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PICKERING & ORS v FC of T

Judges:
Cooper J

Court:
Federal Court

Judgment date: 5 September 1997

Cooper J

On 5 December 1996 the applicants filed an application seeking the following relief:-

``1. A declaration that the purported determinations of the Deputy Commissioner of Taxation are not determinations for the purposes of the Income Tax Assessment Act (as amended) 1936 (`the Act'); the Taxation (Unpaid Company Tax) Assessment Act 1982 (`the TUCT Act'); or any other Act.

2. A declaration that such determinations are void and of no effect.

3. A declaration that the purported notices of assessment or notices of amended assessment are not assessments for the purposes of the Act.

4. A declaration that the purported notices of assessment or notices of amended assessment are void and of no effect.

5. A declaration that the defendants (sic) have no liability to pay any tax to the plaintiff (sic) pursuant to the various notices of assessment.

6. A declaration that all monies held by the Deputy Commissioner of Taxation in respect of the various notices of assessment be returned to each of the applicants.

7. A declaration that the Deputy Commissioner of Taxation be restrained from issuing any further notices of assessment in respect of or in substitution for the various notices of assessment to which the applicants seek the above named declarations.

8. A declaration that the purported allotment of shares in the company Pickering Promotions Pty Limited to each of Jamieson L Pickering; Penelope G Pickering; and Melanie A Pickering is void.

9. An order that all or any judgments obtained by the respondents against any or all of the applicants in respect of the various notices of assessments be set aside.

10. A declaration that the purported transfer of shares of Pickering Promotions Pty Limited by each of Jamieson L Pickering; Penelope G Pickering; and Melanie A Pickering are void.

11. Such further or other declarations and/or orders as may seem appropriate to the Court.

12. Costs.''

The application was accompanied by an affidavit of Mr David Storey, the applicants' then solicitor. A perusal of the affidavit does

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not shed much light on the nature of the claims nor the entitlement to the relief claimed.

The respondent Deputy Commissioner of Taxation by notice of motion filed on 13 February 1997 sought that the proceedings be dismissed or stayed pursuant to Order 20 rule 2 of the Federal Court Rules or that the applicants file and serve a statement of claim giving particulars of the assessments which the applicants alleged were void.

On 28 February 1997 Spender J ordered that the applicants file a statement of claim which they did on 4 April 1997. The notice of motion seeking a dismissal or stay was stood over. The respondent, having considered the statement of claim, elected to proceed with the application for dismissal or stay. To succeed on the notice of motion the respondent must show that the applicants' case is so clearly untenable that it cannot possibly succeed:
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 130.

The material read on the hearing establishes the following facts which appear to be uncontroversial:-

  • 1. The first and second applicants are husband and wife although separated.
  • 2. The third, fourth and fifth applicants are children of the first and second applicants, as are Toni and Stephanie Pickering.
  • 3. On 15 December 1975 Gingpicker Promotions Pty Ltd (``GP'') formerly Pickering Promotions Pty Ltd was incorporated and shares were allotted as follows:-
    • (a) First applicant - 1 ordinary class share
    • (b) Second applicant - 1 ordinary class share
    • (c) Toni Pickering - 1 ``A'' class share
    • (d) Third applicant - 1 ``E'' class share
    • (e) Fourth applicant - 1 ``B'' class share
    • (f) Fifth applicant - 1 ``C'' class share
    • (g) Stephanie Pickering - 1 ``D'' class share
  • 4. At the time the shares were allotted the children were all minors.
  • 5. The shares were sold in June 1980 before any of the children attained the age of 18 years.
  • 6. The first and second applicants were shareholders in YUP Productions Pty Ltd (``YUP'') formerly Pickering Productions Pty Ltd.
  • 7. Each of the applicants and the other two children were assessed pursuant to the Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth) (``the TUCT Act'') in respect of primary taxable amounts or secondary taxable amounts of GP for the years ended 30 June 1977, 30 June 1978, 30 June 1980 and in respect of secondary taxable amounts of YUP in the year ended 30 June 1979.
  • 8. The respondent exercised the discretion under s 5(4) and s 6(18) of the TUCT Act in favour of Toni Pickering and Stephanie Pickering so that the primary taxable amount or secondary taxable amount in respect of them was taken not to exist or to have existed in relation to them, but has refused to exercise the discretion in favour of the second, third, fourth or fifth applicant.
  • 9. On 21 October 1994 the Deputy Commissioner issued proceedings against the first applicant and on 2 November 1994 against the second, third and fourth applicants for various amounts to recover the tax as assessed under the TUCT Act and for additional tax for late payment computed under s 13 of the TUCT Act. Like proceedings were commenced in the Supreme Court of New South Wales in action 11139 of 1996 against the fifth applicant for $289,654.57 plus costs.
  • 10. The proceedings in the District Court were defended and the notices of defence are exhibited to the affidavit of Patricia Hannigan read on this notice of motion.
  • 11. Judgment was given in the District Court on 11 December 1996 against the first, second, third and fourth applicants in the following amounts:-
    • (a) First applicant$209,653.87 plus costs
    • (b) Second applicant$233,129.10 plus costs
    • (c) Third applicant$250,000 plus costs
    • (d) Fourth applicant$250,000 plus costs
  • 12. By s 4(1) of the TUCT Act, Part IV and Division 1 of Part VI of the Income Tax Assessment Act 1936 (Cth) (``the ITAA'') were made applicable for the purposes of the assessment and collection of recoupment tax

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    and the collection of late payment tax under the TUCT Act. Recoupment tax is defined in s 3(1) of the TUCT Act to mean ``promoters recoupment tax or vendors recoupment tax''. The later term is itself defined as ``tax assessed under this Act and imposed by the Taxation (Unpaid Company Tax - Vendors) Act 1982''.

Broadly speaking, where the conditions of s 5(1) or s 5(2) of the TUCT Act are satisfied a vendor or vendors controlling 90% of the voting power in a company which has an unpaid amount of overdue company tax (as defined) upon sale of those shares become assessable to a primary taxable amount equal to the overdue company tax calculated in accordance with the subsections. The power of the Commissioner to make such an assessment is contained in s 169 of the ITAA as applied by s 4(1) of the TUCT Act. Section 5(4) of the TUCT Act provides:-

``5(4) Where a primary taxable amount exists or existed in relation to a person in relation to an amount of company tax payable by a company and-

  • (a) the Commissioner, having regard to-
    • (i) circumstances relating to the sale of the shares or the interest in shares to which the primary taxable amount relates;
    • (ii) circumstances, whether occurring before or after that sale, that caused or contributed to the failure of the company to pay that company tax and
    • (iii) such other circumstances as the Commissioner considers relevant,

    considers it unreasonable that the primary taxable amount should be taken to exist or to have existed in relation to the person; or

  • (b) if the primary taxable amount is less than $100 - the Commissioner considers that the primary taxable amount should not be taken to exist or to have existed in relation to the person,

the primary taxable amount shall not be taken to exist or to have existed in relation to the person.''

Section 6 of the TUCT Act provides for the assessment of persons in respect of a secondary taxable amount in the various circumstances provided in the section. Section 6(18) vests a like discretion in the Commissioner to that contained in s 5(4).

Section 4(6) of the TUCT Act provides:-

``4(6) Nothing in section 170 of the Assessment Act prevents the amendment, at any time, of an assessment for the purpose of giving effect to subsection 5(4), paragraph 5(9)(d), subsection 6(2), 6(18), 8(5), 8(6) or 8(7) or section 16 or 17 of this Act.''

The complaint of the first applicant is, in essence, that the respondent delayed the institution of the recovery proceedings with the purpose or consequence that penalties and additional tax accrued.

The first applicant therefore alleges that the actions of the respondent were unconscionable and that the first applicant should therefore be relieved of the consequences of the assessments and the judgment obtained by the respondent.

It is important to recall the statutory scheme for the recovery of tax after assessment.

Upon service of the notice of assessment in accordance with s 174 of the ITAA, the tax specified in the notice becomes payable on the date specified in the notice or the thirtieth day after service if no date is specified (s 204(1), ITAA). Thereafter, if the tax is not paid the taxpayer becomes liable by the operation of s 207 of the ITAA to additional tax at the statutory rate for the period the tax remains unpaid. The Commssioner has a power to remit the additional tax if satisfied of the matters contained in s 207(1A).

If tax is unpaid, the Commissioner may sue for recovery irnrnediately after expiry of the time when the tax becomes due and payable (s 207(2), ITAA) as a debt due to the Commonwealth (s 208, ITAA). Judgment against the taxpayer does not mean, for the purpose of incurring a liability to additional tax by way of penalty, that the primary tax has ceased to be due and payable by reason only of the entry of judgment (s 207(1B) ITAA). Nor does the entry of judgment mean that penalty interest ceases to run on unpaid tax (s 207A(5) ITAA).

The consequence of the statutory scheme is that irrespective of when the Commissioner sues a defaulting taxpayer to judgment, additional tax and penalty interest continue to accrue until payment is made. In these

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circumstances, it was submitted by counsel for the respondent, that the proximate cause of the first applicant becoming liable to pay the amount of the December 1996 judgment was the first applicant's failure to pay the tax as assessed when it became due and payable and not any delay on the part of the respondent to initiate recovery proceedings. I agree.

In any event there is no evidence of any decision being made on the part of the respondent to delay or to await or permit the accrual of penalties. On the first applicant's own material, objections were lodged to the assessments which were rejected and appeals were lodged to the Administrative Appeals Tribunal against the assessments. Those appeals were apparently withdrawn. Negotiations were conducted with the respondent by the first applicant's accountant during 1991 and in 1992 the first applicant wrote to the respondent a letter which included the following:-

``This letter is to inform you that I Lawrence David Pickering accept moral responsibility for all taxation debts alleged by the taxation office to be owed by

Toni Leanne Pickering

Jamieson Lawrence Pickering

Melanie Anita Pickering

Stephanie Laine Pickering

Penelope Gaye Pickering

Carmel Margaret Pickering

These members of my family have not benefited from any monies, at any time in the past, which may have attracted tax.''

The problem for the first applicant is that he did not thereafter pay his own or his wife and children's tax liability. He cannot complain that he was in 1994 sued in respect of his own tax liability. The respondent in taking recovery proceedings was discharging a statutory duty to collect the tax, penalties and interest. The discharge of the duty in the circumstances of this case, so far as the first applicant is concerned, cannot be unconscionable.

The first applicant's claim is for this reason alone so clearly untenable that it cannot possibly succeed. Accordingly the respondent is entitled to have the first applicant's claim dismissed.

The claim of the second, third, fourth and fifth applicants is that the respondent at the time of the making of each of the assessments to tax under the TUCT Act did not act in good faith because the respondent did not exercise the discretion under s 5(4) and/or s 6(18) of the TUCT Act in favour of these applicants. The evidence of bad faith, it was submitted, is to be found in the subsequent amendment of the assessments of Toni and Stephanie Pickering to nil and in the attempts thereafter to recover the tax from the applicants. It was further submitted that the respondent failed to assess under s 5(2) and under s 6 of the TUCT Act because the respondent failed to exercise the discretion under s 5(4) and s 6(18) respectively of the TUCT Act.

The alternative argument was that the respondent acted in bad faith in assessing the second, third, fourth and fifth applicants to vendors recoupment tax in a manner inconsistent with or contrary to the exercise of the discretion under s 5(4) and s 6(18) of the TUCT Act in favour of Toni Pickering and Stephanie Pickering when their circumstances were identical or not materially different from those persons.

From the material filed by the applicants it appears that all of the applicants and the other two children were assessed by the Commissioner for vendor recoupment tax under the TUCT Act. Plaints were filed in the Court of Petty Sessions in Sydney against each of them on 20 November 1985 to recover vendor's recoupment tax and additional tax for late payment in respect of GP for the year ended 30 June 1980 (see Exhibits PFH-4, E to H inclusive to the affidavit of Ms Hannigan filed on behalf of the respondent). Judgment was entered against the first, second, fourth and fifth applicants and against Toni Pickering but was not entered against Melanie and Stephanie Pickering who were then minors.

As appears from the affidavits of Stephanie Pickering and Toni Pickering, each made application to the respondent in 1990 seeking a waiver of the vendor's recoupment tax. Toni Pickering made a disclosure of her personal circumstances to the Sydney office of the respondent, she deposes in 1990, and was advised of the decision to waive in 1995. Stephanie Pickering made a disclosure of her personal circumstances to the Newcastle office of the respondent, she deposes in 1990, and was advised of the decision to waive by letter dated 23 November 1994. The waiver in each case

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was given effect to by amendment of the assessments to nil. Such a procedure is contemplated by s 4(6) of the TUCT Act.

The second, third, fourth and fifth applicants did not apply for waiver of the vendor recoupment tax until 23 January 1995. The requests were refused by letters dated 2 February 1996.

Section 175 of the ITAA provides:-

``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(1) of the ITAA provides:-

``177(1) 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.''

The respondent, as annexures to the afffidavit of Christopher McCann, produces certified copies of the relevant assessments in relation to each of the applicants and relies upon the provisions of s 175 and s 177(1) of the ITAA as applied to assessments made under the TUCT Act. Unless the second, third, fourth and fifth applicants can make out the existence of an arguable case that the making of the assessments by the respondent was not a bona fide attempt to exercise the powers conferred by s 5 or s 6 of the TUCT Act, was not related to the subject matter of the TUCT Act, or was not reasonably capable of reference to those powers, the challenge to the assessments and their liability to pay the tax, additional tax by way of penalty, and interest, must fail because of the operation of those sections:
DFC of T v Richard Walter Pty Ltd 95 ATC 4067 at 4074, 4080, 4088, 4094-4095, 4100-4101; (1994-1995) 183 CLR 168 at 186, 197, 211, 222-223, 233;
Madden v Madden & Ors 96 ATC 4268 at 4279, 4297; (1996) 136 ALR 98 at 111-112, 133;
Hoare Bros Pty Ltd v DFC of T 96 ATC 4163 at 4171; (1996) 135 ALR 677 at 687.

The requirement that the applicants must ultimately show an absence of a bona fide attempt by the respondent to exercise the power of assessment does not require that they prove the respondent acted mala fide:
FC of T v Stokes 97 ATC 4001 at 4012.

Have the second, third, fourth or fifth applicants made out on the pleadings or in the material filed, a colourable case of lack of bona fides on the part of the respondent? There is no direct evidence that the respondent treated the second, third, fourth and fifth applicants differently or inconsistently from Toni or Stephanie Pickering when making the assessments under the TUCT Act or that the respondent failed to take into account the provisions of s 5(4) or s 6(18) of the TUCT Act in making the assessments. The only circumstance relied upon by these applicants was the failure of the respondent to exercise the discretion under s 5(4) or s 6(18) of the TUCT Act in their favour when it was exercised in favour of Toni and Stephanie Pickering. It was submitted that this subsequent exercise of discretion ex post facto demonstrates that there was not an attempt in good faith to determine the taxable amount. It was further submitted that the pursuit of claims against the second, third, fourth and fifth applicants, or against the children only, was itself bad faith sufficient to deprive s 177 of its evidentiary force in respect of the copy assessments.

The fundamental flaw in these submissions lies in the failure to distinguish between the process of assessment and the steps taken subsequently to recover the tax as assessed. The process of assessment is not complete until notice of assessment is served:
Batagol v FC of T (1963) 13 ATD 202 at 204; (1963) 109 CLR 243 at 251-252;
FC of T v Prestige Motors Pty Ltd 94 ATC 4570 at 4573-4574; (1994) 181 CLR 1 at 13; Hoare Bros Pty Ltd v DFC of T at ATC 4171; ALR 687. It is this process which is protected by s 175 of the ITAA. The liability to pay the tax thereafter, subject to the statutory appeal rights to challenge such liability, attaches by the operation of s 204 of the ITAA (Batagol at ATD 204; CLR 252). The time to determine the validity of an assessment is upon its completion. Once complete, the assessment, by virtue of s 39B(1) of the Judiciary Act 1903 (Cth) becomes amenable to judicial review in this court (DFC of T v Richard Walter Pty Ltd at ATC 4078; CLR 192). If at that time the

ATC 4899

assessment has been made bona fide in the exercise of the assessment power under s 5 or s 6 of the TUCT Act for the purposes of that Act, the assessment has been duly made. In those circumstances the Hickman principle (
R v Hickman Ex parte Fox and Clinton (1945) 70 CLR 598) has been complied with and s 175 operates to protect the validity of any assessment. No subsequent conduct on the part of the respondent can render the assessment process invalid. By definition such conduct does not relate to the process of assessment.

Once the Hickman principle has been satisfied, the assessment is one to which s 177 of the ITAA applies. Production of the notice of assessment or a certified copy of it, conclusively evidences the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) on a review or appeal relating to that assessment, that the amount and all the particulars of the assessment are correct.

In my view the second, third, fourth and fifth applicants do not in any real sense demonstrate the likelihood of there being a triable issue concerning whether the assessment of vendor's recoupment tax which were made were carried out otherwise than in good faith. All of the conduct they point to occurred after completion of the assessment process and such conduct is not capable of ex post facto demonstrating that the assessments were made other than in good faith. Absent the colour of a case of bad faith in the making of the assessments, s 177 will operate to cause the challenges to the assessments by judicial review under s 39B of the Judiciary Act to fail.

The proper avenue to challenge the applicants' liability to tax was to exercise the rights of appeal or review given by the ITAA to each of the applicants upon service of the notice of assessment. The applicants who were infants both at the time the shares in the companies were allotted to them, and when they were sold and on that basis dispute they were shareholders or vendors for the purposes of s 5 or s 6 of the TUCT Act, had rights of appeal or review exerciseable in accordance with the ITAA and/ or Part IVC of the Taxation Administration Act 1953 (Cth). Having failed to successfully exercise those rights of appeal or review, each applicant by s 204(1) of the ITAA became liable to pay the amount specified in the assessment and such amount became recoverable as a debt due to the Commonwealth in a court of competent jurisdiction. Section 177 of the ITAA precluded any collateral attack in recovery proceedings on the validity of the assessment on the basis of arguments which were not pursued by way of appeal or review.

The real matter of complaint of the second, third, fourth and fifth applicants is the refusal of the respondent to exercise the discretion under s 5(4) and s 6(18) of the TUCT Act. That decision was communicated by the respondent by letters dated 2 February 1996. The exercise of the discretion when applied for would have had the effect that the primary taxable amount and secondary taxable amount otherwise existing would not be taken to exist or to have existed in relation to each of the applicants. That would have resulted in amended assessments which waived the vendor's recoupment tax.

It was submitted by the second, third, fourth and fifth applicants that the decision was made in bad faith in an administrative law sense because it had been exercised for purposes otherwise than those for which the power was conferred or without regard to the relevant, or only the relevant considerations:
Melton Medes Ltd v Securities and Investments Board [1995] Ch 137 at 147. However, the improper purpose or irrelevant circumstances were not identified. There are no reasons before the court as to why the decision-maker refused to exercise the discretion or what material was before the decision-maker at the time.

It was submitted by the third, fourth and fifth applicants, and there is affidavit evidence from each, that his or her situation is relevantly not different to those of Toni and Stephanie Pickering and that because they obtained the favourable exercise of the discretion, and the others did not, there is a colourable case that the discretion miscarried on the basis of inconsistent treatment.

Counsel for the respondent submitted that the manner in which the respondent treated the other two taxpayers is irrelevant to the decision to refuse the request of these taxpayers for a like exercise of discretion. It was submitted that what may have been a misapplication of the discretion in favour of Toni and Stephanie Pickering does not entitle the others to a like misapplication of the discretion.

The difficulty with the submission made by the respondent is that the exercise of the

ATC 4900

discretion is the doing of an official act expressly provided for under statute by a public officer. In those circumstances the third, fourth and fifth applicants are entitled to rely upon the operation of two maxims. The first, omnia praesummuntur rite et solemniter esse acta donec probetur in contrarium: everything is presumed to be rightly and duly performed until the contrary is shown. The second, omnia praesummuntur rite et solemniter esse acta: all acts are presumed to have been rightly and regularly done.

As to the first presumption, the following is said in Broom's Legal Maxims (6th Ed) (1884) at 899-900:-

``... that in the absence of proof to the contrary, credit should be given to public officers who have acted, prima facie within the limits of their authority, for having done so with honesty and discretion.''

The formulation in Broom is taken from the judgment of Willes J on behalf of the Court of Exchequer in
Earl of Derby v The Bury Improvement Commissioners (1869) LR 4 Ex 222 at 226 in relation to the exercise of a statutory discretion.

The second presumption would operate, in default of reason to conclude to the contrary, to presume that the respondent in exercising the discretion in favour of the other two children had regard to the circumstances in s 5(4)(a) and s 6(18)(a) of the TUCT Act and exercised the discretion upon the prerequisite consideration of unreasonableness having been formed:
Western Stores Ltd v Orange City Council [1971] 2 NSWLR 36 at 46-47.

The respondent when asked to exercise the discretion in favour of the second, third, fourth and fifth applicants was under a legal duty to them to act fairly. In
Inland Revenue Commissioners v National Federation of Self Employed and Small Businesses Ltd [1982] AC 617, Lord Scarman said (at 651):-

``... I am persuaded that the modern case law recognises a legal duty owed by the revenue to the general body of the taxpayers to treat taxpayers fairly; to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise; to ensure that there are no favourites and no sacrificial victims.''

The statement of Lord Scarman was accepted as a correct statement of the law by Lord Templeman in whose opinion Lord Scarman, Lord Edmund-Davies, Lord Keith and Lord Brightman agreed in
Re Preston [1985] AC 835 at 864. His Lordship said:-

``Mr Brodie, on behalf of the appellant, submitted that if, as Lord Scarman announced in the Self-Employed case [1982] AC 617, the commissioners owe a duty of fairness to the general body of taxpayers, the commissioners must equally owe a duty of fairness to each individual taxpayer. I agree, but a taxpayer cannot complain of unfairness, merely because the commissioners decide to perform their statutory duties including their duties under section 460 to make an assessment and to enforce a liability to tax. The commissioners may decide to abstain from exercising their powers and performing their duties on grounds of unfairness, but the commissioners themselves must bear in mind that their primary duty is to collect, not to forgive, taxes. And if the commissioners decide to proceed, the court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair. The commissioners possess unique knowledge of fiscal practices and policy. The commissioners are inhibited from presenting full reasons to the court for their decisions because of the duty of confidentiality owed by the commissioners to each and every taxpayer.

The court can only intervene by judicial review to direct the commissioners to abstain from performing their statutory duties or from exercising their statutory powers if the court is satisfied that `the unfairness' of which the applicant complains renders the insistence by the commissioners on performing their duties or exercising their powers an abuse of power by the commissioners.''

These two decisions of the House of Lords have been cited with approval in this court in respect of the exercise of the respondent's powers under the ITAA:
David Jones Finance and Investments Pty Ltd & Anor v FC of T 90 ATC 4730 at 4733; (1990) 21 ATR 718 at 722 and on appeal 91 ATC 4315 at 4318; 21 ATR 1506 at 1510 (the disapproval of this decision

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by the High Court in Richard Walter Pty Ltd did not put in doubt the existence of a duty or the availability of judicial review in respect of its discharge);
Ando Minerals NL v DFC of T 94 ATC 4163 at 4164; (1994) 27 ATR 593 at 594; see also
FC of T v Biga Nominees Pty Ltd 88 ATC 4270; [1988] VR 1006 (FC).

Although Davies J in
Smiles v FC of T & Ors 92 ATC 4203; (1992) 35 FCR 405 doubted whether Lord Scarman meant that ``the legal duty of fairness'' required that every taxpayer be treated in the same manner (at ATC 4213; FCR 418), there is a growing body of academic and judicial opinion that persons in like situations are entitled at law to receive like treatment: De Smith, Woolf and Jowell ``Judicial Review of Administrative Action'' (Sweet & Maxwell 1995) at 13-036, 13-041, 23-024; Aronson and Dyer ``Judicial Review of Administrative Action'' (LBC 1996) at 379-381;
Sunshine Coast Broadcasters Ltd v Duncan (1988) 83 ALR 121 at 132;
Fares Rural Meat and Livestock Co Pty Ltd v Australian Meat and Live-stock Corporation (1990) 96 ALR 153 at 167-168;
Aboriginal Land Council (NSW) v Aboriginal and Torres Strait Island Commission (1995) 131 ALR 559 at 576-577.

De Smith, Woolf and Jowell source the duty of those applying the law to treat all persons similarly situated equally in the rule of law (at 13-036; see also Wade & Forsyth ``Administrative Law'' (7th Ed Clarendon 1994) at 25-26) and the principle of legality. The view that the rule of law and principle of legality have procedural and substantive effect, of which equality of treatment is one aspect, has been recently adopted by Lord Steyn in
R v Secretary of State for the Home Department, Ex parte Pierson [1997] 3 WLR 492 at 521-522 where his Lordship said:-

``... The rule of law in its wider sense has procedural and substantive effect. While Dicey's description of the rule of law (Law of the Constitution, p 203) is nowadays regarded as neither exhaustive nor entirely accurate even for his own time, there is much of enduring value in the work of this great lawyer. Dicey's famous third meaning of the rule of law is apposite. He said, at p 203:

`The ``rule of law'', lastly, may be used as a formula for expressing the fact that with us the law of constitution, the rules which in foreign countries naturally form part of a constitutional code, are not the source but the consequence of the rights of individuals, as defined and enforced by the courts; that, in short, the principles of private law have with us been by the action of the courts and Parliament so extended as to determine the position of the Crown and its servants; thus the constitution is the result of the ordinary law of the land.'

This was the pivot of Dicey's discussion of rights to personal freedom, and to freedom of association and of public meeting, at pp 206-283. It is clear therefore that in the relevant sense Dicey regarded the rule of law as having both procedural and substantive effect. In a valuable essay Professor Jeffrey Jowell has re-examined Dicey's theme: `The Rule of Law Today,' in Jowell and Oliver, The Changing Constitution, 3rd ed (1994), pp 74-77. Relying on striking modern illustrations Professor Jowell concluded that the rule of law has substantive content: see
Hall & Co Ltd v Shoreham-by-Sea Urban District Council [1964] 1 WLR 240;
Congreve v Home Office [1976] QB 629 and
Wheeler v Leicester City Council [1985] AC 1054 per Lord Templeman with whom Lord Bridge of Harwich, Lord Brightman and Lord Griffiths agreed. Wade, Administrative Law, 7th ed (1994), pp 24 et seq and De Smith and Brazier, Constitutional and Administrative Law, 7th ed (1994), p 18, are to the same effect. Unless there is the clearest provision to the contrary, Parliament must be presumed not to legislate contrary to the rule of law. And the rule of law enforces minimum standards of fairness, both substantive and procedural.''

It is clearly arguable that the duty of fairness which the respondent owed to the second, third, fourth and fifth applicants required that the discretion under s 5(4) or s 6(18) of the TUCT Act be exercised in their favour if they were truly in the like situation to the two daughters who received a favourable exercise of the discretion and if the applicants prove upon trial a breach of the duty they will be entitled to have the refusal quashed and the respondent required to exercise the discretion according to law. The existence of the family relationship takes this case out of the broad general category of

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taxpayer to which Davies J was referring in Smiles. Nor is the exercise of the discretion under s 5(4) or s 6(18) a discretion exercised as part of the good management of the collection of tax of which Lord Scarman spoke. The strongest case is clearly that of the third, fourth and fifth applicants as children claiming to be in an identical situation to their siblings in respect of the relevant matters which go to the exercise of the discretion. The second applicant as the mother cannot make the same claim to equality as the children. Nevertheless it cannot be said that her claim to equality in a practical sense, having regard to the family arrangements and relationships, is doomed to failure.

The first applicant does not make such a claim to equality and the first applicant's material shows that at the relevant time he was the controlling mind making the decisions which gave rise to the events which led to the assessments of vendors recoupment tax.

There is no claim for relief in respect of the refusal to exercise the discretion in February 1996. However, such a challenge was made in argument. In my view the District Court of New South Wales does not have the power to review the respondent's refusal or to grant any relief which leads to the present assessments being amended. There is therefore no estoppel arising from the failure by the second, third, fourth and fifth applicants to litigate this question in those proceedings.

The statement of claim in its present form will be struck out and the first applicant's claim dismissed.

The second, third, fourth and fifth applicants shall have leave to re-plead to raise a claim for judicial review of the respondent's decision of 2 February 1996 to refuse to exercise the discretion.

There is no reason why the ordinary rule as to costs should not apply.

THE COURT ORDERS THAT:

1. The application of the first applicant against the respondent be dismissed.

2. The statement of claim filed 4 April 1997 be struck out.

3. The second, third, fourth and fifth applicants have leave to file and serve within twenty-eight days a fresh statement of claim seeking judicial review of the respondent's decisions contained in or evidenced by the respondent's letters of 2 February 1996.

4. The applicants pay the respondent's costs of and incidental to its notice of motion filed 13 February 1997 to be taxed if not agreed.


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