OIL BASINS LIMITED v COMMONWEALTH OF AUSTRALIA & ORS

Judges:
Dawson J

Court:
High Court of Australia

Judgment date: Judgment delivered 10 November 1993

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Dawson J

On 1 October 1993 I gave leave to the defendants to enter conditional appearances for the purpose of enabling them to argue that the first and second defendants should be removed from this action upon the basis that no justiciable issue exists between the plaintiff and them. If the first and second defendants, the Commonwealth of Australia and the Commissioner of Taxation, were removed from the action, it would cease to be a matter under s. 75(iii) of the Constitution in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party, and this Court would cease to have original jurisdiction.

I now have before me two summonses, one issued by the first and second defendants and the other issued by the third, four and fifth defendants. They seek orders that the first and second defendants be removed or struck out as parties and that the proceedings otherwise be brought to an end. It is desirable to set out some of the background to the action.

On 28 December 1960 Dr Weeks, an American petroleum geologist, entered into a consultancy agreement with the third defendant, The Broken Hill Proprietary Company Limited (``BHP''), to advise it in its search for crude oil and gas. Under the consultancy agreement BHP agreed, amongst other things, to pay to Dr Weeks or his nominee an overriding royalty of 2½% of the gross value of all hydrocarbons produced and recovered by BHP within, amongst other areas, the area in Bass Strait covered by an exploration permit taken out on the advice of Dr Weeks. BHP granted to Oil Basins Incorporated (``OBI'') the overriding royalty for which the consultancy agreement provided. By a series of assignments, the obligations under the royalty agreement were assigned to the fourth defendant, BHP Petroleum (Bass Strait) Pty. Ltd., and the right to receive the royalty was assigned to the plaintiff, Oil Basins Limited. On 12 May 1964 the fifth defendant, Esso Australia Resources Ltd., then known as Esso Exploration and Production Australia Inc., farmed into the relevant exploration permit area subject to a 2½% overriding royalty in favour of OBI.

The royalty agreement between BHP and OBI provided that the royalty should be paid in cash unless OBI elected to receive the same in kind. After the discovery of crude oil and gas in the relevant area, the royalty was paid in cash.

On 26 June 1991 the Petroleum Resource Rent Legislation Amendment Act 1991 (Cth) was enacted. Retrospectively from 1 July 1990, that Act replaced the existing tax scheme which applied to the Bass Strait project with a petroleum resource rent tax (``PRRT'')<sup>[1]</sup> Petroleum Resource Rent Tax Assessment Act 1987 (Cth), s. 31(g) inserted by Petroleum Resource Rent Legislation Amendment Act 1991 (Cth), s. 9. . As a result, petroleum produced by the Bass Strait project attracts tax under the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) (``PRRT Assessment Act''). The tax is payable on ``the taxable profit of a person... in relation to a petroleum project''<sup>[2]</sup> PRRT Assessment Act, s. 21. . Taxable profit is relevantly defined as ``the assessable receipts derived by a person'' less the ``deductible expenditure incurred by the person''<sup>[3]</sup> ibid., s. 22. . The ``assessable receipts'' are relevantly defined as the sum of ``assessable petroleum receipts'' and ``assessable exploration recovery receipts''^[4] ibid., s. 23(1). . ``Assessable petroleum receipts'' are based upon the sale price or market value of petroleum ``recovered'' from the project area^[5] ibid., s. 24. .

The fourth and fifth defendants (``the producers'') filed returns pursuant to s. 59 of the PRRT Assessment Act for the financial years ended 30 June 1991 and 1992. Notices of assessment were issued in response to these

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returns. The producers filed returns for the financial year ended 30 June 1993 but accompanied them with letters stating that the producers intended to lodge returns on behalf of the plaintiff and ``amended and additional returns'' on their own behalf. The assessments for 1993 were issued on 10 August 1993. The producers lodged notices of objection to these assessments on 8 October 1993. These notices alleged that part of the assessed taxable profit was derived, not by the producers in relation to a petroleum project, but by the producers in their capacity as representatives, agents or trustees of the plaintiff. In effect, the producers claimed that the plaintiff had an interest in 2½% of the production and that the plaintiff, not the producers, should pay PRRT in relation to that interest.

A dispute over the amount payable pursuant to the royalty agreement was first referred to arbitration in September 1984. An appeal against an interim award was determined when in August 1988 this Court refused applications for special leave to appeal from the judgment of the Full Court of the Supreme Court of Victoria. The arbitration continued, and a final award was made on 8 May 1992. In July 1992 the plaintiff referred to arbitration another dispute under the agreement. Preliminary steps in that arbitration have been completed and the hearing is scheduled to begin on 24 November 1993.

The current arbitration also involves a dispute about the amount payable to the plaintiff under the royalty agreement. One issue arises from the producers' claim that some of the PRRT paid by them was paid on behalf of the plaintiff. They claim to be entitled to deduct the amount paid from the royalty payments. The plaintiff disputes that it was liable to pay PRRT and that the producers paid tax on its behalf. The amounts involved are substantial.

On 20 September 1993 the plaintiff commenced this action in this Court. The amended statement of claim seeks declarations that the plaintiff is not liable to pay PRRT and that the producers did not pay PRRT on the plaintiff's behalf. It seeks an injunction restraining the producers from paying tax on the plaintiff's behalf in the future.

The second defendant, the Commissioner of Taxation, has not issued any assessment pursuant to the PRRT Assessment Act against the plaintiff. However, he concedes that he has given no indication that he has formed a view that the plaintiff was or was not liable to pay PRRT. The first defendant, the Commonwealth, appeared by the same counsel whose submissions drew no distinction between the Commonwealth and the Commissioner. It is convenient to refer to his submissions as those of the Commissioner. The submissions made by the Commissioner were adopted by the third, fourth and fifth defendants.

The Commissioner contends that the plaintiff is not entitled to any relief against him because the statement of claim does not allege any material fact from which it might be concluded that there has been or will be any wrongful act or omission on the part of the Commissioner. He contends that nothing he has done is impugned.

Be that as it may, it is plain that the plaintiff has a real interest in obtaining a declaration that it is not liable to pay PRRT. In Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Ltd.^[6] Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Ltd. [1921] 2 A.C. 438 , at p. 448 . in a passage cited in Forster v. Jododex Aust. Pty. Ltd.^[7] Forster v. Jododex Aust. Pty. Ltd. (1972) 127 C.L.R. 421 , at pp. 437-438 . , Lord Dunedin set out the requirements which must be satisfied before a court will exercise its discretion to make a declaration:

``The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought.''

And in Ainsworth v. Criminal Justice Commission a majority in this Court said^[8] Ainsworth v. Criminal Justice Commission (1991-1992) 175 C.L.R. 564 , at pp. 581-582 . :

``It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which `[i]t is neither possible nor desirable to fetter... by laying down rules as to the manner of its exercise.'... However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions... The person seeking relief must have `a real interest'... and relief will not be granted if the question `is purely hypothetical', if relief is `claimed in relation to circumstances that [have] not occurred and might never happen'... or if `the Court's

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declaration will produce no foreseeable consequences for the parties'...''

The question raised by the plaintiff is neither abstract nor hypothetical and the answer to that question will clearly produce consequences for the parties. In those circumstances I would, for my own part, doubt whether the failure on the part of the Commissioner to indicate whether or not he disputes the plaintiff's claim could preclude the plaintiff from seeking against him the relief which it does. The most that could be urged is that there is no proper contradictor, but I doubt whether that is so when the Commissioner's participation in the action is likely to force him to abandon his present stand of neutrality. Even if he were to maintain that stand, I doubt whether that would prevent him from being a proper contradictor. He clearly has a true interest in the plaintiff's claim and, if he were to choose not to oppose it and to abide by any order which the Court might make, that might perhaps amount to no more than the performance of his role as a contradictor in a particular manner.

But there is no need in this case to reach any conclusion whether the Commissioner is a proper contradictor because the producers obviously have a true interest in opposing the declaration sought. There is no requirement that all defendants in an action claiming a declaration must oppose the plaintiff. In Forster v. Jododex Aust. Pty. Ltd., for example, the mining warden submitted to the order of the court^[9] See Jododex Australia Pty. Ltd. v. Forster [1971] 2 N.S.W.L.R. 299 , at p. 300 . , but the court made a declaration binding upon him where another party opposed the declaration being made.

The Commissioner then submitted that the Court lacks jurisdiction to make a declaration binding upon the Commissioner or, if it does have jurisdiction, would inevitably decline to exercise it. The basis of this submission is the provision in the PRRT Assessment Act for conclusive assessments subject only to objection and appeal in the manner laid down by the legislation.

Section 69 of the PRRT Assessment Act provides:

``The validity of any assessment is not affected by reason that any provision of this Act has not been complied with.''

Section 106(1) provides:

``The mere production of -

• (a) a notice of assessment; or
• (b) 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,

is 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 amounts and all of the particulars of the assessment are correct.''

Under s. 69A of the PRRT Assessment Act ``A person who is dissatisfied with an assessment made in relation to the person may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953''. The Taxation Administration Act 1953 (Cth), s. 14ZZ provides that a taxpayer dissatisfied with the Commissioner's decision on the objection may apply for review by the Administrative Appeals Tribunal or appeal to the Federal Court.

These provisions mirror the scheme of the Income Tax Assessment Act 1936 (Cth). Sections 175 and 177(1) of that Act are in similar terms to ss. 69 and 106(1) of the PRRT Act. Objections against assessment under the Income Tax Assessment Act are also dealt with in accordance with Pt IVC of the Taxation Administration Act^[10] Income Tax Assessment Act 1936 (Cth), s. 175A. .

As I understand it, the Commissioner's contention is based upon the proposition that liability to tax under the PRRT Assessment Act can only be contested under the provisions of Pt IVC of the Taxation Administration Act, and that the original jurisdiction of this Court is excluded.

Where an assessment has been made, that proposition finds support in F.J. Bloemen Pty. Ltd. v. Federal Commissioner of Taxation^[11] F.J. Bloemen Pty. Ltd. v. FC of T 81 ATC 4280 ; (1981) 147 C.L.R. 360 . . That case decided that because a notice of assessment is conclusive evidence that the assessment was duly made and that the amounts and all of the particulars of the assessment are correct^[12] Income Tax Assessment Act , s. 177(1). , a taxpayer cannot challenge an assessment on any ground in proceedings other than an appeal against the assessment^[13] The effect of s. 75(v) of the Constitution on this decision was not argued before me: cf. David Jones Finance and Investments Pty. Ltd. & Anor v. FC of T 91 ATC 4315 ; (1991) 99 A.L.R. 447 . .

The same conclusion does not follow when an assessment has not been made. The plaintiff has not been assessed under the PRRT Assessment Act in this case and s. 106(1) of

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that Act does not apply. If the jurisdiction of this Court to make a declaration were to be excluded it would have to be by implication and the implication would have to be a necessary one^[14] See Forster v. Jododex Aust. Pty. Ltd. (1972) 127 C.L.R. 421, at pp. 435-436. . In my view no such necessary implication arises. I can see no good reason why, in the absence of any assessment or, at all events, any immediate prospect of one being made^[15] cf. Lucas v. O'Reilly 79 ATC 4081 ; (1979) 36 F.L.R. 102 . , the Court should be precluded from determining the liability to tax of a person in proceedings for a declaration if there is a real question.

Indeed, there are, as the plaintiff points out, good reasons why such a jurisdiction should exist. A person who derives assessable receipts in relation to a petroleum project is obliged to furnish a return^[16] PRRT Assessment Act, s. 59. . The Commissioner may decide at any time that a person is liable to tax and issue a default assessment for those years in which he considers that person should have made a return^[17] See, ibid., s. 63. . The failure to lodge a return attracts a penalty equal to double the amount of tax payable^[18] ibid., s. 101. . A person is also liable under Div. 2 of Pt VIII of the PRRT Assessment Act to pay tax by instalments. An ascertainment of liability to pay an instalment is specifically deemed not to be an assessment^[19] ibid., s. 93(2). . The Commissioner may determine that a person should have paid instalments^[20] ibid., s. 97(2). and the amount determined immediately becomes payable^[21] See, ibid., ss. 98(1), 97(2), 96, 95. . The Commissioner is able to substitute liability to pay pursuant to an assessment for the liability to pay an instalment^[22] ibid., s. 100(1). , although he is not required to do so if more than one instalment is outstanding^[23] ibid., s. 100(2). .

There being substantial obligations created by the PRRT Assessment Act which are not dependent upon the making of an assessment, I do not think that I should conclude that the jurisdiction of this Court to determine questions arising under the legislation is, in the absence of an assessment, excluded by implication. The PRRT Assessment Act does not require such an implication to be drawn and I do not think that it should be drawn.

In Lucas v. O'Reilly^[24] Lucas v. O'Reilly 79 ATC 4081; (1979) 36 F.L.R. 102. the plaintiff sought to restrain the Commissioner from assessing him to additional income tax. Young C.J. refused to grant an interlocutory injunction upon the basis that in making an assessment, the Commissioner owed no duty to the plaintiff to assess his liability to tax in accordance with the provisions of the Act, that duty being owed only to the Crown^[25] ibid., at ATC pp. 4084-4085; F.L.R. pp. 107-108. . Young C.J. expressed the view that the remedy of a taxpayer who claims to have been wrongly assessed is limited to the objection and appeal procedures laid down. Doubt is thrown upon the correctness of the basis of the decision in Lucas v. O'Reilly by the subsequent decision of the Full Court of the Supreme Court of Victoria in Federal Commissioner of Taxation v. Biga Nominees Pty. Ltd.^[26] FC of T v. Biga Nominees Pty. Ltd. 88 ATC 4270 ; [1988] V.R. 1006 . . That Court held that the plaintiff was entitled to declaratory relief concerning the application of the Sales Tax Assessment Act (No. 1) 1930 (Cth)^[27] ibid., at ATC pp. 4277-4278; VR pp. 1015-1016. . In any event, the question in this case arises in the absence of an assessment. The plaintiff does not seek to restrain the Commissioner from assessing its liability and so to prevent him from putting in train the procedures which would, if an assessment were made, confine the plaintiff to the remedies provided in Pt IVC of the Taxation Administration Act. The plaintiff seeks to ascertain its liability, if any, since those remedies are denied to it in the absence of an assessment.

Similarly, the decision of the House of Lords in Vandervell Trustees Ltd. v. White^[28] Vandervell Trustees Ltd. v. White [1971] A.C. 912 . has no application in the circumstances of this case. In that case the High Court was held to have no jurisdiction to adjudicate between a taxpayer and the Inland Revenue Commissioners as to the correctness of an assessment. That jurisdiction was conferred upon special commissioners to the exclusion of a court of law except for an appeal on a point of law. In this case, as I have pointed out, there is no assessment.

It may be noted in passing that the plaintiff's problems would be alleviated if the tax in question were income tax rather than PRRT. Under Pt IVAA of the Taxation Administration Act the Commissioner can make a private ruling on the application of tax laws^[29] Taxation Administration Act , ss. 14ZAF, 14ZAL(1). . However, the provisions enabling him to do so are confined to income tax and fringe benefits tax and do not apply to PRRT^[30] See, ibid., s. 14ZAF and the definition of ``tax law'' by ss. 14ZAA(2), 14ZAAA. . A private ruling amounts in effect to a decision as to the way in which the Income Tax Assessment Act applies to a particular taxpayer^[31] See, ibid., s. 14ZAF. . A taxpayer who acts in accordance with a ruling is protected from any subsequent change of heart by the Commissioner^[32] Income Tax Assessment Act , s. 170BB; Fringe Benefits Tax Assessment Act 1986 (Cth), s. 74B. . A taxpayer may appeal against a private ruling using the same process of appeal as applies to an assessment of tax by the Commissioner^[33] Taxation Administration Act , s. 14ZAZA(1). . The rulings themselves are

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immune from attack in judicial proceedings outside the Taxation Administration Act^[34] ibid., ss. 15AA, 15AB. .

Having concluded that the jurisdiction of the Court to grant declaratory relief is not excluded and is not improperly invoked, it is not possible in my view to contend that the Commonwealth and the Commissioner - no distinction was drawn between them - are not properly joined as defendants. The plaintiff seeks to determine its liability to PRRT in circumstances where that is an issue between it and the other defendants. But it is also an issue between the plaintiff and the Commissioner. The determination of the issue and any subsequent declaration go to their rights and obligations inter se^[35] cf. Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1990) 64 A.L.J.R. 530 ; 94 A.L.R. 641 , where no order was sought determining the rights of the plaintiffs against the persons seeking to be joined as defendants. . The Commissioner cannot successfully argue that, because he is indifferent to the determination of that issue one way or the other as between the plaintiff and the other defendants, he cannot be joined as a defendant in order to determine that issue as between the plaintiff and himself. It is desirable that the issue be determined the same way as between all parties but, apart from that, the joinder of the Commonwealth and the Commissioner as defendants is in my view a proper joinder.

I would dismiss both summonses.