DFC of T v THAI
Judges:Malpass Ma
Court:
Supreme Court of NSW
Master Malpass
These proceedings were commenced by Statement of Claim filed on 7 September 1992. The plaintiff has obtained default judgment in the sum of $807,711.91. The judgment took effect on 30 September 1992.
The defendant seeks to have the default judgment set aside. A Notice of Motion was filed on 29 March 1993. An Amended Notice of Motion was filed on 27 May 1993.
In support of the application, the defendant has read an affidavit sworn by Kevin John Munro on 5 April 1993, an affidavit sworn by Geoffrey Noel Wheatley on 24 May 1993 and an affidavit sworn by Anthony Clifford Halcrow on 24 May 1993. Mr Munro gave supplementary oral evidence.
The plaintiff has relied on two affidavits sworn by Raymond Love, an affidavit sworn by Robert Crowe and an affidavit sworn by Garry Schneider. Mr Love gave supplementary oral evidence. Both Mr Love and Mr Schneider were cross-examined.
A number of documents have been tendered, including a Regulation 67 Certificate.
The defendant is a tax agent. An audit was conducted into his affairs by the Parramatta office of the plaintiff. The plaintiff issued five assessments for the income years ended 30 June 1986 to 30 June 1990 (three of the assessments purport to be amended assessments). A certified copy of the Notice of each assessment under the hand of a Deputy Commissioner of Taxation is annexed to the affidavit sworn by Mr Love on 20 May 1993. The issue date of each Notice of Assessment is 2 September 1992. Each Notice purported to specify 3 September 1992 as the ``date due and payable''. The plaintiff has purported to serve the Notices at the address, PO Box 244, Cabramatta, 2166 (being the address shown in the defendant's tax return for the year ended 30 June 1990). They were placed in the one envelope and hand delivered to Box 244 at the Cabramatta Post Office at 3.00 pm on 2 September 1992. It appears that these Notices came to the attention of the defendant at some time prior to 7 September 1992 (see Exhibit A). Prior to 7 September 1992, Gadens Ridgeway had been instructed to act on behalf of the defendant and the plaintiff was aware that the firm was instructed to act on behalf of the defendant. Further communication, to take place on 8 September 1992, was contemplated. A Notice under section 218 had been given.
The Statement of Claim was served on the defendant on 7 September 1992. No notice of intention to commence proceedings had been given. No appearance or defence was filed on behalf of the defendant. He left Australia on business on 17 September 1992 and has remained overseas thereafter. The plaintiff gave no notice or warning of its intention to obtain default judgment. There is no evidence of the plaintiff advising the defendant that default judgment had been obtained.
ATC 4532
On 2 October 1992, a Bankruptcy Notice was issued. An order for substituted service of the Bankruptcy Notice was obtained on 18 December 1992. The plaintiff has purported to comply with that order. The purported compliance with that order brought the Bankruptcy Notice to the attention of the defendant's solicitors. There is no explanation for the delay that took place between that time and the bringing of this application. The Court vacation did take place during that period. An application to set aside the Bankruptcy Notice has been made. It came before the Federal Court on 6 July 1993. It has been stood over to abide the determination of this application.
On 29 October 1992, Notices of objection against the amended assessments were lodged with the plaintiff. A copy of each Notice is an annexure to the affidavit of Mr Munro. After the lodging of the Notices, negotiations took place between the plaintiff and Mr Munro. The objections have been disallowed. Notice of the decisions made by the plaintiff was given on 2 July 1993. I am informed that the defendant intends to appeal against these decisions.
The Statement of Claim is in a form that has been used by the plaintiff for some years. It is somewhat extraordinary that the plaintiff has persisted in using such an obviously defective originating process (even in cases such as the present, where substantial sums are claimed), despite repeated criticism and adverse judicial findings.
The document entitled ``Statement of Claim'' consists of three pages. The relevant contents of the first page are as follows:-
``The plaintiff's claim is for $798,548.25 which is due and unpaid particulars whereof are as attached:-''
Presumably, the second page constitutes the attachment which provides the particulars. It contains headings, ``Income Tax'' and ``Provisional Tax''. Beneath the respective headings is a list of amounts of tax (expressed to be referable to a dated Notice of Assessment) together with a statement as to service of the Notices. The third page sets out certain formal requirements.
The defendant submits that the originating process is defective, in that it fails to allege a cause of action; and that it cannot sustain the default judgment.
The pleading rules are to be found in Part 15. The rules, inter alia, require that a pleading shall contain a statement in a summary form of the material facts on which the plaintiff relies (rule 7). The several matters are to be put in a separate paragraph and the paragraphs are to be numbered consecutively (rule 6).
In this case, the originating process (it would be a misnomer to describe it as a pleading) does not allege the material facts on which the plaintiff relies. It could be described as a claim for relief (the first page), to which some particulars are attached (the second page). It may even be debatable whether or not the contents of the first page satisfy the requirements of Part 7 rule 1.
My attention has been drawn to two decided cases (
DFC of T v Pearson 84 ATC 4203; (1983) 15 ATR 177 and
DFC of T v Greenwood (Master Greenwood, unreported, 15 December 1987)). The plaintiff relied on these cases. Both decisions support the view that the material facts to be pleaded include the assessment and the service of the Notice of Assessment. Both clearly demonstrate the inadequacies of the plaintiff's originating process.
It seems to me that the plaintiff should also plead the material facts which cause the assessed tax to become due and payable and the failure of the defendant to pay the tax on the due and payable date.
If it is to be regarded as a pleading, it cannot be said that it complies with rule 6. The requirements of the pleading rules cannot be satisfied by merely attaching some particulars to a claim for relief. A page of attached particulars cannot be regarded as a statement of the material facts constituting the cause of action alleged by the plaintiff (even if all of the requisite material facts could be identified in those particulars). A material fact must be pleaded. It is not sufficient to identify a material fact in particulars (see Ritchie's Supreme Court Procedure NSW Vol 1 [15.7.1]). Particulars are not to be used to fill in gaps in a pleading, which ought to have been filled by a statement of material facts. A party is only required to plead to an allegation of fact made in a pleading (rule 20). A party does not plead to particulars (
Chapple v Electrical Trades Union (1961) 1 WLR 1290). The plaintiff's originating process would frustrate the primary purpose of pleadings, which is to define issues.
ATC 4533
It is conceded that the plaintiff would not be able to make a money claim contemplated by rule 12. Some faint reliance was placed on the provisions of Part 15 rule 10 (presumed facts). However, it is clear that this provision would not relieve the plaintiff from pleading material facts essential to the alleged cause of action.
Part 15 rule 26 enables the Court, at any stage of the proceedings, to order that the whole or any part of a pleading be struck out. It may do so where a pleading discloses no reasonable cause of action and/or has a tendency to cause embarrassment. In my view, the originating process does not disclose any cause of action and it would be embarrassing to a party to have to plead to it. In those circumstances, it is liable to be struck out.
This is an application brought pursuant to Part 40 rule 9(2). A Court exercising jurisdiction under this provision has to look at the whole of the relevant circumstances, in deciding whether or not the default judgment should be set aside. The existence of a bona fide defence and an adequate explanation for the failure to defend and any delay may be relevant matters to consider. There may be other matters. (
Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503 at 506.)
However, where a judgment has been obtained irregularly or in breach of good faith, the defendant is entitled ex debito justitiae to have it set aside. In my view, this is a judgment that has been irregularly obtained. It was founded on an originating process which failed to comply with the rules and, inter alia, disclosed no cause of action. In these circumstances, the defendant is entitled to have it set aside.
I leave aside the question of whether or not the judgment was obtained in bad faith. Whilst it was obtained in circumstances where there was no warning and discussions were apparently continuing between the parties, no submission to that effect was made on behalf of the defendant.
The defendant has put a number of submissions in support of the contention that there are bona fide defences to the claim. These submissions involve a consideration of various provisions of the relevant legislation and regulations made thereunder. They include submissions raising issues such as service of the Notices of Assessment and whether or not the assessed tax has become due and payable. Whilst this application may be disposed of without the necessity of considering these further submissions, in deference to the detailed submissions made by counsel, it may be appropriate to make some further observations.
For present purposes, the relevant provisions of the Income Tax Assessment Act, 1936 are as follows:-
``SECTION 173 AMENDED ASSESSMENT TO BE AN ASSESSMENT
173 Except as otherwise provided every amended assessment shall be an assessment for all the purposes of this Act.
SECTION 174 NOTICE OF ASSESSMENT
174(1) [Service of notice] As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.
174(2)...
174(3) [Additional tax] In subsection (1), `tax' includes additional tax under Part VII.
SECTION 175 VALIDITY OF ASSESSMENT
175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.
SECTION 177 EVIDENCE
177(1) [Notice of assessment] The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.
177(2) [Notice in Gazette] The production of a Gazette containing a notice purporting to be issued by the Commissioner shall be conclusive evidence that the notice was so issued.
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177(3) [Document] The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a document issued by either the Commissioner, a Second Commissioner, or a Deputy Commissioner, shall be conclusive evidence that the document was so issued.
177(4) [Copy or extract] The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced.
SECTION 204 WHEN TAX PAYABLE
204(1) [Notice] subject to the provisions of this Part, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.
204(2) [Additional tax] In subsection (1), `income tax' includes additional tax under Part VII.
SECTION 205 TAXPAYER LEAVING AUSTRALIA
205(1) [Date tax due] Where the Commissioner has reason to believe that a person liable to pay tax may leave Australia before the date on which the tax is due and payable the tax shall be due and payable on such date as the Commissioner notifies to that person.
205(2) [Additional tax] In subsection (1), `tax' includes additional tax under Part VII.
SECTION 208 TAX A DEBT DUE TO THE COMMONWEALTH
208(1) [Effect of tax becoming due and payable] Income tax when it becomes due and payable shall be a debt due to the Commonwealth, and payable to the Commissioner in the manner and at the place prescribed.
208(2) [`income tax'] In subsection (1), `income tax' includes interest under section 170AA or 207A and additional tax under section 207 or Part VII.''
Initially, there was some uncertainty as to whether or not the plaintiff had purported to fix the date upon which the tax was due and payable pursuant to ss 204(1) or 205(1). Counsel subsequently obtained instructions that the plaintiff had purported to act pursuant to s 205(1).
If the plaintiff has purported to act pursuant to s 205(1), that state of affairs could not be gleaned from the contents of the originating process. It does not identify the date on which the tax allegedly became due and payable. The originating process does not plead any of the matters contemplated by the provisions of s 205(1).
Sections 161-177G appear in Part IV of the Act which is headed, ``Returns and Assessments''. Sections 204 and 205 appear in Part VI which is headed, ``Collection and Recovery of Tax''. Section 204 is headed, ``When Tax Payable'' and section 205 is headed, ``Taxpayer Leaving Australia''.
Section 204(1) provides that the income tax assessed shall be due and payable on the date specified in the notice of assessment, such a date not being less than 30 days after the service of the notice. If no date is so specified, the tax is to be due and payable on the thirtieth day after the service of the notice.
The purpose of s 204(1) is to make provision for the fixing of the date when income tax assessed shall be due and payable and, subject to other provisions of Part VI, to ensure that the taxpayer has not less than 30 days after service of the notice of assessment to pay the tax. The date is fixed either by specifying a date in the notice or by service of a notice in which no date is specified.
When the tax becomes due and payable, section 208 then provides that it shall be a debt due to the Commonwealth. Section 209 enables the plaintiff to sue for the recovery of unpaid tax.
It appears that s 205(1) is a provision that has been little used by the plaintiff. It seems that it has received little consideration by the Courts. The plaintiff drew my attention to the decision of Everett J in
DFC of T v Naidoo & Anor 81 ATC 4537. In that case, the ``issue date'' and the ``due date'', in each Notice of Assessment were expressed to be the same, viz 27 August
ATC 4535
1981. In the judgment, the section was referred to as a special provision for abridging time for payment of tax (p 4542). In my view, the judgment does not afford any assistance on the question of the proper construction of s 205(1). There are questions raised in these proceedings which were not litigated in that case.Section 205(1) enables the Commissioner, where he has reason to believe that ``a person liable to pay tax'' may leave Australia ``before the date on which the tax is due and payable'', to fix an earlier date upon which such tax is to be due and payable (being such date as the Commissioner notifies to that person). The operation of s 205(1) involves the giving of notice of that date.
I note that in Naidoo, the plaintiff filed an Amended Statement of Claim. The judgment records that the amendments were confined to the expression of the statutory bases for the assessments. The issue raised by the pleadings (concerning the operation of s 205(1)) was whether or not the Deputy Commissioner had reason to believe that either defendant might leave Australia before the expiration of 30 days from the date of service of the Notices of Assessment. It was contended by the defendants that the plaintiff was not legally justified in acting pursuant to s 205(1). The decision in that case turned on the particular facts before the Court. There was evidence that the Deputy Commissioner had reason to believe that the defendants may leave Australia before the date on which the tax would have ordinarily been payable. Everett J took the view that the Deputy Commissioner was fully justified in the opinion he obviously formed, that the defendants would, if they could, evade their obligations under the Act.
On behalf of the plaintiff, the case has been conducted on the basis that he is not required to allege or prove that he had reason to believe that the defendant may leave Australia before the date on which the tax was due and payable. Indeed, the approach was adopted that the Court was precluded from entertaining any question of compliance with the provisions of s 205(1). There is no evidence that he formed any such belief or of any grounds relied on by him as giving reason for such a belief.
The legislation draws some distinction between an ``assessment'' and a ``notice of assessment''. The authorities establish that an ``assessment'' is not a piece of paper. It is an official act or operation. It is the Commissioner's ascertainment of the amount of tax chargeable to a given taxpayer. A ``notice of assessment'' is the notification of that assessment (
R v DFC of T (SA); Ex parte Hooper (1925-1926) 37 CLR 368 at 373). After any assessment is made, the Commissioner has a duty to serve notice thereof ``upon the person liable to pay the tax'' as soon as conveniently may be. There is some lack of harmony in the legislation. The process of assessment is completed when the Commissioner inserts in the notice of assessment which is served on the taxpayer, the amount of his taxable income and the amount of tax payable thereon (
Batagol v FC of T (1963) 13 ATD 202; (1963) 109 CLR 243). It is a process which, by force of the Act, is definitive of the amount of the taxpayer's liability (subject to review and appeal). Income tax is due when it is assessed and notice is served of that assessment. It does not become payable before the date fixed by section 204 (
Clyne & Anor v DFC of T & Anor 81 ATC 4429 at 4436-4437, 4440; (1981) 150 CLR 1 at 16-17, 23). A person becomes liable to pay tax when the notice of assessment is served (Batagol). There is no legal obligation prior to the service of the notice. Assessment in the sense of mere calculation produces no legal effect. The service of the notice is the levying of the tax. If a date is specified in the notice of assessment, it must be a date not being less than 30 days after service of the notice. If no date is specified in the notice, the due and payable date is the thirtieth day after service of the notice.
In the present case, the Commissioner has issued Notices of Assessment dated 2 September 1992. It was apparently intended to make all tax due and payable on 3 September 1992. No other purported notification of a date has been given. The Notice of Assessment for the year ended 30 June 1986 specifies 3 September 1992 as the date upon which the tax was due and payable. There is dispute as to whether the other Notices of Assessment specify a ``date due and payable''. These Notices of Assessment contain references to ``See Above'' and ``Due date for payment of... is as previously advised''. All Notices of Assessment were forwarded at the one time. It is said that the Notices are confusing and that they have not been served. It is also said that there has been non-compliance with the
ATC 4536
requirements of ss 204(1) and 205(1) and that Notices are not appropriate documents.Section 205(1) may be used by the Commissioner where there is ``a person liable to pay tax'' and there is reason to believe that he may leave Australia ``before the date on which the tax is due and payable''. The authorities support the conclusion that ``a person liable to pay tax'' is a person upon whom a notice of assessment has been served. ``The tax'' which ``is due and payable'' would appear to refer to the ``tax'' which the person is then liable to pay. The date on which such tax ``is due and payable'' is a date that has been fixed either by the specifying of a date in the notice or by the service of a notice in which no date is specified.
Such a construction gives effect to the meaning of the expressions ``a person liable to pay tax'' and ``before the date on which the tax is due and payable''. On this construction, the Commissioner would be able to notify the ``person liable to pay tax'' of an abridged date (being a date ``before the date on which the tax is due and payable'') where notice of the assessment has been served and he has reason to believe that the person may leave Australia ``before the date on which the tax is due and payable'' (being the date fixed pursuant to s 204(1)).
In my view, this is arguably the proper construction to be given to the provisions of s 205(1). If this is the case, the defendant would not have been ``a person liable to pay tax'' at the time of the purported Notice under that provision (which can only be at the time of the alleged service of the Notices of Assessment) and the plaintiff has not complied with the requirements of s 205(1).
The Commissioner has not specified a date which complies with the requirements of s 204(1) (he has failed to allow the not less than 30 day period after service of the Notice of Assessment for payment of the tax assessed therein). If he has specified a date, the date upon which the tax is due and payable cannot be fixed as the thirtieth day after the service of the Notice. The proceedings were commenced prior to the expiry of a 30 day period after service of the Notice.
In the circumstances of this case, it is arguable that the plaintiff has not complied with the provisions of either of ss 204(1) or 205(1); and, that the assessed tax has not become due and payable.
The Act provides that the validity of an assessment is not affected by reason that any of the provisions of the Act have not been complied with (section 175). The plaintiff contends that section 177 precludes the Court from considering any question of non- compliance with the provisions of either of ss 204(1) or 205(1). This contention is disputed by the defendant.
The plaintiff relies on
FJ Bloemen Pty Ltd v FC of T 81 ATC 4280 at 4288 and 4292; (1980-1981) 147 CLR 360 at 375 and 378. At p 375, Mason J (as he then was) and Wilson J said:-
``An explicit and, in our view, correct statement of the effect of sec 177(1) was made by Taylor J. in
McAndrew [(1956) 98 CLR] (at pp. 281-282). For the reasons there expressed his Honour concluded that `s. 177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground'.''
The plaintiff has also relied on
DFC of T v Niblett (1966) 83 WN 405 (a decision of a puisne judge of this Court). At 410, Asprey J (as he then was) said:-
``The evidence in the present case complies with s 177(1) and the copies of the respective notices of assessment for the relevant years specified dates as the dates upon which the tax referred to in each of the notices of assessment was due and payable and these dates were dates prior to the filing of the writ of summons herein. Consequently, in this action, the copies produced of the relevant notices of assessment are conclusive evidence of the due making of the assessments and that the amount and all the particulars of the assessments are correct. These particulars include the dates upon which the tax was due and payable.''
The defendant relies on
McAndrew v FC of T (1956) 11 ATD 131 at 133; (1956) 98 CLR 263 at 270, Dixon CJ, McTiernan J and Webb J observed as follows:-
``The ground over which s. 177(1) gives conclusiveness to the assessment is described as the due making of the assessment and the correctness of the
ATC 4537
amount and all the particulars of the assessment. But that appears to me to comprise the whole ground.''
The defendant also relies on the following passage from the said judgment delivered in Bloemen, which appears at ATC p 4288; CLR p 376:-
``It does not necessarily follow from what we have said that the Act excludes the general jurisdiction of the Supreme Court. Section 177(1) specifically operates by compelling a court, for example the Supreme Court, in the exercise of its jurisdiction to treat a notice of assessment on its production as conclusive evidence that the assessment has been duly made and thereby foreclosing that issue. In theory sec. 177 leaves the Supreme Court with jurisdiction to decide whether an assessment has been duly made in a case in which an appropriate document is not produced.''
In my view, it is arguable that the decisions of the High Court cannot be read as extending the operation of section 177 so as to preclude the Court from considering whether or not there has been compliance with the provisions of ss 204(1) or 205(1). It is an evidentiary provision which begins to operate when an appropriate document is produced in Court. Its effect is to put the making of an assessment beyond challenge. It avoids the need to call an assessor to give oral evidence of the making of the assessment (Bloemen ATC pp 4288-4289; CLR pp 376-378). The due making of the assessment is referable to the ascertainment of the taxpayer's taxable income and to the tax payable thereon (Bloemen ATC p 4289; CLR p 378).
Niblett was not a case in which it was contended that there had been any non- compliance with ss 204(1) or 205(1). The questions raised by the submissions made in these proceedings were not argued in that case. The observations, ``These particulars include the dates upon which the tax was due and payable'', are arguably inconsistent with the decisions of the High Court. Section 177(1) provides, inter alia, that production of the copy Notice shall be conclusive evidence of the due making of the assessment and that the amount and all of the particulars of the assessment are correct. It does not provide that it shall be conclusive evidence of all of the particulars set forth in the Notice of Assessment. The observations do not appear to take into account the distinction between the assessment and the Notice of Assessment. The Notice contains matter additional to the amount of taxable income and of the tax payable thereon.
It could be said that the fixing of the due and payable date is not part of the process of assessment. It is a step taken independently of that process. It may be argued that a taxpayer can contend that assessed tax is not due and payable without challenging the validity of the assessment of that tax. The operation of section 177 is confined to the assessment process which involves the ascertainment of the amount of tax payable by the taxpayer. Sections 204(1) and 205(1) operate in the area of collection and recovery of tax after it has been assessed. Under these provisions, the Commissioner is exercising a power to make assessed tax become ``due and payable''. It would be surprising if the legislature intended to preclude the Court from considering whether or not the exercise of these powers complied with the statutory requirements. If the Court was precluded from doing so, the Commissioner would be at liberty to override the provisions and disregard compliance with them according to his whim (
McDonald v Commr for Business Franchises (1992) 67 ALJR 55).
For the purposes of this application, it is not necessary to reach any final conclusion on the arguments put by the parties. It is sufficient for present purposes to conclude that submissions made on behalf of the defendant are arguable. In the circumstances of this case, it seems to me to be arguable that the assessed tax has not become due and payable and that the defendant was not liable to pay it at the date of the filing of the originating process. If that is the case, the originating process is premature and liable to be dismissed.
The defendant has made other submissions. The submissions have been expressed in some detail and may be found in the written submissions prepared by counsel for the defendant. As an alternative to the setting aside of the default judgment, the defendant has sought a stay of execution of the judgment, pending the resolution of the defendant's rights of objection, under the tax legislation. In the light of the conclusions that I have reached, no further observations need be made concerning these submissions.
ATC 4538
When all of the relevant circumstances of this case have been weighed up, it seems to me, that the interests of justice require that the judgment be set aside.
Therefore, I order that the default judgment be set aside. I give leave to the plaintiff to file an Amended Statement of Claim within 7 days. The defendant is to file his Defence within 21 days.
I make no order as to the costs of the application. It seems to me that this is the appropriate order having regard to the particular facts and circumstances of this case. Subsequent to the conclusion of the hearing, the plaintiff brought to my attention a ``special claim for costs'' made by it (see letter dated 8 July 1993 from counsel for the plaintiff). In reaching my decision as to costs, I have taken this ``special claim'' into account.
Exhibits may be returned after 28 days.
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