Spassked Pty Ltd v Commissioner of Taxation - [2007] FCAFC 205 - FCAFC 2007 case summary — Zoe

Spassked Pty Ltd v Commissioner of Taxation - [2007] FCAFC 205 - FCAFC 2007 case summary — Zoe

[33]

Introduction 4 These are appeals from a judge of this Court summarily dismissing applications by the appellants by way of appeals against the respondent's ("the Commissioner's") objection decisions in relation to the income tax assessment of Spassked Pty Limited ("Spassked") for the year ended 30 June 1994, the income tax assessments of IEL Finance Limited ("IEF") for the years ended 30 June 1993 and 1996 and the income tax assessment of Queensland Trading & Holding Company Limited ("QTH") for the year ended 30 June 1991. The judgment of the primary judge is reported: (2006) 234 ALR 541; (2006) 62 ATR 165. 5 In respect of each of the applications by way of appeal against the objection decisions referred to above ('the objection appeals'), Spassked, IEF and QTH had filed amended Statements of Facts Issues and Contentions, as had the Commissioner. In each of those objection appeals, the Commissioner filed an amended Notice of Motion seeking that the relevant application be dismissed or stayed generally in relation to named paragraphs of the respective applicant's Amended Statement of Facts, Issues and Contentions, on the grounds that the proceeding in relation to those paragraphs was an abuse of process of the Court and/or the proceeding in relation to those paragraphs was frivolous or vexatious. The Notices of Motion were clearly based on the power for summary dismissal pursuant to O 20 of the Rules of the Federal Court. 6 In each of the objection appeals, the primary judge made orders on 29 September 2006, striking out the paragraphs of the respective applicant's amended Statement of Facts, Issues and Contentions which the Commissioner's Notice of Motion had sought to be struck out; dismissed the respective applicant's appeal against the respondent's taxation objection decision as so far as it related to the assessment of the applicants' taxable income for the relevant tax year, and further ordered that the respective applicants pay the respondent's costs of the motion, and of the application to date. 7 The case for the Commissioner on the motions seeking summary dismissal of the objection appeals depended on his making good his assertion that: "… the deductibility incurred by Spassked on its IEF borrowings for each of the fiscal years 1988-1994 was resolved and determined against Spassked and in favour of the Commissioner in the earlier concluded Spassked proceedings [Spassked Pty Ltd v FCT (2003) 197 ALR 553 and on appeal Spassked Pty Ltd v FCT (2003) 136 FCR 441] and accordingly the taxpayer applicants were seeking impermissibly to relitigate that issue." (Emphasis added). 8 In each of the appeals to this Court, the respective appellant seeks the following orders: "1. The appeal be allowed. 2. Orders 1, 2 and 3 made on 29 September 2006 pursuant to the reasons for judgment of 21 March 2006, be set aside. 3. The Respondent's amended notice of motion dated 25 July 2005 be dismissed with costs. 4. The Respondent pay the Appellant's costs in relation to this appeal." 9 The appellants' appeals were summarily dismissed on three alternative grounds outlined below, although the primary judge in his reasons (at [126]) indicated that abuse of process was the primary ground: (1) Abuse of process on the part of the appellants "… within the principles enunciated in Walton [Walton v Gardiner (1993) 177 CLR 378], and more recently restated comprehensively in Spalla [Spalla v St George Motor Finance Ltd (No. 6) [2004] FCA 1699] …" (at [103]) in seeking to pursue what "… constitutes and involves in substance and reality an endeavour to re-litigate issues and disputes which have already been addressed and resolved by this Court in and by the findings made on the earlier concluded Spassked proceedings, at first instance and on appeal" (at [126]). (2) Issue estoppel: This was articulated by the primary judge at [115] of his reasons in the following way: "[W]hat arose as the central issue in the earlier concluded Spassked proceedings, and in relation to which the general body of evidentiary material was directed, was the nature and extent of Spassked's business operations and activities for the six fiscal years 1988 to 1994, albeit in order to determine the implications of those operations and activities to the 1992 fiscal year. The business operations of Spassked from 1 July 1991 to 30 June 1992 did not of course occur in a business vacuum in any operational sense, but in the wider context of continuing business activities undertaken over at least those six fiscal years inclusive of the 1992 fiscal year. In those circumstances I would characterise as the issue in substance and reality arising, in relation to which the earlier Spassked proceedings were conducted, as related to and bearing upon the scope of those fiscal years inclusive at least of the 1992 fiscal year. The description of Dixon J in Blair v Curran accommodates the resolution of that issue in favour of the Commissioner, for the reasons I have already outlined." (3) Anshun estoppel - so called in reliance on the well-known passage in the joint judgment of Gibbs CJ, Mason and Aicken JJ in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 602 - 603: "… there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings eg expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few." 10 While it is not entirely clear, the primary judge seems to have found that Anshun estoppel was established on two bases: First, in the following passage from [114] of his reasons: "The Commissioner has a viable basis for the case articulated to the effect that at issue in the earlier concluded Spasskedproceedings, both at first instance and on appeal, was whether '… the occasion of each outgoing of interest was to be found in those shares being deliberately non-income producing for the foreseeable future', that articulation being related to the six fiscal years from 1988 to 1994. Once that finding is open and should be made, so much operates to impute relevantly at least an Anshun estoppel in favour of the Commissioner …" A second basis may be discerned from what his Honour says at [116] of his reasons: "The conclusion of the Federal Court in the earlier Spassked proceedings, ultimately in relation to the 1992 fiscal year, was formulated in a context of findings wherein it would have been unreasonable not to rely on(to adopt the Anshun expression) the evidence related to the six yearly period of time measured by the evidence adduced in the context of those proceedings, and duly accepted by the primary judge and the Full Court."

[35]

The Earlier Proceedings 12 The earlier proceedings (at first instance (Lindgren J) reported at (2003) 197 ALR 553; on appeal reported at (2003) 136 FCR 441), involved three companies in the IEL Group - Spassked, Stanley Park Limited ("SPL") and Industrial Equity Ltd ("IEL"). Putting to one side the second ground on which the Commissioner sought to defend the assessments underlying the objection decisions under review, namely Part IVA, and accepting that the ultimate issue in every tax case is whether the challenged assessment is excessive in the sense that the taxpayer carries the onus to show that it is excessive (s 14ZZO(b)(i) of the Taxation Administration Act 1953 (Cth)), the ultimate substantive issue was whether Spassked was entitled to an allowable deduction from its assessable income in the year of income ended 30 June 1992 under s 51(1) of the Income Tax Assessment Act 1936 (Cth) ("ITAA 1936") for interest in the sum of $888,165,526 incurred on amounts lent by IEF to Spassked in ten tranches over the period 30 December 1987 to 28 June 1990. (As Lindgren J observed, at [6], the issues which arose in the SPL and IEL proceedings were consequential to those in the Spassked proceeding.) At [245] his Honour concluded on the ultimate substantive issue in the following terms: "Spassked's interest expense of $888,165,526 paid to IEF in respect of the year of income ended 30 June 1992 was not a loss or outgoing incurred in gaining or producing assessable (dividend) income from GIH, or necessarily incurred in carrying on a business for the purpose of gaining or producing such income." And at [247] his Honour said: "…the sum of $888,165,526 was not an allowable deduction and the purported losses founded upon its deductibility transferred by Spassked to SPL and IEL were not available to be so transferred." 13 I have been unable to identify in the reasons of Lindgren J any indication that his Honour was determining, or thought he was determining, the same issue - the deductibility of interest incurred by Spassked on amounts lent by IEF to Spassked in ten tranches over the period 30 December 1987 to 28 June 1990 - in respect of other years of income; not surprising because the Court was determining whether Spassked was entitled to an allowable deduction in the year of income ended 30 June 1992 for interest, and for that year of income only. 14 However, the Commissioner submitted that in the earlier proceedings, Spassked and the other applicants presented their case on the basis that the resolution of the proceedings would determine the deductibility of the interest incurred by Spassked on the IEF loans for each of the 1988 to 1994 years of income. Spassked, it was submitted, sought findings that the whole of the interest incurred was incurred by it in gaining or producing assessable income or was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. 15 In his written submissions, the Commissioner points to the following paragraphs in Spassked's Statement of Facts Issues and Contentions filed in the earlier proceedings: "11. During the period 1 December 1987 to 30 June 1992, interest expense was incurred by Spassked and accrued due to IEF on the borrowed amounts outstanding. These interest expenses were capitalised and debited in the books of IEF (and, conversely credited in the books of Spassked) to the loan account, thereafter themselves attracting further interest. 12. In the period from 1 July 1987 to 30 June 1994 (the 'Period') the following total amounts of interest were capitalised in the books of account: Year ended Interest ($) 30 June 1988 113,184,428 30 June 1989 293,220,636 30 June 1990 658,487,229 30 June 1991 774,746,526 30 June 1992 888,165,526 30 June 1993 465,626,741 30 June 1994 79,284,023 __________ Total 3,272,715,109 13. The interest expenses incurred by Spassked during the Period were incurred for the purpose of furthering its present and prospective income producing activities, being the acquisition and holding of shares in GIH in respect of which Spassked has received and anticipates receiving in the future substantial assessable income in the form of dividends. 14. The interest expenses incurred by Spassked and claimed as an allowable deduction in each of the years of income during the Period were returned by IEF as assessable income in the same years of income and treated as such by the respondent." Such statements were also filed by SPL and IEL with similar paragraphs. 16 Paragraph 13 set out in [15] above, encapsulates the argument by Spassked in the proceedings before Lindgren J: namely, the interest expense incurred during the 'Period' has the requisite s 51(1) purpose and therefore the interest in the 1992 tax year was deductible. But these paragraphs do not raise the deductibility of the interest incurred in the other years of income to the level of an ultimate substantive issue to be determined by his Honour in the proceedings before him. 17 The Commissioner also placed reliance on two passages from the reasons of Lindgren J at [2] and [193]: [2] As explained below, three amounts totalling $932,667,411 were claimed by the three applicants as allowable deductions against their assessable incomes for that year. But I was informed that similar circumstances also prevailed in each of the 6 years ended 30 June 1988, 1989, 1990, 1991, 1993 and 1994. Apparently the total amount of the deductions claimed in respect of all seven years by all companies which the Commissioner has disallowed and which involve the issues that arise for decision in these proceedings, is $6,527,082,709. … [193] … The parties proceeded on the basis that no distinction was to be drawn between Spassked's various borrowings from IEF and investments in GIH, or between the various investments by GIH in the Subcos, all over the years 1988-90, or between the seven annual amounts of capitalised interest for the years 1988-94 listed in [107] above. Accordingly, I need not distinguish between the various sums borrowed on which the interest accrued, or between the uses to which those sums were put." (Emphasis added) I take the reference to "similar circumstances" to be simply a reference to the fact that the applicants claimed similar allowable deductions in each of the six years referred to. The first sentence of [193] can be read as being referable to the year of income ended 30 June 1992, with the conclusion in the second sentence being that in respect of that year of income there was no need to distinguish between the various sums borrowed on which the interest accrued in that year, or between the uses to which those sums were put.

[36]

Analysis of Earlier Proceedings 18 In [19] to [26] below, I have set out my analysis of the earlier proceedings, both at first instance and on appeal to the Full Court. 19 Spassked (and SPL and IEL) put its case, in relation to the 1992 year of income, on the basis that the interest Spassked incurred on the IEF loans were outgoings incurred in gaining or producing assessable income or were outgoings necessarily incurred in carrying on a business for the purpose of producing such income under s 51(1) of the ITAA 1936 in all relevant years of income - the years ended 30 June 1988 to 1994 inclusive - and therefore in the 1992 year of income. 20 That Spassked put its case on this basis is perhaps best exemplified by the terms of its written submissions in the Full Court: "2. At issue in the appeal is whether a deduction is allowable to Spassked under Section 51(1) of the Income Tax Assessment Act 1936 ('the 1936 Act') for interest incurred by it to IEF in the years of income ended 30 June 1988 to 1994." 21 Lindgren J accepted ([193] and [200]), and the Full Court acknowledged ([77]), that both parties put their cases on the premise that the relevant time or period in which to determine the expectation or purpose of Spassked in its role as a "dividend trap" and repository of "transferable losses" was the period over which the funds were borrowed: from 30 December 1987 to 28 June 1990 ([100]), and that there was no relevant change of circumstances, including a change in the motivation or the subjective purpose of the directors of Spassked, throughout that period ([194]). 22 Lindgren J's conclusions are summarised at [237] to [245]. At [245] his Honour expressed his conclusion as indicated in [12] above. 23 There is no suggestion that his Honour was determining the same issue in earlier or subsequent years of income. 24 In the Full Court, while the appeal was confined to Lindgren J's determination in respect of the 1992 year of income, Hill and Lander JJ in their joint judgment expressed themselves at [110], [111] and [113] more generally. At [110] their Honours said: "The evidence of these two witnesses [Messrs Daniels and Cottam] leads clearly to the conclusion that the interest incurred was not, in any year of income, incurred in gaining or producing assessable income …" (Emphasis added) And at [113] their Honours said: "… the proposal was designed to ensure and its implementation did ensure that at no relevant time could it be said that Spassked incurred in the years of income interest on moneys used by it to acquire shares in the course of any activity carried on by it in the course of gaining or producing assessable income." (Emphasis added) 25 This was really no more than responding in the same terms to the way in which Spassked put its case as outlined in [18] above. However, these conclusions have to be read subject to the caveat which their Honours were at pains to make at [77] of their reasons: "One final matter should be here referred to. Income tax is an annual tax. Hence the question whether interest was incurred in gaining or producing assessable income or in carrying on a business the purpose of which was the gaining of assessable income is a question which is required to be determined from year to year. The present case was argued and determined by the learned primary judge on the basis that the relevant facts were those which existed at the time the Spassked proposal was implemented. It seems to have been common ground between the parties that there was no relevant factual change in any relevant year of income. We are content to adopt the same course while noting that had there been a relevant factual change so that Spassked would no longer be precluded from deriving assessable income indefinitely the outcome would then be different." 26 My view is that when their Honours refer to the "… common ground between the parties that there were no relevant factual changes in any relevant year of income", they are referring to what was said by Lindgren J at [194] of his reasons, namely, that there was no relevant factual change "throughout the three years of income in which the borrowings were made and the borrowed amounts invested in GIH"; they were the years of income ended 30 June 1988, 1989 and 1990. Even if I am wrong in that view, the case the appellants want to run now is not the case they ran before Lindgren J.

[37]

The current Proceedings 27 As indicated in [4] above, the current proceedings concern the 1991 year of income (QTH), the 1993 and 1996 years of income (IEF) and the 1994 year of income (Spassked). However, as in the earlier proceedings for SPL and IEL, the QTH and IEF proceedings are consequential to the proceedings involving Spassked in the relevant year of income. In the case of QTH, it involves the transfer of a loss in the sum of $26,311,177 said to be incurred by Spassked in the year ended 30 June 1991 in respect of interest incurred on the IEF loans in that year; in the case of IEF for the year ended 30 June 1993 it involves the transfer of a loss in the sum of $7,208,674 said to be incurred by Spassked in the same year in respect of interest incurred on the IEF loans in that year; and in the case of IEF for the year ended 30 June 1996 it involves the transfer of a loss in the sum of $6,040,163 said to be incurred by Spassked in the years ended 30 June 1993 and 1994 in respect of interest incurred on the IEF loans in those years. 28 In the case of the 1994 year of income for Spassked, it seems from that company's amended statement of facts, issues and contentions that the claimed deductions for the year of income ended 30 June 1994 were: (1) $79,284,023 representing interest incurred by Spassked on the IEF loans in that year of income; (2) $465,626,741 representing a carry forward loss for the year ended 30 June 1993 in respect of interest incurred by Spassked on the IEF loans in that year; (3) $3,265,263 representing a carry forward loss for the year ended 30 June 1992: see [19(c)] of Spassked's amended statement of facts, issues and contentions. It is not clear whether this loss is in respect of interest incurred by Spassked on the IEF loans in that year or some earlier year. However, if it is in respect of interest incurred by Spassked on the IEF loans in the year ended 30 June 1992, the earlier proceedings have definitively determined that such interest is not an allowable deduction and there is, therefore, no carry forward loss from that year.

[38]

1991 Year of Income (QTH) 29 In its amended statement of facts, issues and contentions, QTH states: "8. Certain facts and circumstances relevant to the 1991 year are not relevant to the 1992 year and hence were not the subject of evidence in the Spassked proceedings. 9. In the circumstances relevant to the 1991 year, the intentions and expectations of the controllers of the Adsteam Group are to be attributed to IEL, Spassked and GIH. 10. In the 1991 year the Adsteam Group required significant funds in order to: (a) meet its financial obligations in relation to the acquisition of IEL; and (b) pay dividends to the shareholders of Adsteam, Tooth and DJL, each of which were public companies with a policy of paying substantial dividends to shareholders representing a high percentage of their profits. The IEL Group, for a number of years prior to the Adsteam takeover, had a different dividend policy and paid a significantly lower percentage of its group profits to its shareholders. 11. From the time it gained control of IEL the Adsteam Group required IEL to pay dividends to Dextran so that Dextran could pay dividends to Adsteam Group subsidiaries so that the consolidated financial accounts of each of Adsteam, Tooth and DJL could include IEL profits. The Australian accounting standards in relation to equity accounting for investments in associates would not allow the consolidated profits of Dextran and the IEL Group to be included in Adsteam, Tooth and DJL consolidated profits unless dividends were paid to the relevant subsidiaries of Adsteam, Tooth and DJL that were shareholders in Dextran. To ensure that appropriate returns on the investment in IEL were shown in the financial statements of the Adsteam Group, IEL would be required to pay dividends equating to the IEL Group's consolidated profits to Dextran as a dividend by IEL. Accordingly, in the year ending 30 June 1990, an amount equal to almost all of the consolidated operating profit of the IEL Group was paid by IEL to Dextran as a dividend and, in turn, Dextran paid almost all of the amount received as a dividend to its shareholders. 12. Consequently, in the 1991 year the Adsteam Group expected IEL to contribute a high percentage of its profit to enable the Adsteam Group to meet the financial commitments described in subparagraphs 10(a) and (b) and to ensure that the financial statements of Adsteam, DJL and Tooth reflected an appropriate return the investment in IEL. The complex and multiple financing arrangements of the IEL Group that were in place in the 1991 year placed restrictions on the upstreaming of funds, except where paid by way of dividend from current year trading profits. 13. The Adsteam Group expected that a substantial part of the profits necessary to pay the required dividends to Dextran would have to be sourced from within the Spassked subgroup. 14. To this end, in the 1991 year, the Adsteam Group investigated, and intended to implement, proposals by which funds could be provided to IEL by companies within the Spassked subgroup. Each of these proposals involved the derivation of significant assessable income by Spassked. 15. The facts and circumstances described in paragraphs 9 to 14 above were not raised by the proceedings that were the subject of the Spassked judgments. They relate to the 1991 year and not the 1992 year. 16. In the 1992 year the Adsteam Group embarked on a program of asset disposal and debt refinancing at the behest of its external creditors. The lenders to Adsteam, Tooth and DJL and their subsidiaries were represented by a Committee of Lenders appointed to make certain decisions about the future of the Adsteam Group. The commencement of the asset disposal and debt refinancing program, and the appointment of the Committee of Lenders, resulted in a restructuring of the financial obligations of the Adsteam Group, and in a change in the dividend policy of the public companies in the Adsteam Group. 17. The restrictions on upstreaming funds were brought to an end in the 1992 year when the IEL Group refinanced its external debt. Thus the restrictions (referred to in paragraph 12) on payment of funds by IEL, except by way of dividends out of current year profits, did not apply in the 1992 year."

[39]

1993 and 1994 Years of Income (IEF and Spassked) 30 In its amended statement of facts, issues and contentions, IEF and Spassked state: "9. Certain facts and circumstances relevant to the 1993 and 1994 years are not relevant to the 1992 year and hence were not the subject of evidence in the Spassked proceedings. 10. In the circumstances relevant to the 1993 and 1994 years, the intentions of the Adsteam Group, IEL and the Committee of Lenders can be attributed to Spassked and GIH. 11. In the 1993 and 1994 years, the facts and circumstances relating to the Adsteam Group can be distinguished from earlier years as clearly it was in 'liquidation mode'. The asset realisation program commenced by the Adsteam Group, in part due to pressure exerted by the Committee of Lenders, was well advanced. The sale process of these assets, including assets held by the Spassked group had in fact commenced in the 1993 year or shortly thereafter. In the 1994 year it was clear that most, if not all, of the assets of the IEL Group would be sold. In the 1994 year, approximately $3 billion of assets were sold by the IEL Group, including Woolworths Limited for $2.45 billion. 12. The facts and circumstances relating to the 1993 and 1994 years can be further distinguished from the Spassked judgments [Spassked Pty Ltd v FCT (2003) 197 ALR 553 and on appeal Spassked Pty Ltd v FCT (2003) 197 FCR 441]as in the 1993 year, and further in the 1994 year, consideration was given to eliminating the dividend trap at the Spassked level so that it would not be precluded from deriving assessable income. Steps were taken in the 1993 year and the 1994 year which significantly reduced the size of the dividend trap, the closure of which occurred in July 1994. 13. In the 1993 and 1994 years, it, was the intention of the Adsteam Group to reduce the number of companies within the IEL Group, including within the Spassked group, by the greatest number possible, following the disposal of assets. The proposals being considered to reduce as many companies as possible within the Spassked group, involved significant assessable income being derived by GIH and Spassked. 14. Thus the facts and circumstances relating to the 1993 and 1994 years can be further distinguished from the Spassked judgments as it was the intention of the Adsteam group to remove the barrier to Spassked receiving dividends by eliminating the dividend trap and to enable Spassked to earn significant assessable income in the course of unwinding the Spassked group. 15. The ongoing tax dispute concerning the availability of losses for transfer by Spassked and the fact that it prevailed beyond the expectations of the Adsteam group precluded the distribution of significant assessable income to Spassked in the course of unwinding the Spassked group." 31 Importantly, all the asserted factual changes which are relied on as points of distinction between the year of income ended 30 June 1991 and the year of income ended 30 June 1992 are alleged as having occurred in the 1991 year of income and all the factual changes which are relied on as points of distinction between the year of income ended 30 June 1993 and 1994 and the year of income ended 30 June 1992 are alleged as having occurred in the 1993 and 1994 years of income. 32 More importantly, all these factual changes relied on occurred outside the temporal framework under which the parties conducted, and the primary judge and the Full Court decided, the earlier proceedings, namely, the years of income in which the various tranches of borrowings from IEF were drawn down by Spassked - the years of income ended 30 June 1988, 1989 and 1990 and the "common ground" of the parties that no relevant factual changes occurred in that period.

[40]

Are the Current Proceedings an Abuse of Process? 33 In response to the Commissioner's primary submission in support of his strike-out application that the current proceedings were an abuse of process, the primary judge below referred to what was said by French J in Spalla v St George Motor Finance Ltd (No. 6) [2004] FCA 1699, especially at [66] - [69]: "66 The doctrines of res judicata, issue estoppel and Anshun do not exhaust the circumstances in which a proceeding may be regarded as amounting to an abuse of process by way of attempted relitigation of a dispute already judicially determined. As another Full Court said in Coffey v Secretary, Department of Social Security (1999) 86 FCR 434 (at 443): 'An attempt to litigate in the Court a dispute or issue which has been resolved in earlier litigation in another court or tribunal may constitute an abuse of process even though the earlier proceeding did not give rise to a res judicata or issue estoppel: see Sea Culture International v Scoles (1991) 32 FCR 275 at 279 and Walton v Gardiner (1993) 177 CLR 378 at 393-394. Whether it does depends on the facts of the particular case.' 67 The considerations of public policy which underlie res judicata and issue estoppel help to define the scope of abuse of process by relitigation generally. As Lord Hoffman said in Arthur JS Hall & Co v Simons[2000] 3 WLR 543 at 572, the underlying policies are that a defendant should not be troubled twice for the same reason and that there is 'a general public interest in the same issue not being litigated over again'. Lord Hoffman observed that the second rationale could be used to justify the extension of the rules of issue estoppel to cases in which the parties are not the same but the circumstances are such as to bring the parties within the spirit of the rule. In that regard he referred to Reichel v Magrath and Hunter v Chief Constable of the West Midland Police. … 69 The public interest considerations underlying the power of courts to stay or dismiss the proceedings for abuse of process extend to preventing the waste of judicial resources and their use for purposes unrelated to the determination of genuine disputes." 34 His Honour also referred to what was said earlier by Mason CJ, Deane and Dawson JJ in Walton v Gardiner (1993) 177 CLR 378 at 393: "… proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings." 35 The primary judge found that the current proceedings with respect to primary tax "constitute or involve an abuse of process on the part of the taxpayer applicants" (at [103]). The basis for his Honour's conclusion was that: (1) the case which the appellants seek to pursue by their amended statements of facts, issues and contentions constitutes and involves an endeavour to re-litigate issues which have been addressed and resolved by the Court in the earlier proceedings (at [126], [127] and [105]); (2) if the appellants were permitted to continue their proceedings in relation to primary tax, the Commissioner would be vexed twice by an involvement in further lengthy proceedings concerning issues that were litigated and resolved in the earlier proceedings (at [127]); (3) if the appellants were permitted to continue their proceedings in relation to primary tax and they were successful, there would be on record inconsistent reasons for judgment (at [112] and [127]); (4) as a matter of reasonable and necessary implication from the subject matter and scope of the evidence adduced by the parties in the earlier proceedings and of the reasons for judgment at first instance and on appeal, the mutual intent of the parties to those proceedings, including Spassked, was to cover the evidentiary field required to resolve the fiscal dispute between Spassked and the Commissioner, and as a consequence between the Commissioner and the transferees of Spassked's losses (at [104]). 36 The appellants submitted that the current proceedings are not an abuse of process in reliance on six grounds. 37 First, they say that the earlier proceedings did not deal with the issue of the deductibility of interest payments made in years other than the 1992 tax year, nor did they deal with the factual differences including the change in Spassked's purpose after the time of borrowing, that is, after 28 June 1990. The issues in the current proceedings are thus different from those in the earlier proceedings. The findings of Lindgren J in the earlier proceedings relate to a different period from that in issue in the current proceedings. They say that assuming (as should be done) that the appellants can prove their pleaded cases, the issues raised for determination in the current proceedings will result in a finding that the interest paid by Spassked in the 1991, 1993 and 1994 years was deductible. 38 Second, there was no agreement that the earlier proceedings would constitute a "test case" for the deductibility of interest in the 1991, 1993 and 1994 tax years (see [4] of the primary judge's reasons below). Nevertheless, his Honour found that it was the "mutual intention" of the parties to the earlier proceedings that those proceedings would operate as a "test case". The appellants submitted that in so finding, the primary judge fell into error. 39 The appellants submitted that his Honour's conclusion as to the "mutual intent" of the parties to the earlier proceedings was based solely on (a) the subject matter and scope of the evidence adduced by the parties in the earlier proceedings, and (b) the reasons for judgment in those proceedings. 40 It is clear, the appellants submitted, that the earlier proceedings were conducted upon the assumption that the relevant circumstances in relation to expectation or purpose were those existing between 1987 and 1990. As such, the evidence adduced by the taxpayers was substantially directed to this period, and not to the factual circumstances existing after 1990, particularly the factual circumstances alleged in the amended statement of facts, issues and contentions in the current proceedings and summarised in [27] and [28] above. 41 They further submitted that, insofar as the primary judged relied upon the reasons for judgment, the terms of those reasons do not provide any sound basis for inferring the mutual intention of the parties to the earlier proceedings. That is because (a) there is nothing in the reasons for judgment which suggest that the decision was intended to have a significance beyond its strict terms, and (b) even if there were such statements, the fact that the Court considered the judgment to have that effect says nothing, with respect, as to the intentions of the parties. 42 In conclusion on this second ground, the appellants submitted that the primary judge erred in holding that there was any implied understanding between the parties to the earlier proceedings that those proceedings would operate as a test case. The current proceedings therefore cannot be regarded as a re-litigation of the earlier proceedings on the basis that the issues in the current proceedings had been resolved by an earlier "test case". 43 Third, it is simply not the case that the evidentiary issues sought to be litigated in the current proceedings were litigated in the earlier proceedings. There was no evidentiary inquiry in the earlier proceedings into the circumstances existing after the 1990 tax year so far as those circumstances impacted on the purposes and expectations of Spassked. The litigation proceeded on the assumption that the circumstances in 1987 to 1990 were the relevant ones. The primary judge thus erred in the following statement (at [100]) insofar as it relates to the years after the 1990 tax year: "…the earlier concluded Spassked proceedings were determined in the context of, and in explicit reliance upon evidentiary material covering relevantly the commercial activities of Spassked and other members of the wider IEL group undertaken in respect of at least the six fiscal years 1988 to 1994 inclusively …". 44 Fourth, the primary judge erred in taking into account the possible time and expense that would be involved in a hearing of the current proceedings (see, e.g., at [101], [102] and [127]). For one thing, the appellants do not accept that the litigation of the current proceedings would involve any great time or expense, especially in light of the matters already determined by the earlier proceedings. More importantly, however, the likely time and expense involved in a hearing of the current proceedings is simply irrelevant to a consideration of whether these proceedings constitute an abuse of process. The fact that a trial may be lengthy and costly, if it legitimately raises matters that have not already been decided, cannot be said to constitute an abuse. Prior to the Commissioner's application for summary dismissal of the current proceedings, the proceedings had been fixed for a three week hearing in September 2005. In the context of disputed assessments in excess of $880 million that ought not be considered unduly burdensome to the Commissioner. 45 Fifth, the primary judge erred in considering that there was the possibility that the current proceedings would result in inconsistent judgments of the Court (see, e.g. at [127]). The spectre of inconsistent judgments is, however, illusory. If the appellants are successful in the current proceedings, it will be because the Court accepts that they have demonstrated matters distinguishing the current proceedings from the earlier proceedings. The difference in result between the two sets of proceedings will be explicable on the basis of those distinguishing features. The judgments will therefore not be inconsistent. 46 Sixth, the appellants submitted that it cannot be an abuse of process to exercise a right specifically conferred upon them by statute, at least where that right is exercised genuinely and not for any improper purpose: Saffron v Commissioner of Taxation (1991) 30 FCR 578 at 583 per Davies J and at 591 - 592 per Lockhart J. The appellants submitted that it could not be contended that the exercise of the right to appeal was for collateral or ulterior purposes, such as mounting a collateral attack on the judgments in the earlier proceedings. Indeed, the appellants submitted that the case sought to be presented does not seek to cavil with the judgments in respect of the 1992 year. Rather, the exercise of the right to appeal is to seek to have the Court hold that the appellants are not liable for the income tax assessed in the 1991, 1993, 1994 and 1996 years of income and that that is the sole purpose of their applications to the Court. 47 In his written submissions, the Commissioner took issue with each of the six grounds in the appellants' submissions. Specifically, he submitted that: (1) The central issue before the Court in the earlier proceedings was whether the whole of the interest incurred on the IEF loans between 1988 and 1994 fell within the terms of s 51(1) of the ITAA 1936. For the reasons already referred to at [12] - [26] above, I reject this submission. (2) The primary judge's finding of "mutual intent" - that there was an implied understanding between the parties to the earlier proceedings that those proceedings would operate as a test case - was an objective conclusion based on sound material. Again, I cannot agree. Putting it at its highest, it may have amounted to a realistic expectation as to the consequences which might follow in other years of income from a decision in the earlier proceedings going one way or the other, but the evidence is not sufficient, in my view, to support a finding of "mutual intent". (3) The appellants are not correct in contending that "it is simply not the case that the evidentiary issues sought to be litigated in the current proceedings were litigated in the [earlier] proceedings". For the reasons advanced by the appellants set out at [43] above, I reject this submission. (4) The primary judge did not err in considering the burden of re-litigating the earlier proceedings by reference to time and expense. I would agree with this submission insofar as it is predicated upon re-litigating the earlier proceedings. But that is not what is involved in the current proceedings. Apart from the fact that different years of income are involved, the whole temporal framework of the relevant factual circumstances going to the resolution of the ultimate substantive issue is different in the current proceedings. (5) The primary judge was correct in concluding that if successful the current proceedings would give rise to inconsistent judgments. Again, I do not agree, for the reasons advanced by the appellants set out at [45] above. (6) The statutory right of appeal in s 14ZZO of the Taxation Administration Act does not exclude the doctrine of abuse of process. The presence of that right is not inconsistent with the ability of the Court to prevent an abuse of process where one in fact exists. So much may be accepted. There could be circumstances, of which Kilpin v Federal Commissioner of Taxation (1987) 19 ATR 725 provides an example, in which repeated exercises of rights of appeal albeit in different years of income, might amount to an abuse of process. But the facts of this case are a long way removed from the facts of that case. 48 As was recognised in the reasons of the joint judgment in the Full Court (at [77]) in the earlier proceedings - the question whether interest was incurred in gaining or producing assessable income or in carrying on a business the purpose of which was the gaining of assessable income - is a question which is required to be determined from year to year. 49 Where the temporal period during or over which this issue was determined in the earlier proceedings for the 1992 year of income was different from the period or periods during or over which the same issue is to be determined in the current proceedings for the 1991, 1993 and 1994 years of income, I am unable to conclude that the current proceedings are an abuse of process in the Walton v Gardiner sense of seeking "… to litigate anew a case which has already been disposed of by earlier proceedings". Clearly, by reference to neither the ultimate substantive issue before the Court in the earlier proceedings nor the temporal framework of the factual circumstances relied upon in the earlier proceedings, do the current proceedings attempt to re-litigate anew a case which has already been disposed of by the earlier proceedings.

[41]

Are the Current Proceedings Precluded by Issue Estoppel? 50 The primary judge also found that the appellants are estopped according to the doctrine of issue estoppel from contending that the interest incurred by Spassked in the 1991, 1993 and 1994 years of income was incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. 51 His Honour referred to and quoted the passages in the reasons for judgment of Dixon J in Blair v Curran (1939) 62 CLR 464 at 532 - 533: "Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order … the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous. In the phraseology of Lord Shaw [in the course of his Lordship's dictum in Hoysted in the Privy Council hereafter referred to and discussed], 'a fact fundamental to the decision arrived at' in the former proceedings and 'the legal quality of the fact' must be taken as finally and conclusively established (Hoysted v. Commissioner of Taxation [[1926] AC 155]). But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation." 52 Before the primary judge the appellants' principal contention was that the doctrine of issue estoppel could not apply in revenue cases, where the assessments are for different years of income: at [119] and [124] of his Honour's reasons below. A similar submission was made on the appeal by reference to the following matters: (1) The words of Spencer Bower, Turner and Handley (Res Judicata, 3rd Edition) at 300: "Decisions on income tax, land tax and ratings assessments constitute an established exception to the general rules as to res judicata. Decisions on one year's tax or rate … do not create estoppels in respect of another year's tax or rate … The liability of the taxpayer for a subsequent year's tax or rate is not strictly the same question as his liability for an earlier year, even where no material circumstance has changed." (2) In the appellants' submission, the better view is that the so-called "exception" thus described is in reality not an exception at all, but an example of the operation of the ordinary rule. That is to say, the fact that a person's tax liability in one year is a different question from the person's tax liability in another year, simply means that basis for the operation of the rule does not exist. The fact that the matters decided in revenue cases are limited means that the operation of the ordinary rule is correspondingly limited. (3) The decision of the Privy Council in Broken Hill Proprietary Co Ltd v Municipal Council of Broken Hill (1925) 37 CLR 284, the decision of the House of Lords in Society of Medical Officers of Health v Hope [1960] AC 551, the decision of the Privy Council in Caffoor v Commissioner of Income Tax, Colombo [1961] AC 584, the apparent approval of Caffoor in the joint judgment of Deane, Toohey and Gaudron JJ, with whom Brennan J agreed, in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510 and finally what was said by Merkel J in Orica Ltd v Federal Commissioner of Taxation (2001) 182 ALR 77 at 87: "Issue estoppel has been held not to apply to a taxpayer where the previous decision relied upon as founding the issue estoppel related to a different year of income. Although there was some support for the contrary view in Hoysted v. Commissioner of Taxation, that decision was not followed in Caffoor v. Commissioner of Income Tax Colombo. In Caffoor the Privy Council determined that a taxpayer is not estopped from contending that it was entitled to an exemption in respect of a year of income by a decision in respect of a different year of income. More recently, in Chamberlain v. Deputy Commissioner of Taxation, Deane, Toohey and Gaudron JJ cited Caffoor as authority for the proposition that 'the Commission is not bound by the determination made in respect of an assessment for one year, so far as other years are concerned.' It must follow that the Commissioner's issue estoppel argument also fails." 53 At [106] of his reasons, the primary judge observed that, in his view, the context and circumstances of the current proceedings are significantly distant and removed from those of the authorities relied upon by the appellants, in particular, Broken Hill, Hope and Caffoor,such as to render those authorities of no sufficient assistance here to the appellants as judicial precedents. Based on what was said in the joint judgment of Rich, Dixon and McTiernan JJ in Falk v Haugh (1935) 53 CLR 163 at 171, the primary judge further observed that there is at least something plausible to be said for the view that Broken Hill and Hoysted are susceptible to reconciliation, and in any event, that Hoysted should be preferred to the extent of any inconsistency. His Honour went on to observe that so much would be in line with the observations of the three members of the High Court in Queensland Trustees Limited v Commissioner of Stamp Duties (1956) 96 CLR 131 and that he did not think the appellants gained assistance of sufficient significance from the relatively brief citation of Caffoor appearing in the joint judgment of the High Court in Chamberlain. His Honour had earlier (at [74]) discounted what Merkel J said in Orica on the basis that the estoppel issue there was in the nature of an alternative contention and that Merkel J was not provided with the substantial scope of judicial references and analysis of authority that had been afforded to him by the parties. 54 The Commissioner, in his submissions on appeal, submitted that his Honour was correct in his analysis of the relevant and, in some cases, conflicting authorities and that he had correctly applied the doctrine of issue estoppel to the appellants. 55 One hesitates to part company with a judge of this Court with such experience and expertise in the fields of commercial and revenue law but, with the utmost respect to his Honour, I am unable to agree with his Honour's analysis of the relevant authorities and, if necessary, their reconciliation. 56 First and foremost, if any relevant authorities are distant and removed from the context and circumstances of the current proceedings then, in my view, they are Hoysted and Queensland Trustees, not Broken Hill, Hope and Caffoor. 57 The relevant issue in Broken Hill was the proper method for calculating the unimproved capital value of a mine for the purpose of determining a liability to tax for a certain year. A decision of the High Court in earlier litigation between the same parties, relating to the same tax, and the same mine, but a different tax year, had held that the correct approach to calculating value was one that was favourable to the local authority. Before the Privy Council, the taxpayer sought to argue that a different method of calculating the relevant value was appropriate. The Privy Council, in rejecting the Council's submission that the issue was res judicata, said (at 289): "It was also contended before this Board on behalf of the respondents that, having regard to the said decision of the High Court of Australia, the question raised by this appeal is res judicata as between the appellants and the respondents, and the appellants are estopped from contending that such decision of the High Court of Australia is wrong … There is, however no substance in this contention. The decision of the High Court related to a valuation and a liability to a tax in a previous year, and no doubt as regards that year the decision could not be disputed. The present case relates to a new question, namely, the valuation for a different year and a liability for that year. It is not [eadem quaestio], and therefore the principles of res judicata cannot apply." 58 The effect of that decision was that the taxpayer was not estopped from arguing (before the Privy Council) that the decision of the High Court was wrong. The previous decision, relating to a different year of income, did not determine the tax liability for the later year of income. 59 Slightly more than a month later, a differently constituted Privy Council gave its advice in Hoysted. The issue in that case was a liability for land tax, the liability depending upon the number of "joint owners" holding "original shares". The Privy Council held that a prior decision of the High Court that the beneficiaries of a trust were "joint owners" was binding on the parties, and that the Commissioner could not, in subsequent years, dispute that fact. The Privy Council did not refer to its earlier decision in the Broken Hill Case. 60 The conflict between Broken Hill and Hoysted was considered by the House of Lords in Hope. The House of Lords followed Broken Hill. Lord Radcliffe (at 562 - 563) said: "The system of rating involves certain considerations that are special to itself. Its nearest analogy is with the system of annual personal taxation. With regard to both one has to begin by recognising that there is a high and frequent authority for the proposition that it is not in the nature of a decision given on one rate or tax that it should settle anything more than the bare issues of that one liability and that, consequently, it cannot constitute an estoppel when a new issue of liability to a succeeding year's rate or tax comes up for adjudication. It would not be at all easy for us to depart form this long line of authoritative opinion, even if we wanted to. Personally, I do not want to, because I think that, on the whole, it is more in the public interest that tax and rate assessments should not be artificially encumbered with estoppels (I am not speaking, of course, of the effect of legal decisions establishing the law, which is quite a different matter), even though in the result some expectations may be frustrated and some time wasted." 61 In relation to the conflict between Broken Hill and Hoysted, at 569 - 570 Lord Keith said: "Much reliance was placed by counsel for the appellants on the judgment of the Privy Council in Hoysted v. Commissioner of Taxation. That authority is not binding on this House, and the point was never taken in the case that a decision on liability to assessment to tax for one year is not conclusive of liability to assessment in a later year. The judgment would seem to conflict with what was said a month earlier in Broken Hill Proprietary Co. Ltd. v Broken Hill Municipal Council by a Board differently constituted, rejecting a plea of res judicata: 'The decision of the High Court,' it was said, 'related to a valuation and a liability to take in a previous year, and no doubt as regards that year the decision could not be disputed. The present case relates to a new question - namely, the valuation for a different year and the liability for that year. It is not eadem quaestio, and therefore the principle of res judicata cannot apply.' In my opinion, that is the position here, and I do not find it necessary to examine Hoysted's case further, beyond observing that some of the things that were said in that case are not, I think, entirely consistent with what was said in New Brunswick Railway Co. v. British and French Trust Corporation Ltd., or with what I regard as essential to a successful plea of res judicata, a common medium concludendi in the two actions." 62 The Privy Council itself addressed the conflict the following year in Caffoor, overturning Hoysted. In Caffoor, the Commissioner sought to argue that a trust deed did not create a charity, despite that precise point having been determined adversely to the Commissioner in previous litigation between the same parties but relating to different years of income. The Privy Council held that the Commissioner was entitled to argue the point in the new proceedings, saying (at 598 - 599): "It is in this sense that in matters of a recurring annual tax a decision on appeal with regard to one year's assessment is said not to deal with 'eadem quaestio' as that which arises in respect of an assessment for another year and, consequently, not to set up an estoppel. It is precisely that point that was raised and accepted by this Board in 1926 in Broken Hill Proprietary Co Ltd v. Broken Hill Municipal Council … The Broken Hill decision is in itself a striking application of the principle involved, since the earlier judgment which it was sought to set up as an estoppel was one given by the High Court of Australia on a rating assessment referred to it by way of appeal under the tax procedure. It underlines the point that it is not the status of the tribunal itself, judicial or administrative, that forms the determining element for estoppel in cases of this kind but the limited nature of the question that is within the tribunal's jurisdiction. The judgment of the High Court that had been given in the earlier year was explicitly directed to the construction of a particular section of the rating Act and to the correct measurement of the liability in the light of that construction. Precisely the same point arose in the later year and ultimately decided by this Board in a sense contrary too that which had previously been adopted. 63 A little later (at 599 - 601) the Privy Council said: "To apply the principle of the Broken Hill decision to the case now before their Lordships is to bring it into line with what seems to be by now the regular course of authority with regard to appeals in successive years against income tax or rating assessment … The decision of this Board in Hoysted v. Commissioner of Taxationis not consistent with this line of authority, and the appellants naturally relied upon it in their argument. What happened in that case was that an assessment to federal land tax in Australia for the year 1918-19 had been the subject of appeal, and a case was stated for the opinion of the High Court on a point of law that determined the assessment, the correct interpretation of the taxing statute with regard to joint interests in land taken by the assessees under their father's will. There was a later appeal in respect of the assessment for the year 1920-21; and the question that was brought to this Board was whether the Commissioner of Taxation was estopped in the matter of that assessment by the judgment that had been delivered by the High Court in the earlier proceedings. The Board decided that he was. Unfortunately, however, the argument that the determination of an assessment for one year could not set up an estoppel upon an assessment for another year, an argument that was accepted by the Board at almost the same time in the Broken Hill case, does not appear either to have been presented to the Board or to have been noticed or adjudicated upon in the opinion which was delivered by Lord Shaw. It is not possible to explain why the matter was dealt with in this way; and it is fair to note that in the majority judgment of the High Court, which was reversed on the appeal, there is a reference, though a passing one, to the point of 'eadem quaestio.' In the result, however, the attention of the Board in delivering its opinion was wholly occupied with a discussion of what is quite a different issue in connection with estoppel, whether there can in law be estoppel per rem judicatam in respect of an issue of law which, though fundamental to the issue, has been conceded and not argued in an earlier proceeding. Their Lordships are of opinion that it is impossible for them to treat Hoysted's case as constituting a legal authority on the question of estoppels in respect of successive years of tax assessment. So to treat it would bring it into direct conflict with the contemporaneous decision in the Broken Hill case; and to follow it would involve preferring a decision in which the particular point was either assumed without argument or not noticed to a decision, in itself consistent with much other authority, in which the point was explicitly raised and explicitly determined." 64 Queensland Trustees involved a claim for succession duty on the footing that a will created certain trusts in respect of a property in favour of the deceased's two sons. Previously the Commissioner of Stamp Duties had successfully claimed stamp duty on an instrument of nomination of trustees of the property as a settlement. The issue estoppel which the High Court held precluded the succession duty claim was described by Dixon CJ at 138 in the following way: "His [stamp duty] claim was contested but it was judicially declared by the Supreme Court that the nomination of trustees was chargeable with stamp duty as a settlement. That declaration was affirmed on appeal to this Court. Disregarding altogether the reasons for this decision it appears to me to be, or at all events to involve, a judicial determination between the Crown and the executors that it was the nomination of trustees (including therein the schedule) which created the trusts. In face of that determination the Crown cannot now turn about and claim successfully that it was the will and not that instrument which created the trusts. On that simple ground of issue-estoppel, the claim of the Commissioner of Stamp Duties must fail." 65 Dixon CJ did not refer to Hoysted and it was only fleetingly referred to by Webb J and in the joint judgment of Kitto and Taylor JJ in the following terms (at 151): "The question whether the instrument was such a settlement was then litigated between the trustees and the commissioner by means of a special case. The Full Court of the Supreme Court answered the question in the affirmative, and its decision was affirmed by this Court on appeal. The argument is that, as a consequence of its success in those proceedings, the Crown, here represented by the commissioner, is now estopped from denying that the operative instrument which gave the sons the interests which fell into possession on 21st January 1954 was the nomination of trustees and schedule of trusts. The principle of law which is relied upon is that for which Hoysted v. Federal Commissioner of Taxationis the leading authority in the Privy Council." 66 Of course what was said by their Honours concerning Hoysted being "the leading authority in the Privy Council" was said prior to the Privy Council's rejection of Hoysted in Caffoor. 67 As I intimated at [56] above, my analysis of the cases in the context of the current proceedings leads me to the view that the cases of Hoysted and Queensland Trustees are more "distant and removed from" "the context and circumstances", to use the words of the primary judge, of the current proceedings, than the cases of Broken Hill and Caffoor. Queensland Trustees can be distanced and removed because the issue estoppel did not arise, as in the present case, in the context of different years of assessment, income or tax. Moreover, in the first proceedings, the issue was determined upon a construction of the relevant statute, the will and the inter vivos instrument of nomination not, as in the earlier proceedings in the present case, detailed findings of fact critical or indispensable to the conclusion on the ultimate substantive issue in the 1992 year of income. Hoysted can be also distanced and removed for this second reason; because the issue was determined upon a construction of the relevant statue not, as in the earlier proceedings in the present case, detailed findings of fact critical or indispensable to the conclusion on the ultimate substantive issue in the 1992 year of income. 68 Second, the matters I have pointed to as distancing and removing the significance of Hoysted and Queensland Trustees to the question of whether the determination of the ultimate substantive issue in the earlier proceedings in the present case create an issue estoppel in the current proceedings, equally focus attention on what is relevant to the resolution of this question. As Dixon J stated in Blair v Curren at 531 - 532, an issue estoppel arises only in relation to "… those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion … Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded." 69 A number of the findings of fact in the earlier proceedings, including those going to the purpose of the borrowing and the application of the borrowed funds, relevant to the ultimate substantive issue in the earlier proceedings, namely, whether the interest incurred in the 1992 year of income by Spassked on the IEF loans was deductible under s 51(1) of the ITAA 1936, were "legally indispensable' to determination of that issue. But they were not, in my view, "legally indispensable" to the determination of the issue of whether the criteria for deductibility under s 51(1) of the ITAA 1936 was met in other years of income. There are at least four reasons for this. 70 First, the issue of deductibility of interest on the IEF loans in years of income other than the 1992 year of income was not before the Court in the earlier proceedings. 71 Second, the issue of deductibility of interest on a loan under s 51(1) is essentially a question of fact in respect of the year or years of income for which it is to be determined. Moreover, it is clear that the relevant factual considerations can change over the term of the loan so that the facts relevant to the criteria for deductibility in one year will not necessarily mirror those in another year. This is perhaps best brought out by Hill J in Kidston Goldmines Limited v Commissioner of Taxation (1991) 30 FCR 77 at 85 where his Honour said: "In determining deductibility under s 51(1), reliance on the tests both of purpose of the borrowing and of application of the funds present difficulty. If the true test were confined to purpose of the borrowing, a taxpayer who borrowed funds for an income-producing purpose would continue to receive a deduction, notwithstanding that the income-producing activity had ceased. Such was shown not to represent the law in Commissioner of Taxation (Cth) v Riverside Road Lodge Pty Ltd (In liq) (1990) 23 FCR 305. Conversely, if funds were borrowed for a non-income producing purpose, eg to purchase a home in which the taxpayer resides, and later the home were let, no deduction would be available to the taxpayer for the interest payable, which is a direct cost of the income-producing activity of letting the house. A test of application of funds borrowed also presents difficulties. Where funds are borrowed with the intention that they be used to purchase, for example, a property for letting, and the proceeds of the borrowing are paid into a bank account from which funds are drawn both for the purchase and to satisfy non-income-producing outlays, a tracing of funds approach would require an apportionment of interest, yet it would generally be accepted that the taxpayer would be entitled to a deduction for the whole of the interest, at least provided that the equivalent to the amount borrowed found its way into the purchase of the income-producing asset. This is not to say that tests such as the purpose of the borrowing or the use and application of the borrowed funds are irrelevant. Rather, they are tools to assist in the resolution of what is essentially a question of fact. To be deductible the outgoing, or in a case of apportionment a part of an indivisible outgoing, must be seen to be incidental and relevant to the activity which is directed to the gaining or production of assessable income. In the normal case, the fact that the funds borrowed have been borrowed for the purpose of that activity and can still, in the year of income in which the deduction is claimed, be seen as having that purpose will lead readily to the conclusion that the interest will be incidental and relevant to the income-producing activity. Again, in the usual case, the application of funds to an income-producing purpose will demonstrate the relevant connection between the outgoing and the income-producing activity. Indeed there is much to be said for the view that the tests of purpose and application of funds are but two sides of the one matter." 72 Third, as already indicated at [21], [26] and [32] above, the earlier proceedings were conducted by both parties and decided, both at first instance and on appeal, by reference to facts and circumstances falling within a temporal framework commencing on the date of the first borrowing, 30 December 1987 and expiring on the date of the last borrowing, 28 June 1990. Facts and circumstances occurring outside that period were not relied upon and even though there may have been findings of fact outside that period, they were not, in my view, legally indispensable to the conclusion on the ultimate substantive issue in the earlier proceedings. 73 Fourth, in the current proceedings, the appellants do not seek to rely on facts and circumstances falling within the temporal framework relied upon in the earlier proceedings in support of the conclusion they contend the Court should reach on the ultimate substantive issue in the 1991 year of income in the case of QTH, in the 1993 and 1996 years of income in the case of IEF and in the 1994 year of income in the case of Spassked. 74 For those reasons, I have reached the conclusion that the current proceedings are not precluded by issue estoppel.

[42]

Are the Current Proceedings Precluded by Anshun estoppel? 75 In the alternative, the primary judge found (at [128]) that "… at least the ground of Anshun estoppel has been … established by the Commissioner …" to disentitle the appellants from bringing the current proceedings, although his "… preferred analysis [was that] of issue estoppel rather than Anshun estoppel, if a choice between the two is mandatory" (at [115]). 76 As indicated at [11] above, the primary judge seems to have found that Anshun estoppel was established on the two bases there set out. However, I have to say that I do not find his Honour's articulation of the first basis at [114] of his reasons very helpful in terms of Anshun estoppel; it seems to me to be framed in terms of issue estoppel. 77 An Anshun estoppel will arise in circumstances where a party to subsequent proceedings seeks to litigate a claim or defence "which could and should have been litigated in the earlier proceedings (Anshun at 598) or, to put it another way, which it was unreasonable not to rely on (Anshun at 602) in the earlier proceedings. 78 If a litigant was unable to raise the relevant defence, or bring the relevant claim, in the earlier proceedings, it follows necessarily that no Anshun estoppel will arise (see, e.g., Macquarie Bank Ltd v National Mutual Life Association Ltd (1996) 40 NSWLR 543 at 619 per Powell JA, Priestley and Clarke JJA not deciding the particular point). 79 Here, the appellants' objections to their income tax assessments had not been determined by the Commissioner at the time of the earlier proceedings (and were not determined until after the decision of the Full Court in the earlier proceedings). Determination by the Commissioner of those objections was a necessary pre-condition to the commencement of proceedings in the Federal Court in respect of those claims. 80 The primary judge at [88] of his reasons acknowledged that it would not have been possible for the appellants to have raised their claims concerning the 1991, 1993, 1994 and 1996 tax years in the earlier proceedings. He went on to say, however, that: "… the parties mutually contested critical issues, in the context of the earlier concluded Spassked proceedings, which involved and related entirely to the circumstances relevantly prevailing throughout those critical six fiscal years." 81 I agree with the appellants' submission that that statement, even assuming it to be accurate (and for the reasons given at [13] to [17] and [19] to [26] both inclusive above, the appellants do not accept it to be accurate), is not an answer to the impossibility of commencing proceedings in relation to the 1991, 1993 and 1994 tax years. 82 The second basis upon which the primary judge seems to have found an Anshun estoppel, namely that articulated at [116] of his reasons, appears to suggest that an Anshun estoppel may arise in circumstances other than those in which it was unreasonable for a litigant to fail to raise a claim or defence in earlier proceedings. 83 In other words, the primary judge appears to have used Anshun to preclude the current proceedings, not on the basis that the proceedings themselves should have been brought earlier, but on the basis that the evidence that will be adduced in them should have been adduced in the earlier proceedings, even though QTH and IEF were not parties to those proceedings. 84 In this way, the appellants submit, it appears that the primary judge was using Anshun, not, as is usual, to extend the operation of the doctrine of res judicata, but rather to extend the operation of the doctrine of issue estoppel. In the appellants' submission, if that is what the primary judge has done, his Honour fell into error; Anshun should not be used to extend the doctrine of issue estoppel (cf., Anshun at 598 - 599; Carl Zeiss Stiftung v Rayner & Keeler Ltd (No. 2) [1967] 1 AC 853 at 916). 85 That aside, I agree with the appellants' submission that to suggest that evidence in support of a claim or defence that was not in issue in earlier proceedings should have been adduced in those proceedings, simply because it was possible, or may even have been expected to have been adduced, is to create a host of difficulties. There may be legitimate forensic reasons why particular evidence was not sought to be adduced, there may be constitutional reasons why evidence is not sought to be adduced (cf., In re Judiciary and Navigation Acts (1921) 29 CLR 257), and there may be many other such legitimate reasons. If a litigant is entitled to bring a claim, that litigant is entitled to prove its claim in whatever manner it wishes. The manner in which it was sought to prove, or proved other, earlier claims is, and is rightly regarded to be, irrelevant. 86 It follows, for the foregoing reasons, that I do not think that the principle of estoppel for which Anshun is truly authority precludes the current proceedings. 87 It further follows that I would allow the appellants' appeals. As to the $3,265,263 component which was discussed in [28(3)] the evidence is insufficient to allow me to come to a concluded view on this matter, let alone to formulate orders if this is the case. In the circumstances, since the objection appeals have to be remitted to a judge of this Court for hearing, it is not necessary for this Court to make orders covering this aspect of that objection appeal. 88 I propose that in each of the appeals the Court make the following orders: (1) The appeal be allowed. (2) Orders 1, 2 and 3 made on 29 September 2006 pursuant to the reasons for judgment of 21 March 2006, be set aside. (3) The Respondent's amended notice of motion dated 25 July 2005 be dismissed with costs. (4) The Respondent pay the Appellant's costs in relation to this appeal.