is too sparse to permit a firm view to be taken. At most, the respondents' case might support the proposition that they have arguable grounds for challenging the assessments in question. Even if I were to accept this proposition, however, it would not justify the grant of a stay, given the clear policy of the taxation legislation, as discussed in the authorities previously mentioned: see, for example, Cywinski at 4518. 34 Although mindful of the need for caution in expressing views about the strength of an appeal in the context of an interlocutory application, her Honour contemplated that the merits of Part IVC proceedings could be relevant in some cases. But that would require, among other things, that there be sufficient materials before the Court to enable an assessment of those merits to be made. Moreover, her Honour emphasised that something more than an arguable case would need to be established if a stay were to be granted.

Caselaw analysis 35 As noted above, the primary judge was content to confine his analysis of the caselaw to relatively few cases, principally because his Honour regarded Broadbeach as binding him to proceed on the basis that no Part IVC appeal was pending. He held that Broadbeach impliedly overruled decisions such as Snow and Cywinski, decisions which suggest that, where the merits of an appeal are "particularly striking", that is a relevant consideration in the exercise of the discretion. His Honour also regarded Denlay (a post-Broadbeach decision) as requiring him to look no further into the merits of an appeal beyond appraising himself as to what the appeal was about. 36 For reasons which we develop below, and with great respect to the primary judge, we consider that his Honour took too broad a view of Broadbeach and overstated its relevance and effect in the different statutory context and circumstances here. 37 Before considering the implications of Broadbeach, it is convenient if we briefly describe some of the other key decisions dealing with the nature and scope of the jurisdiction of superior courts to stay the execution of a judgment in the context of recovery action being taken by the Commissioner.

Australian Machinery 38 That exercise must start with the High Court's decision in Australian Machinery and Investment Co Pty Ltd v Deputy Commissioner of Taxation (No 2) (1945) 20 ALJR 326 (Australian Machinery). It is relevant to note that this important decision was not brought to the primary judge's attention. 39 The facts in Australian Machinery are not straightforward, a problem which partly arises because the report of the decision in the Australian Law Journal Reports is merely a summary of the judgments of the plurality (Latham CJ, Rich, Dixon and Williams JJ) and Starke J's dissenting judgment. It is evident that two separate series of assessments had been issued by the Commissioner against the taxpayer company covering the 1933-1936 tax years inclusively. The taxpayer company lodged objections to the first series of those assessments (which totalled £463,864 10s. 1d). Those objections were undetermined. The second series of assessments were at a more progressed stage. They had been disallowed by the Commissioner and the taxpayer company had filed appeals in the High Court, which were pending. Meanwhile the Commissioner obtained summary judgment in the Supreme Court of Western Australia in respect of the second series of assessments (which involved the total amount of £91,960 12s. 0d). Northmore CJ granted a stay of proceedings in respect of one of the assessments in the second series of assessments pending an expedited hearing of an appeal in respect of that assessment in the High Court. That appeal came on before Rich J who delivered an interim decision on 23 June 1944. Rich J found that the profits in all the assessments which had been treated by the Commissioner as wholly earned in Australia should be apportioned on a different basis between sources in and out of Australia. Rich J's interim decision had implications for the other assessments in both the first and second series of assessments. 40 Prior to the appeal coming back before Rich J in July 1945 as scheduled to deal with a number of questions agreed by the Commissioner and the taxpayer company, the taxpayer sought the stay of recovery proceedings which had been commenced by the Commissioner in the Supreme Court of Western Australia in respect of the first series of assessments. The stay was sought pending final determination of the proceedings before Rich J. Dwyer J refused the stay relying on s 201 of the Income Tax Assessment Act 1936-1941. At that time that section provided: "The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending". When the Commissioner notified his intention to move for summary judgment in respect of the first series of assessments, the taxpayer company sought and obtained special leave to appeal from Dwyer J's decision. The company argued that if summary judgment was entered against it, the Commissioner would be in a position to execute the judgment and sell the company's assets which, under the then prevailing conditions, would involve a "sacrificial price". 41 The recovery proceedings were ultimately stayed by the High Court on condition that the company provide security. The ALJR note of the decision records the plurality as rejecting the contention that there was no jurisdiction to grant a stay in the proceedings by reason of s 201 and the associated provisions in the Income Tax Assessment Act. The plurality held that there was jurisdiction to grant a stay in such proceedings, but that in considering any such application the policy of the Act as stated in s 201 is a matter to which "great weight" should be attached. 42 It is evident that the High Court heard detailed argument concerning "all the circumstances of the case". The plurality ultimately concluded that it was "not just" that the Commissioner should obtain summary judgment in respect of the first series of assessments. A stay was granted on condition that the taxpayer pay security and undertake not to dispose of any of its assets otherwise than in the ordinary course of business. 43 Although there is no express or direct reference to the High Court considering the merits of the taxpayer's objections, it is plain that, in granting the stay, the plurality took into account, as an aspect of the circumstances of the case, the implications of Rich J's interim decision concerning the appeal against one of the assessments in the second series of assessments. Accordingly, we consider that the decision stands for the proposition that, at least in the particular circumstances of that case, the merits was a matter to be taken into account in exercising the discretion (together of course with the "great weight" which had to be attached to the policy reflected in s 201).

Mackey 44 It is convenient to deal next with the NSW Court of Appeal's decision in Mackey. The Commissioner successfully appealed against a decision of Yeldham J staying recovery proceedings pending the final determination of the taxpayer's objection, which had been referred to the board of review. 45 Moffit P noted that the assessment concerned "a contrived scheme to avoid tax". The taxpayer argued that he would suffer hardship if he was required to then pay the tax assessed because it was an unfavourable time to realise those assets or borrow money. Moffit P accepted, consistently with Australian Machinery, that great weight had to be given to s 201 and the policy embedded in it. His Honour was concerned that the obligation to give great weight to the policy might be diluted if the exercise of the discretion to grant a stay turned on the merits of an appeal. Moffit P stated at 287: The policy of s 201 is that when an assessment has been made, the Deputy Commissioner has a right to have the tax paid, despite the pendency of an appeal. While hardship to the taxpayer and the merits of the appeal are relevant matters, other considerations are involved including the Commissioner's right to have the tax assessed paid. The exercise of discretion may involve… some examination of the nature and basis of the liability on which the disputed tax has been assessed and the nature of the dispute. (Emphasis added.) Moffit P made clear that in a case where the taxpayer is involved in a contrived scheme to avoid tax, only in exceptional circumstances would a stay be granted. He accepted that the position was different if, in the ordinary course of business, a dispute arose concerning the liability of a taxpayer for tax. 46 Although Hutley and Glass JJA generally agreed with Moffit P's views, they placed different emphasis on particular matters, including the extent to which the merits of an appeal was a significant matter. Hutley JA stated at 289 that, having regard to the terms of s 201, the power to grant a stay "should be exercised with great caution and only under special circumstances". He added: The Commissioner starts off with rights under s 201 and the taxpayer is seeking on special bases to have a special discretion exercised in his favour. It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so. It is an open-ended discretion. 47 Hutley JA then identified two cases where he regarded it as "clear" that a Court should grant a stay. The first was the comparatively rare case where the Commissioner abuses his position, such as by assessing and endeavouring to recover tax in defiance of a decision of the High Court or other superior court. The second was where there was extreme personal hardship extending beyond the hardship created by the obligation itself to pay tax. Hutley JA added at 289 that "speculation as to the result of appeals is not a significant factor to be borne in mind". He said that the Court "should be concerned only with the question of the impact of the assessment upon a particular person concerned and not what is going to happen in the future to the appeal". 48 Glass JA expressed agreement with both Moffit P and Hutley JA. In particular, he emphasised at 289-290 that it was a misconception to treat the Commissioner and taxpayer in proceedings for a stay as litigants who start on equal terms. While he accepted that the legislative direction in s 201 was "modified" by the courts' recognised power to stay proceedings, the Commissioner was in an advantageous position and "a weighty case" was required for a taxpayer to displace the Commissioner's favoured position.

Snow 49 Mackey is one of the cases analysed in some depth by French J in Snow. In our view, it is unnecessary to repeat his Honour's helpful analysis of all the relevant caselaw as at the end of 1986. We respectfully agree with the seven propositions set out by French J at page 139 which emerge from his Honour's analysis of the caselaw at that time and which were adopted and applied by Kenny J (those seven propositions are set out in [30(f)] above and were confirmed by French J in Deputy Commissioner of Taxation v Warrick (No 2) (2004) 56 ATR 371; [2004] FCA 918). 50 On the issue of the extent to which the merits of an undetermined objection or appeal are relevant, it might be noted that French J concluded in Snow that "at least some if not the preponderance of authority" supported the proposition that the merits may be taken into account in stay proceedings (at 141). But his Honour then immediately also acknowledged that the weight of the merits in the exercise of discretion "is attenuated by the fact that it is [the Commissioner's] assessment whose strength is in question" (at 141). Moreover, on the particular facts in Snow, French J held that while a serious question was raised as to the merits of the applicant's objections, they were insufficient to displace the legislative policy and other relevant factors bearing upon the discretion, which included the fact that the mere institution of recovery proceedings by the Commissioner does not itself determine rights or liabilities and also the "apparently contrived nature" of the arrangements made by the taxpayer to minimise his liability to pay income tax. Accordingly, even though French J was prepared to assume that there was "substance" in the taxpayer's objections, a stay order was refused having regard to the relevant competing considerations in the particular circumstances.

Cywinski 51 Two Victorian appellate decisions post-Snow and pre-Broadbeach are relevant. 52 The first is Cywinski. Cywinski involved an application to stay an execution of a judgment in the Commissioner's favour in respect of income tax and additional tax concerning six years of income. Notices of objection had been disallowed at the time when the Commissioner commenced proceedings to recover relevant amounts. Subsequently the taxpayer asked the Commissioner to refer his unsuccessful objections to the Federal Court by way of appeals against the disallowances. The appeals were scheduled to be heard in the Federal Court several months after the hearing of the stay application in the Victorian Supreme Court. The application was initially refused by the Master and an appeal to the Victorian Supreme Court was unsuccessful. On a further appeal to the Appeal Division the taxpayer argued that, on the uncontested facts below, the taxpayer's prospects of success were "good and substantial" and that the discretion had miscarried because of a failure to take that matter into consideration. 53 Kaye J (who gave the leading judgment) stated at 196 that "the taxpayer's prospects of success of an appeal against the tax assessed made in certain circumstances constitutes a relevant matter to be taken into account in the exercise of discretion on an application for a stay of execution", citing inter alia Mackey and Snow. His Honour observed that in some cases, on the basis of relevant material enabling some evaluation of the chance of success, it may be possible to conclude that a taxpayer's objection or appeal is "frivolous and hopeless, and therefore totally without merit", in which case the degree of merit of the appeal would be a determining factor (at 198). Alternatively, Kaye J acknowledged that it might be possible in a particular case to conclude that the disputed assessment was contrary to a High Court decision or unanimous decision of a board of review on facts which were indistinguishable from the particular case, in which case "the assessment would be manifestly wrong". In such a case, the taxpayer's objection or appeal would be bound to succeed. Kaye J described an assessment having been made "manifestly contrary to law" as constituting "the condition of a special circumstance" which would warrant the exercise of discretion to grant a stay (at 198). 54 His Honour then addressed what the more probable intermediate situation of an appeal or objection "being neither totally without merit nor incontestable because of demonstrated error of law in the making of the assessment". Such cases may be "arguable on the merits" but that of itself was insufficient to give rise to "special circumstances" so as to justify a stay. Kaye J was of the view that if the Court is unable to reach a view as to whether a taxpayer's case was strong or otherwise this resulted in the issue of merits having no significance in exercise of the discretion. 55 The appellant argued in Cywinski that the judge below had not addressed the appellant's prospects of success in the appeal and that, had he done so, he would have been satisfied on the basis of what was described as "the uncontradicted evidence" that the prospects were "good and substantial" and that that was a relevant consideration (at 199). 56 Kaye J did not accept that the evidence was "uncontradicted". Moreover, he emphasised that it was insufficient for the appellant's case to be no more than "arguable or strongly arguable". He added that, in circumstances where it was evident on the basis of the available material that both parties had "a substantially arguable case to present on the hearing of the appeal", an assessment of the appellant's prospects of success "would have necessitated his Honour resorting to speculation, an entirely unacceptable course" (at 201). Consequently, given the appellant's failure to establish his prospects of success of the appeal against the assessments, Kaye J considered that the discretion to refuse a stay had not miscarried. Kaye J concluded that the primary judge had considered the appellant's prospects of success and concluded that he was unable to form a view, on the material before him, as to whether or not the appeal would succeed. Kaye J found no error in an approach which reasoned that because the primary judge was unable on the basis of the material before him to form a view of the appellant's prospects of success in an appeal, the stay should not be granted.

Trade World 57 The second relevant Victorian appellate decision is that of the Court of Appeal in Trade World. 58 Trade World involved an application for summary judgment by the Commissioner, at which time the taxpayer also sought a stay. There were concurrent criminal proceedings against a director of the taxpayer company for failure to pay customs and excise duty. The taxpayer sought an adjournment or stay of the proceedings for summary judgment pending the hearing and determination of the criminal proceedings. The application was initially refused by the Master and an appeal to the Supreme Court was unsuccessful. In related proceedings in the Victorian Civil and Administrative Tribunal (VCAT) involving a review of the assessments which related to superannuation charges, PAYG withholding amounts, assessed goods and services tax (GST), non-filing of business activity statements and administrative overpayments from input tax credits, the VCAT granted a stay pending the conclusion of the committal proceedings (which stay was later extended with the Commissioner's consent to the conclusion of the criminal trial). The taxpayer sought an extension of time for leave to appeal against the summary judgment. The application was refused by the Court of Appeal. The primary judgment was given by Chernov JA. On the question whether there should be a stay of the execution of the summary judgment pending the resolution of the review process in the VCAT, Chernov JA held that any such application should be made in the Practice Court of the Supreme Court, supported by relevant evidence, including evidence "going at least some distance to showing that Trade World's claim at the Tribunal has some merit, and other circumstances that would make it appropriate to grant a stay of the execution of the judgment" (at [16]). 59 In circumstances where no such sufficient material was placed before the Court of Appeal to enable the matter to be assessed on the merits (even if that Court was minded to do so), Chernov JA held that it would be inappropriate for that Court to consider if the summary judgment should be stayed. Nettle and Redlich JJA both agreed. Nettle JA made some additional observations at [19]-[26] bearing upon the issue of the relevance of the merits of an appeal in considering whether or not to grant a stay. Those observations may be summarised as follows: (a) as the High Court stated in Clyne v Deputy Commissioner of Taxation (NSW) (1983) 48 ALR 545 at 547, the legislative scheme concerning tax recovery "reflects a clear policy in favour of the Revenue against the taxpayer" and the Commissioner has been placed by the legislation in "a position of special advantage" and thus "in general is free to pursue recovery proceedings, despite outstanding appeals and reviews against the disallowance of objections"; (b) that does not deny, however, a court's jurisdiction to stay recovery proceedings pending review of a disallowance of objection against assessment, but the policy of the legislation, as reflected in a provision such as s 14ZZM is a matter to which "great weight must be attached"; (c) while hardship to the taxpayer and the merits of an appeal or review are relevant matters, other matters must be taken into account, including the Commissioner's right to have tax assessed paid. Similarly, where contrivance to avoid tax liability is involved, a stay would only be granted in the most exceptional circumstances; (d) Cywinksi is consistent with Mackey and Kaye J's analysis of the different circumstances in which the degree of the merits of an appeal or review may be relevant should be adopted. It was also noted that different considerations might apply in winding up proceedings. In such cases, in general, a debtor's estate should not be sequestrated or a company wound up for insolvency where there is on foot an appeal pending against the judgment which is the foundation of the bankruptcy proceedings as long as the appeal is based on genuine and arguable grounds; and (e) having regard to the principles which govern the stay of proceedings and execution pending appeal or review, it is a matter for the taxpayer to consider whether it can adduce sufficient material to warrant a stay. Accordingly, fairness dictated that the taxpayer in Trade World have that opportunity and, if appropriate, make an application to a judge at first instance seeking a fresh stay.

Broadbeach 60 Having regard to the significance given to Broadbeach by the primary judge, it is appropriate if we spend a little time analysing that decision and its implications for the primary issues in the appeal. 61 In Broadbeach, the Commissioner issued statutory demands to three related companies concerning unpaid income tax and unpaid running balance account deficit debts, primarily for GST, interest and penalties. Notices of assessment were served. Following the disallowance of their objections by the Commissioner, each of the three companies commenced review proceedings in the AAT. Each company also sought to have the statutory demands set aside in the Supreme Court of Queensland. The Commissioner conceded that, for the purpose of proceedings to have the statutory demands set aside, each of the companies had an arguable case in its Part IVC proceedings but argued that the "conclusive evidence" provisions in taxation legislation precluded the Supreme Court from setting aside the statutory demands on the basis that there existed "a genuine dispute" within the meaning of s 459H(1)(a) of the Corporations Act. The Commissioner also argued that the companies could not avail themselves of s 459J of the Corporations Act because, in the circumstances, the companies had to show more than the existence of pending Part IVC proceedings which had arguable merits. The AAT review proceedings were still pending when the primary judge rejected the Commissioner's arguments and determined that the statutory demands should be set aside. Appeals by the Commissioner to the Queensland Court of Appeal were dismissed. 62 The Commissioner's appeals to the High Court were upheld on the following two primary grounds. First, the High Court held that both the primary judge and the Court of Appeal erred in proceeding on the basis that the existence of extant proceedings under Part IVC of the TAA gave rise to a "genuine dispute" as to the amount or existence of the relevant taxation debts for the purposes of s 459H(1)(a) of the Corporations Act. Secondly, it also held that the primary judge's discretion had miscarried in setting aside the statutory demand under s 459J(1)(b) of the Corporations Act (i.e. "for some other reason") because he had failed to take into account the material consideration of the legislative policy manifested in ss 14ZZM and 14ZZR of the TAA regarding recovery of tax debts in spite of the pendency of Part IVC proceedings (the effect of those provisions is described in [12] and [13] above). 63 The first of those findings was based in large measure on the "conclusive evidence" provisions in taxation legislation, which have the effect of establishing conclusively (except in Part IVC proceedings) that the amount and all the particulars in a notice of assessment produced by the Commissioner are correct (those conclusive evidence provisions are s 177 of the ITAA for income tax; s 105-100 in Schedule 1 of the TAA for GST assessments and declarations and s 298-30 in Schedule 1 of the TAA for administrative penalties, including tax shortfall penalties). 64 In substance, the High Court reasoned that there was no scope to argue that there was a "genuine dispute" as to the amount or existence of a debt in s 459G proceedings to set aside a statutory demand where a notice of assessment attracting those conclusive evidence provisions has been tendered by the Commissioner in those proceedings. The claimed existence of a genuine dispute as a basis for setting aside the statutory demand is simply untenable in those circumstances because it flies in the face of the conclusive evidence provisions which operate to deem that the amount and all the particulars in a notice of assessment are correct (except in Part IVC proceedings). 65 The second of the High Court's findings was largely based on the need to take account of the legislative policy manifested is ss 14ZZM and 14ZZR of the TAA concerning the Commissioner's right to recover tax debts despite the pendency of Part IVC proceedings. Those provisions have the effect of not impeding the Commissioner from recovering a tax debt even though review or appeal proceedings are pending. The High Court disagreed with the Court of Appeal and held that the primary judge's discretion to set aside a statutory demand under s 459J(1)(b) of the Corporations Act on the basis of existence of "some other reason" for setting aside a statutory demand had to take into account as a material consideration the legislative policy encapsulated in those provisions.

Consideration 66 As noted above Perram J considered that the High Court's decision in Broadbeach required him to ignore altogether the fact the appeal proceedings were pending in the Federal Court, with the necessary consequence that the merits of those proceedings were entirely irrelevant to the question whether there should be a stay of execution of the judgment debts. 67 For the following reasons, we consider that his Honour overstated the effect of Broadbeach. 68 The first point to note about Broadbeach is that it arose in a different statutory and factual context. As the plurality observed at [3], the issues in the appeal to the High Court concerned "the interaction between two statutory regimes established by federal law". The first regime concerned the winding up of companies in insolvency in Part 5.4 of the Corporations Act. The second regime concerned the assessment and collection of income tax and GST under various taxation legislation. It goes without saying that the first regime has no relevance to this appeal. We consider that Broadbeach should be viewed in its immediate context, which pertains to the setting aside the statutory demand under the Corporations Act. That is the approach to Broadbeach taken by the Court of Appeal of Queensland in Denlay, with which we agree. As Chestermann JA observed in Denlay at [26], in considering the relevance of Broadbeach to an application for a stay of a judgment debt: [Broadbeach] is not directly relevant. It did not concern an application for a stay of execution of judgment pursuant to a tax assessment pending the hearing of an appeal against the assessment. Rather it was concerned with whether the court could set aside a statutory demand for payment pursuant to s 459G of the Corporations Act 2001 (Cth) on the ground that the debt, outstanding tax, due upon an assessment, was disputed because of the existence of an appeal. Gummow A-CJ, Heydon, Crennan and Kiefel JJ held that by virtue of the provisions of the ITAA 1936 and the TAA, in particular s 14ZZR of the latter Act, the debts were not disputed. 69 The second notable point about Broadbeach is that, in contrast to the appeal here, no issue was raised in those proceedings regarding the courts' powers to stay recovery proceedings in circumstances where a Part IVC review or appeal is on foot. The existence of the courts' jurisdiction to stay taxation recovery proceedings in appropriate circumstances is well established and is reflected in decisions such as Australian Machinery. There is nothing in Broadbeach to indicate that the High Court now considers that that jurisdiction has been entirely displaced by any provisions in taxation legislation. Nor does Broadbeach deny the potential relevance of the merits of pending Part IVC proceedings as constituting a material consideration to be taken into account in an appropriate case in exercising that jurisdiction. 70 Different considerations arise in respect of provisions of the Corporations Act conferring jurisdiction on courts to set aside a statutory demand. As the High Court found in Broadbeach, those provisions in the Corporations Act had been drafted with an eye to relevant provisions of taxation legislation (such as ss 14ZZM and 14ZZR and their antecedent s 201 of the ITAA). The plurality made the following observations at [49] about the inter-relationship between those competing provisions in the Corporations Act and taxation legislation: It is true that s 459G provides for curial decisions to set aside statutory demands and that grants of jurisdiction to superior courts such as the Federal Court and the Supreme Courts are not to be construed with limitations without sufficient reason to do so. The many authorities to this effect were collected by Kirby J in Aussie Vic Plant Hire. But the provisions of the taxation legislation, with an eye to which the statutory demand provisions clearly were drawn, and in particular, the antecedents in what was s 201 of the Assessment Act and now s 14ZZM (as to pending AAT reviews) and s 14ZZR (as to pending Federal Court "appeals"), supply sufficient reason for construing the statutory demand provisions as the Commissioner contends. (Citations omitted.) The reference in that passage to the statutory demand provisions having clearly been drawn with an eye to provisions of the taxation legislation is a reference to s 459E(5) of the Corporations Act, which refers to demands relating to income tax liability, leaving no doubt that the provisions of the Corporations Act were drafted so as to operate in conjunction with the relevant provisions of taxation legislation and not side-step or displace them. 71 This appeal raises a different issue from that which was considered and determined in Broadbeach. The issue here is whether provisions in taxation legislation such as ss 14ZZM and 14ZZR, together with the "conclusive evidence provisions", preclude the courts from taking into account the merits of pending proceedings under Part IVC in determining whether or not to stay the execution of a judgment debt. In our view there is nothing in Broadbeach to suggest that the approach taken to that issue in cases such as Australian Machinery, Snow, Cywinski and Trade World is no longer valid. On the contrary, in our view, those decisions accurately state the relevant principles to be applied. 72 There is one other aspect of Broadbeach which should be noted. The High Court made reference in [13] to the Commissioner having made "an important concession". The concession was described in the following terms at [13]: This was that upon the hearing of such winding up applications the court might properly have regard to whether the taxpayer had a "reasonably arguable" case in proceedings under Pt IVC of the Administration Act, if those proceedings then still be on foot: questions of the kind canvassed in General Steel Industries Inc v Commissioner for Railways (NSW) might arise. (Citations omitted.) In other words, the Commissioner, while denying the relevance of the merits of Part IVC proceedings in an application to set aside a statutory demand, accepted that the merits of Part IVC proceedings were a relevant consideration to the exercise of the subsequent discretion whether or not to make a winding up order against a company in insolvency. The Commissioner made a similar concession in Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Limited (2012) 127 ALD 64; [2012] FCA 363. In determining there not to make a winding up order, Robertson J took into account as a relevant consideration his finding that the company had a "reasonably arguable" case in Part IVC proceedings (see at [48]). 73 In our view, the High Court's acceptance of the Commissioner's concession necessarily means that the High Court did not intend in Broadbeach to formulate an absolute rule which requires the merits of Part IVC proceedings to be disregarded in any case where a court is asked to exercise a discretionary power which could have some impact upon the Commissioner's recovery of a taxation debt. 74 As noted above, the Commissioner argued before us that the merits of a Part IVC appeal or review were material considerations in the exercise of the discretion to grant a stay where the Court is able to form an opinion, without speculating, that the appeal or review is certain to either succeed or fail. Moreover, the Commissioner argued that the primary judge had taken a similar view, as reflected in his adoption of Denlay and the Court of Appeal's approval there of Nathan J's statement in Akers. 75 In our view, the first of the Commissioner's arguments expresses the matter too rigidly. While something more than an "arguable" case will need to be demonstrated, we do not consider that certainty of outcome is always required. Ultimately the issue goes to weight. As to the second of the Commissioner's arguments, we consider that, when the primary judge's reasons for judgment are read as a whole, it is evident that, despite what his Honour said about both Denlay and Akers, his Honour regarded himself as bound by Broadbeach to, in effect, ignore the Part IVC appeal. This necessarily meant that his Honour regarded himself as being disabled from considering the merits of those appeals, as is made clear in both [30] and [51] of his reasons for judgment. And while it is true that the primary judge gave a very brief description of what the appeals were about and identified what he saw as the two main issues, his Honour made no attempt to determine whether there was sufficient material before him to enable him to assess the merits of those appeals, let alone actually make a determination as to their merits. His Honour made clear that he considered himself as bound by Broadbeach to follow that course. 76 For the reasons we have given above, we consider that the primary judge's discretion miscarried because of the view taken as to the breadth of application of Broadbeach. 77 It is appropriate if we say something further regarding the criteria which may apply in determining whether or not execution of a judgment debt should be stayed. We agree with the observations of Hutley JA in Mackey at 289 that the discretion to grant a stay of the execution of a judgment debt based upon a taxation assessment involves "an open-ended discretion" and that it "is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so". Bearing in mind those salutary words and without wishing to be prescriptive or exhaustive, we consider that it is possible, however, to extract from the caselaw the following general principles which guide the exercise of that discretion: (a) the power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances; (b) great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a Part IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of Part IVC proceedings; (c) the merits of pending Part IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation; (d) in cases where a judge is unable to form even a tentative view of the strength of Part IVC proceedings, it is unlikely that the judge's discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer's prospects of success in having the assessment overturned; (e) it is too narrow a view of the discretion to grant a stay of proceedings or execution merely because Part IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the Court; (f) that is not to say, however, that the outcome of Part IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high; (g) in cases where the Court considers that it is in a position to assess the merits of pending Part IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case; (h) similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point; (i) due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that: (i) the mere obligation to pay income tax of itself does not impose extreme hardship; and (ii) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant Part IVC proceedings; (j) irrespective of the merits of pending Part IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and (k) other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of Part IVC proceedings.

Taxpayer's hardship or prejudice 78 Derrin argued that if we found that the primary judge had erred in reading Broadbeach as requiring him to ignore altogether Derrin's Part IVC proceedings, including in respect of the hardship or prejudice which Derrin said it would suffer in the circumstances summarised in [15(g)] above, the Full Court should itself grant Derrin a stay. That argument was predicated upon the primary judge's statement in [51] of his reasons for judgment that, absent s 14ZZR, he would have granted a stay because of the "injustice" caused to Derrin if it succeeded in its Part IVC appeal and yet was out of pocket if the share market had recovered and all it would receive from the Commissioner was the market value of its shares sold by the Commissioner at an earlier time. 79 Notwithstanding our conclusion that the primary judge misstated the effect of Broadbeach, we consider that the appropriate course is not for us to determine whether a stay should be granted, but rather remit Derrin's stay application for reconsideration. Our reasons for that view are as follows. 80 First, the weight to be attached to the particular category of prejudice or hardship relied on by Derrin cannot be determined in isolation from a range of other potentially relevant factors which should also be assessed by a judge at first instance, including the merits of Derrin's Part IVC proceedings (assuming that there will be sufficient material upon which such an assessment can be made). Moreover, even if those merits can and are assessed, they will need to be balanced with other relevant considerations bearing upon the Court's discretion to grant a stay, including "the great weight" which has to be given to the legislative policy which accords priority to the recovery of taxation debts notwithstanding the existence of Part IVC proceedings. 81 Secondly, we consider that these are matters which cannot and should not be determined in the appeal. Rather, they should be determined at first instance in the light of all relevant material bearing upon the application, as well as a correct understanding of the effect of Broadbeach. It may well be that the parties will seek to supplement the evidence relating to Derrin's application for a stay, consistently with the comments of Nettle JA in Trade World at [26], with which we respectfully agree.

Commissioner's notice of contention 82 During the course of the hearing of the appeal, the Commissioner was granted leave to file a notice of contention seeking to have the primary judge's decision affirmed on the basis that there was no extreme hardship or prejudice to Derrin warranting a stay of enforcement in circumstances where: (a) the judgment debt was to be enforced against Derrin's business assets; (b) there was no evidence that such enforcement would prevent Derrin from prosecuting its Part IVC application; (c) if Derrin is successful in its Part IVC application, it would be entitled to a reassessment of the tax, and reimbursement with interest on any sums overpaid; and/or (d) Derrin could have sold assets the subject of the freezing orders to pay the tax at the time of assessment or judgment, or pay it from other sources, but chose not to do so. 83 The Commissioner's notice of contention responded to Derrin's argument, as outlined above, to the effect that if we found that the primary judge erred in his reading of Broadbeach and its effect upon s 14ZZR, we should grant Derrin a stay having regard to what the primary judge said in [51] of his reasons for judgment. 84 We have set out above why we do not accept Derrin's argument. Derrin's application for a stay will be remitted for reconsideration. It will be a matter for the primary judge to determine whether the prejudice or hardship described by Derrin warrants a stay being granted in the light of all relevant principles, including the need to give "great weight" to the legislative policy and, possibly, the merits of Derrin's Part IVC appeal. It will be open to the Commissioner to raise with the primary judge on the reconsideration the relevance of, and weight to be attached to, the various matters in his notice of contention and how they are to be evaluated along with other relevant considerations bearing upon Derrin's stay application. In those circumstances, we consider that the notice of contention should be dismissed.

Relief 85 In view of our conclusion that the primary judge's discretion miscarried and our rejection of Derrin's argument that we should grant a stay, the issue arises as to what relief should be granted. Both parties agree that, in these circumstances, it is appropriate to remit Derrin's application for a stay. The Commissioner submits that the application should be remitted to Perram J. While not directly opposing that course, Derrin argues that the preferable course is to remit the application to another judge in circumstances where Perram J is scheduled to hear the substantive Part IVC appeals later this year. That is because, in Derrin's submission, there is a risk of apprehended bias if his Honour has to make findings about the merits of Derrin's appeal in advance of the substantive hearing later in the year. That risk relates to prejudgment. 86 In our view the matter should be remitted to Perram J because: (a) his Honour has a strong familiarity with the proceedings, having already delivered several interlocutory decisions, including but not limited to the question whether the judgment debts should be stayed; (b) it is far from clear that reconsideration of Derrin's stay application by Perram J might create an apprehension of bias on his Honour's part. Much will depend on the nature of the material and arguments which his Honour will be asked to consider and rule upon in respect of that application. If Derrin argues again that its appeal is bound to succeed because it is on all fours with Esquire Nominees, his Honour will no doubt pay close attention to the question whether he is in a position to assess that argument in circumstances where it is well established that the question as to where a company is resident "is one of fact and degree" (see Esquire Nominees at 190 per Gibbs J). It may well be, for example, that his Honour considers that the material is inadequate to enable him to express any view at the interlocutory stage on the merits of Derrin's appeal, having regard to what was said on that topic in Cywinski and Trade World. In that event, no issue of prejudgment could arise. On the other hand, even if his Honour considers that he is able to carry out such an assessment and express such a view, that view will necessarily reflect the material and arguments advanced at that interlocutory stage, which are likely to differ from those presented at the final stage. As noted above, the evidence in the substantive appeal had not closed when his Honour determined the stay applications which gave rise to the appeals to the Full Court; (c) under the Court's docket system, any judge of the Court hearing an interlocutory application has to be mindful of the risk of apprehended bias arising from the determination of such applications prior to the hearing and determination of the main proceedings. We consider that Perram J is best placed to assess whether or not there is a risk of apprehended bias having regard to all the relevant circumstances, including all the material and arguments before him in support of the stay application; and (d) those relevant circumstances may include whether or not his Honour will be asked to rule on the credit of any witnesses in the interlocutory proceeding. We raise this matter because the Commissioner flagged that issues of credit would arise if Derrin sought to rely upon the evidence of one of its directors who previously filed an affidavit in support of its application. We are not in a position to assess whether this presents a difficulty for Perram J hearing the remitted interlocutory application because it is unclear whether Derrin will rely upon any evidence by that director. Perram J is best placed to deal with the matter when the nature and full extent of the applicant's evidence in support of its stay application and the Commissioner's attitude thereto is known.

Conclusion and orders 87 For the reasons given above, we consider that Derrin should be granted leave to appeal and its appeal upheld. Order 4 made by Perram J on 26 June 2012 should be set aside insofar as it relates to Derrin's application for a stay. Noting that his Honour made no order for costs below and also that Derrin does not seek any order for costs in respect of its application for leave to appeal or the appeal, we make no order as to costs. Finally, Derrin's application for a stay of Kenny J's judgment dated 25 November 2010 should be remitted to Perram J for reconsideration. I certify that the preceding eighty-seven (87) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices McKerracher, Jagot & Griffiths.