/ JUDGMENT No. sesmmrot nd act te AT H WORD ES TAX - refunds of tax claimed and recovered as judgment debts - judgment obtained before introduction of Swimming Pools Tax Refund Act 1992 (Cth) - whether refunds of tax the subject of judgments affected by provisions of legislation. JUDGMENT - Nature and affect of - independent existence of original cause of action - merger and creation of an obligation of a higher nature. Swimming Pools Tax Refund Act 1992 (Cth) Halsbury's Laws of England 4th Ed. Vol 26 para551 and Vol 16 para 983 Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation (1992) 173 CLR 450 Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 68 ALJR The Australian Gas Light Company v The Valuer-General (1940) 40 SR (NSW) 126 Sargood Bros v The Commonwealth (1910) 11 CLR 258 Barton v Commissioner for Motor Transport (1957) 97 CLR 633 Mason v The State of New South Wales (1958-59) 102 CLR 108 Blair v Curran (1939) 62 CLR 464 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR Chamberlain v Deputy Commissioner of Taxation (1987-1988) 164 CLR 502 Marginson v Ian Potter & Co (1976) 136 CLR 161 Petersen v Moloney (1951) 84 CLR 91 NWEALTH OF AUSTRALIA and COMMISSTONER OF TAXATION Applicants - and - P I N_ POOLS PTY LTD First Respondent D L PA NST. PTY LTD Second Respondent O'LOUGHLIN J ADELAIDE (Heard in Brisbane) 14 OCTOBER 1994 IN THE FEDERAL COURT OF AUSTRALIA ) ) D TRICT REGISTRY ) ) ) GENERAL DIVISION No. G159 of 1992 BET WE EN: COMMONWEALTH OF AUSTRALIA and COMMISSIONER OF TAXATION Applicants - and - PRECISION POOLS PTY LTD First Respondent EENSLAND POOL & PA CONST, PTY LTD Second Respondent MINUTES OF ORDER DGE MAKIN RDER O'LOUGHLIN J. WHERE MADE ADELAIDE (Heard in Brisbane) A IRDER : 14 OCTOBER 1994 THE COURT ORDERS THAT: 1. Neither of the applicants are entitled to the declaration sought in paragraphs 1 and 2 of the application filed herein on 29 October 1992. 2. The applicants shall pay the respondents taxed costs of and incidental to this matter. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) ENSLAND DISTRICT REGISTRY ) ) ) GENERAL DIVISION No. G159 of 1992 BETWEEN: IMMONWEALTH F__ AUSTRALIA N and COMMISSIONER QF TAXATION Applicants - and - PRECISION POOLS PTY LID First Respondent UEENSLAND POOL PA NST. PTY LTD Second Respondent REASONS FOR DGMENT Coram: O'Loughlin J. 14 October 1994 The applicants seek declarations that, by virtue of the provisions of the Swimming Pools Tax Refund Act 1992 (Cth) ("the Refund Act"), they are not liable to refund certain monies to the respondents except as provided by s4 of that Act. Both respondents have, for some time past, carried on the business of constructing swimming pools in situ and the monies that are referred to in the declarations are monies that the respondents had paid as sales tax with respect to such swimming pools. The Sales Tax Assessment Act (No 1) 1930 (Cth), which is incorporated and is to be read as one with the Sales Tax Act (No 1) 1930, was amended in 1986 by deeming swimming pools constructed in situ to be manufactured goods. On 12 February 1992, however, the High Court, by a majority, determined that the 1986 amendment was invalid: Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation (1992) 173 CLR 450. The court declared that the sales tax imposed on the in situ value was of no effect on the basis that the legislation that imposed the tax was contrary to s55 of the Constitution. On 15 April 1992, each of the respondents, in separate actions, issued proceedings out of the High Court, claiming from the applicants the return of certain of the monies that had earlier been paid over by the respondents for sales tax. Those payments had been made pursuant to an agreement that had been negotiated between the Commissioner of Taxation and various members of the swimming pool industry. Both actions were remitted to this court and on 18 June 1992 the respondents each filed a notice of motion seeking judgment in its favour. The orders sought by the respondents were opposed but on 10 September 1992 judgments were given in favour of each of the respondents against the Commissioner of Taxation (but not against the Commonwealth): Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554. Under the terms of the judgments, the Commissioner was required to pay $488,033.72 to Precision Pools Pty Ltd, the first respondent, and $211,353.96 to the second respondent, Queensland Pool & Spa Const. Pty Ltd. The amount of $488,033.72 was said to comprise $408,509.00, the amount paid by the first respondent for sales tax, the balance of $79,524.72 being interest calculated at the rate specified in the Taxation (Interest on Overpayments) Act 1983 (Cth). The amount of $211,353.96 was divided into $176,722.87 for tax and $34,631.07 for interest (these figures give an unexplained discrepancy of two cents). After the delivery of judgment on 10 September and after the entries of judgment on 17 September, but before any monies were paid over pursuant to either judgment, the Commonwealth, on 21 September 1992, enacted the Refund Act. That legislation was intended to address the subject of refunds of sales tax that had been paid pursuant to the invalid in situ pool tax provisions. The Refund Act was, as the accompanying explanatory memorandum explained, introduced as a consequence of the High Court decision in Mutual Pools & Staff (supra). Its object was to ensure that any refunds of amounts that had been paid as sales tax on swimming pools constructed in situ passed through to the persons who had actually borne the brunt of the tax; more often than not those persons were the pool purchasers, not pool builders such as the respondents. In the present proceedings there is no evidence that would indicate the identity of the parties who have ultimately borne the responsibility for the payment of sales tax nor is there any evidence that pool purchasers who have paid the tax have received or will receive a refund of the tax that they paid. However, it seems to me that the issues in this litigation must be resolved as a matter of statutory interpretation even though that could mean that respondents might enjoy an unintended windfall in respect of those cases where the pool purchasers have, in effect, been the ultimate payers of the tax. Section 4 of the Refund Act provides, so far as relevant to these proceedings, as follows: "4, (1) Except as provided by this section, the Commonwealth is not liable to make any in situ pool tax refund payment. (2) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect of an in situ pool tax payment has made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, of either or both of the following kinds: (a) that a specified amount, being the whole or part of the in situ pool tax concerned, was not passed on to the pool purchaser in relation to the swimming pool concerned; (b) that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser in relation to the swimming pool concerned, has been refunded to the pool purchaser; then the Commonwealth is only liable to make the in situ pool tax refund payment to the pool builder to the extent that it equals the sum of: (c) the amount of the tax that was not passed on; and (d) the amount of the tax that was refunded. (3) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect of an in situ pool tax refund Payment and the pool purchaser in relation to the swimming pool concerned have jointly made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser, has not been refunded to the pool purchaser, then subsection (4) applies. (4) If a declaration is made under subsection (3), the Commonwealth is liable to make so much of the in situ pool tax refund payment as equals the amount of is the tax that was passed on to the pool purchaser and not refunded, but is liable to make the payment to the pool purchaser instead of to the pool builder." The constitutional validity of this legislation has been upheld by the High Court in Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 68 ALJR 216. The applicants now contend that neither of them has any liability to pay to either of the respondents the respective judgment debts; the applicants now maintain that, as a result of the introduction of the Refund Act, their liability to make any payment in the nature of an in situ pool tax refund payment is circumscribed by the provisions of s4 of that Act. In particular, as there has been no declaration of the type contemplated either by subs4(2) or subs4(3), the applicants claim that they do not have any present liability to pay either of the judgment debts. The case for the respondents is that s4 of the Refund Act does not apply to their judgment debts; they say that it is directed exclusively to an in situ pool tax refund payment and that, as their original causes of action have merged in their respective judgments, the amounts now owing to them have ceased to be statutory refund payments and have become, instead, judgment debts that are not the subject of the new legislation. For present purposes, a convenient starting point is to emphasise that subs4(1) of the Refund Act makes it clear that the liability of the Commonwealth to make any payments under the legislation is limited to the facts and circumstances that are referred to in that section. Thus the Commonwealth does not have any liability ""(e)xcept as provided by this section", and any liability that it might have can only be a liability to make an "in situ pool tax refund payment", a term that is defined in s3 as meaning: "s+. any payment that the Commonwealth is liable to make by way of refund of an in situ pool tax payment, whether the liability arose as a result of a refund agreement or otherwise." The term "in situ pool tax payment" is also defined in s3 of the Refund Act; it means: "An amount paid to the Commissioner in purported compliance with the requirements of the law relating to sales tax, or under an agreement, to pay in situ pool tax." It is to be noted that original payments of sales tax were made to the Commissioner but it is the Commonwealth that has the liability to make refunds. The question for decision with respect to each of the judgment debts is identical: is the liability to pay the judgment debt a liability of the Commonwealth to make an in situ pool tax refund payment and thus governed by the provisions of s4 of the Refund Act? If the answer to this question is in the affirmative then, so the applicants submit, there is no present liability to make either payment and no such liability will arise unless and until the conditions of s4, including the lodgment of the required declaration, have been complied with. It was the case for the applicants that the liabilities that were manifested by the judgment of the court had been "extinguished" on 21 September 1992 when the Refund Act came into force; it was submitted that the respondents were thereafter left to pursue their remedies in accordance with the provisions of the Refund Act. The applicants maintained that these statutory remedies would enable the respective respondents to recover so much of their judgment debts as represent the cases where an amount of sales tax had not been passed on by a respondent to a pool purchaser, or, having been passed on, had been refunded to the pool purchaser by the relevant respondent. It was submitted on behalf of the applicants that the definition of the term "in situ pool tax refund payment" showed that the Parliament intended to encompass any liability with respect to a refund of sales tax howsoever arising. It was said that this proposition flows as a consequence of the concluding words of the definition of "in situ pool tax refund payment" which speak of "whether the liability arose as a result of a refund agreement or otherwise". In my opinion, this argument must be rejected. It fails to differentiate between the use of the word "payment" and the word "liability". The language of the definition does not connect the term "in situ pool tax refund payment" to "liability": the connection is between the defined term and "payment". In other words, an "in situ pool tax refund payment" means that it must be a payment for which the Commonwealth has a liability because it is "by way of refund of an in situ pool tax payment": it will not matter how the liability arose but the payment must still be one that is "by way of refund of an in situ pool tax payment". The breadth attaching to the word "liability" is only intended to make sure that the original circumstance under which a taxpayer might have paid over monies aS or for or on account of an "in situ pool tax payment" will not affect the liability of the Commonwealth to make the payment. The words "by way of refund" are directly related to the phrase "in situ pool tax payment". They are ordinary English words and their meaning, as used in the legislation, is a question of fact and not of law; it is to be resolved by the relevant tribunal itself, by considering the words in their context with the assistance of dictionaries and other books, and not by expert evidence: The Australian Gas Light Company v The Valuer-General (1940) 40 SR (NSW) 126 at 137 per Jordan C.J. Both The Shorter Oxford English Dictionary and The Macquarie Dictionary recognise that "refund" can mean "refinancing" but they give as its primary meaning the concept of giving back or restoring - with particular reference to money. The phrase "by way of" indicates "a method or means" or "through the medium of". In my opinion, all this leads to the conclusion that what is refunded is the same as or substantially similar to that which first passed. Should this conclusion be correct, it means that the intervention of the judgment of the Court diminishes the degree of similarity. The applicants next submitted that the Refund Act had retrospective effect and that Parliament, having regard to the stated objectives of the legislation, deliberately intended it to have that effect. I do not believe that it is necessary to assess the accuracy of this proposition. Let it be assumed that it is correct. That still leaves unanswered the question whether it has achieved its alleged retrospective objective. It still remains necessary to consider the language of the Refund Act and to determine whether the two judgment debts fall within the expression "in situ pool tax refund payment" as used in subs4(1) of that legislation. The respondents, for their part, have submitted that the debts that were originally owing to them have ceased to have the character of in situ pool tax refund payments as a consequence of the judgment in Precision Pools v Commissioner of Taxation: that is, they claim that the judgment debt in each case has not, since the date of judgment, been an in situ pool tax refund payment. Although they recognised that the payments that they had each earlier made to the Commissioner were in situ pool tax payments, they submitted that on a date before the introduction of the Refund Act, the antecedent obligations owed by the applicants to make refunds to each of them had merged in the judgments so that, as from either 10 September (when judgment was delivered) or 17 September (when the judgments were entered and sealed) but in any event before 21 September (when the Refund Act came into operation) there had been a transmogrification of the earlier obligations: they had ceased to be liabilities to refund in situ pool tax and had become judgment debts. For this reason, so it was claimed, they were not liabilities that attracted the provisions of s4 of the Refund Act and, as judgment debts, they were recoverable by the respondents as judgment creditors by due process of law. The issues that are in dispute have been clouded by the naming of the Commonwealth of Australia and the Commissioner of Taxation as litigants; they were each named as defendants/respondents in Precision Pools v Commissioner of Taxation (supra), although judgment was only entered against the Commissioner of Taxation. Initially, the Commonwealth was the only applicant in the current proceedings but on the morning of trial, leave was sought and obtained to add the Commissioner as a second applicant. On 4 November 1992, the Commissioner (but not the Commonwealth) entered into separate agreements with the two respondents. Save for the identity of the parties and the different sums of money, the agreements were in identical terms and it will be sufficient to refer to the terms of the agreement between Precision Pools and the Commonwealth. It recited the terms of the judgment in favour of Precision Pools and, thereafter, erroneously stated that ""(tj)he Commissioner has appealed against the granting of the said judgment" and that he seeks, in the current proceedings, "declarations that he is not liable to pay the said judgment". As I have said, these proceedings had been instituted only in the name of the Commonwealth. The agreements thereafter provided for the Commissioner (not the Commonwealth) to pay forthwith the respective sums of $488,033.72 and $211,353.96 and, in turn, each respondent undertook to repay those monies if the Commissioner were successful either in these proceedings or on appeal (no appeal has been brought however). Until recently, it appears that no party had concerned itself with a crisis of identity; the Commonwealth and the Commissioner were treated, so it would seem, interchangeably. All that changed, however, when the present respondents filed and served their written contentions. They submitted that, although each of the two companies had named both the Commonwealth and the Commissioner as respondents in the proceedings that had originally been instituted in the High Court, judgment had been entered against the Commissioner only; therefore, so the argument proceeded, the Commonwealth was not liable to pay either of the sums that had been claimed against the Commonwealth and the Commissioner in those proceedings. The argument concluded with the proposition that, as the Commonwealth had no liability, the provisions of s4 of the Refund Act, referring as it did to the Commonwealth's liability to make an in situ pool tax refund payment, could not have any application to these proceedings. If this argument is correct, then, so it was claimed, the effect of each judgment was to make the Commissioner of Taxation personally liable so that each of the two companies could levy execution against him. In support of that proposition, counsel for the respondents referred to the decision of the High Court in Sargood Bros v The Commonwealth (1910) 11 CLR 258. That was an action brought by the plaintiff against the Commonwealth and (in the alternative) one Archibald William Smart, who was the Collector of Customs; the plaintiff sought a refund of money that it had paid for customs duty. I am unable to see how Sargood's case can assist in the resolution of the issues in this action. Indeed, although it is not necessary for me to express a concluded view, it could be construed as authority for the proposition that the court should have been asked in Precision Pools v Commissioner of Taxation, to enter judgment against the Commonwealth (and not the Commissioner). In Sargood's case, Isaac J said: ",.. the action against the individual defendant is not maintainable, because Government revenue cannot be reached by a suit against a public officer in his official capacity (Palmer v Hutchinson 6 App. Cas. at p626), unless, of course, some statutory provision should allow it: Bainbridge v Postmaster- General (1906) 1 KB 178, at pl90. No such provision exists here with respect to this defendant." (p303) In addressing the same subject, Higgins J said: "I think I ought to add that the action does not lie against the co-defendant Smart... There is no Act in existence allowing his name to be used to represent the Commonwealth. If judgment went against Mr Smart in these proceedings, execution would have to be devied on his private goods. Then, if we look at Mr Smart in his private capacity, he is not liable for the moneys had and received. A mere agent, collecting by his principal's authority, and paying over - with the knowledge and consent of the Plaintiff - to his principal, cannot be made liable for money had and received. The payment made by the Plaintiff was made in reality to the Crown and not to Smart: Bamford v Shuttleworth 11 A & E 926; Owen & Co v Cronk (1895) 1 QB 265, at p274; and if any action can be brought it must be brought against the Crown." (p310) (See also Barton v Commissioner for Motor Transport (1957) 97 CLR 633 at 662 and 664 per Kitto J and Mason v The State of New South Wales (1958-59) 102 CLR 108 at 142 per Windeyer J). Counsel for the applicants responded to these contentions by submitting that throughout the long history of the litigation between these parties no distinction had previously been drawn between the Commonwealth and the Commissioner but that, if necessary, I should permit, in these proceedings, use of the "slip rule" in O 35 r7(3) to alter the name of the party against whom judgment has been entered in Precision Pools v Commissioner of Taxation. That sub-rule provides: "A clerical mistake in a judgment or order, or an error arising in a judgment order from an accidental slip or omission, may at any time be corrected by the Court." It would, in my opinion, have been inappropriate to consider such an oral application, made without notice, in related but different proceedings and I declined to do so. Counsel for the applicants relied upon the decision in Sargood's case in submitting that there is no general power enabling the Commissioner to be sued for monies had and received in those cases where he has collected monies on behalf of the Commonwealth. Indeed he went so far as to submit that the judgment in Precision Pools v Commissioner of Taxation that named the "Commissioner of Taxation" as the judgment debtor was a judgment against "some words" that could not be enforced. But notwithstanding these submissions, the primary submission that was made on behalf of the applicants was based upon a concession that the Commonwealth has the liability for the judgments against the Commissioner. Hence the declarations that are sought in these proceedings are declarations that the Commonwealth (not the Commissioner) is not liable, by virtue of the provisions of s4 of the Refund Act, to make any refund payment to either respondent. In my opinion such a concession can have no effect upon the efficacy of a judgment of this court that has been properly entered and sealed. So long as the judgment in Precision Pools v Commissioner of Taxation stands, the party liable under that judgment must be the Commissioner of Taxation. Whether that constitutes a judgment against "some words" that cannot be enforced is not an issue that need be decided in these proceedings. I had suggested during the course of argument that if I came to this conclusion, it might be necessary to reconvene the court to ascertain whether the applicants wished to pursue an application under the "slip rule" to change the identity of the judgment debtor in Precision Pools v Commissioner of Taxation to the Commonwealth of Australia. But, upon reflection, I do not consider it necessary to embark upon this exercise. Even if the Commonwealth had been named as the judgment debtor, I have come to the conclusion that it would not be entitled to the declarations that have been sought in these proceedings. The existence and the date of a judgment is important for various reasons. Under 035 r8 of the Federal Court Rules, for example, a judgment debt carries interest at the rate of 10% per annum unless the court otherwise orders a lower rate. Time for the service of a notice of appeal begins to run from the date of judgment and the judgment creditor acquires rights of execution as from that date. In other words, there has been a substantial change in the relationship between the former opposing litigants. They have ceased to be applicant and respondent: they have become the judgment creditor and the judgment debtor and that relationship will remain unless an appeal is successful or the judgment is set aside. The effect of the entry of a judgment is described in Halsbury's Laws of England 4th Ed in various ways. In Vol 26 par551 under the title "Judgment and Orders" there appears the following statement: "When judgment has been given in an action, the cause of action in respect of which it was given is merged in the judgment and its place is taken by the rights created by the judgment..." In Vol 16 par983 entitled "Estoppel" there is a passage: -». the cause of action is merged in the judgment, which creates an obligation of a higher nature." In describing the distinction between res judicata and issue estoppel in Blair v Curran (1939) 62 CLR 464 at 532, Dixon J (as he then was) explained the former in this way: » -- in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence..." This passage, which has been quoted with approval in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597 and Chamberlain v Deputy Commissioner of Taxation (1987-1988) 164 CLR 502 at 507 and 510 trenchantly throws up the difference between the original cause of action and the judgment debt. The use of the phrase "an independent existence" shows that the classification of the right or entitlement that was successfully pursued to judgment is no longer appropriate: it no longer applies to the judgment debt. The loss of "the independent existence" of the original cause of action as a result of the entry of judgment in Precision Pools v Commissioner of Taxation has equal affect on the Commissioner and the Commonwealth. Until such time, if at all, as that judgment is overturned or set aside, the entry of judgment against the Commissioner constitutes a bar against further proceedings by the present respondents against the Commonwealth: - "But once a third party has sued the agent to judgment he cannot thereafter, without setting aside that judgment, sue the undisclosed principal even if the existence of the principal was not known to the third party at the time when the judgment was obtained. This proposition rests not on the doctrine of election which depends in general upon knowledge of relevant facts but on = another principle, namely that when judgment is obtained on a cause of action the cause of action merges in the judgment. Thus the liability of an undisclosed principal merges in a judgment obtained against the agent by the third party." (Marginson v Ian Potter & Co (1976) 136 CLR 161 at 169 per Gibbs & Mason JJ). Earlier, the same principle had been described by Dixon, Fullagar and Kitto JJ in Petersen v Moloney (1951) 84 CLR 91 at 102 by reference to the concept of "election". They said: ",.. it is a well-settled general principle that, while the commencement of an action against one of two persons alternatively liable does not, the entry of judgment against one of them does, constitute a final and irrevocable election." It seems to me that the situation can be summed up in this fashion. Section 4 of the Refund Act sets out the circumstances under which a pool builder may obtain a payment of an in situ pool tax refund payment; it also imposes conditions that have the effect of limiting the liability of the Commonwealth to make such payments. Before the Refund Act came into operation the present respondents, having sued both the Commonwealth and the Commissioner, obtained a judgment against the Commissioner; the obtaining of that judgment merged their causes of action against both the Commissioner and the Commonwealth and each cause of action ceased to have an independent existence. As from either 10 or 17 September, but in any event before 21 September, the respondents ceased to have a cause of action for a refund of in situ pool tax; instead they each had a judgment debt of an amount that totalled the tax plus accrued interest. It therefore matters not for the purposes of these proceedings whether the judgment was obtained against the principal (ie the Commonwealth) or the agent (ie the Commissioner). It may become a problem for the respondents when they come to enforce their judgments but it is not a matter of concern in these proceedings; unlike Sargood's case, the person who held office as Commissioner of Taxation was not named as a respondent and it remains therefore to be seen whether there can be a personal execution on either judgment. On that subject I express no view. As to the present proceedings I decline to make the declarations sought. There will be orders accordingly. The applicants must pay the respondents' costs. I certify that this and the !7 preceding pages are a true copy of the Reasons for Judgment of Justice O'Loughlin. Associate Manwe dA Dated: 14 Soplewke- MIT Counsel for the Applicants 3 Mr H Fryberg QC and Mr P Hack Solicitors for the Applicants : Australian Government Solicitors Counsel for the Respondents 2 Mr P McMurdo QC Solicitors for the Respondents: Messrs Barker Gosling Date of Hearing 2 2 September 1994