High Court of Australia Dawson J. Commissioner of Taxation v Myer Emporium Ltd [1986] HCA 13 ORDER Order that the execution of the judgment of the Supreme Court dated 20 March 1985, save for the order for costs, be stayed until the hearing and determination of the appeal or further order. Costs of the appearances to be costs in the cause. Dawson J. For the year of income ended 31 July 1981 the Commissioner of Taxation assessed the income of the taxpayer, The Myer Emporium Ltd., upon the basis that a sum of $45,370,000 received by it was income and not a capital receipt. Following an unsuccessful objection to the assessment, the taxpayer appealed to the Supreme Court of Victoria which on 20 March 1985 allowed the appeal and ordered that the Commissioner issue an amended assessment excluding from the taxable income of the taxpayer the amount of $45,370,000. It also ordered that the Commissioner pay the taxpayer's taxed costs of the appeal. The Commissioner appealed against this judgment to the Full Court of the Federal Court of Australia which on 8 October 1985 dismissed the appeal. On 15 November 1985 the Commissioner was given special leave to appeal to this Court against the judgment of the Federal Court and an appeal was instituted on 28 November 1985. The Commissioner seeks in this application to stay the order made by the Supreme Court pending the hearing and determination of the appeal in this Court. In order to appreciate the basis of the application, it is necessary to set out some of the history of the matter. On 19 April 1982, the taxpayer's income tax was assessed in the sum of $34,512,508.78 for the year of income ended 31 July 1981, of which the sum of $20,870,200 was in respect of the sum of $45,370,000 which the taxpayer said was a capital receipt but which the Commissioner said was income. The taxpayer lodged its objection to the assessment on 17 May 1982 and requested an extension of time for payment of the tax upon the disputed amount pending the determination of the objection. The Deputy Commissioner of Taxation in Melbourne refused to grant any extension of time and advised the taxpayer that additional tax would accrue in accordance with s. 207 of the Income Tax Assessment Act 1936 Cth. He said, however, that no action would be taken to recover the tax pending the determination of the objection. Following further correspondence and discussion between the parties and after the disallowance of the objection, the Deputy Commissioner sent a letter dated 20 March 1984 to the taxpayer's accountants in which he said: In conclusion, and after further review of the matter you are advised that whilst it is not proposed to remit any additional tax for late payment, provided payment of 50 per cent of the tax in dispute is made (viz. $10,435,100) subject to additional tax for late payment continuing to accrue on the balance, legal recovery action for the outstanding 50 per cent plus outstanding additional tax for late payment would be deferred pending resolution of the dispute. The taxpayer paid the sum of $10,435,100 to the Commissioner on 9 May 1984 saying in a letter on the same day that it did so subject to the terms set out in the Deputy Commissioner's letter dated 20 March 1984 to its accountants. By a letter dated 20 March 1986, the taxpayer's solicitors gave notice to the Australian Government Solicitor acting for the Commissioner that they intended to take steps to enforce the order of the Supreme Court if an amended assessment, excluding the amount of $45,370,000 from the taxpayer's taxable income, was not received by 27 March 1986. It is in response to this letter that the present application seeking a stay is now before me. Section 77U of the Judiciary Act 1903 Cth provides that when an appeal has been instituted, the High Court may order a stay of all or any proceedings in the judgment appealed from and O. 70, r. 12(1) of the High Court Rules provides that unless the Court or a justice otherwise orders, neither an application for special leave nor an appeal shall operate as a stay of proceedings: see also Judiciary Act, s. 15. Order 70, r. 12 was amended on 5 December 1985 and in its new form is the counterpart of similar rules in other jurisdictions. It is well established by authority that the discretion which it confers to order a stay of proceedings is only to be exercised where special circumstances exist which justify departure from the ordinary rule that a successful litigant is entitled to the fruits of his litigation pending the determination of any appeal: see, e.g., The Annot Lyle [1] ; Scarborough v Lew's Junction Stores Pty. Ltd. [2] . Special circumstances justifying a stay will exist where it is necessary to prevent the appeal, if successful, from being nugatory: see Wilson v Church [No. 2] [3] ; Klinker Knitting Mills Pty. Ltd. v L'Union Fire Accident and General Insurance Co. Ltd. [4] . Generally that will occur when, because of the respondent's financial state, there is no reasonable prospect of recovering moneys paid pursuant to the judgment at first instance. However, special circumstances are not limited to that situation and will, I think, exist where for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed: see McBride v Sandland [No. 2] [5] . 1. (1886) 11 P.D. 114, at p. 116. 2. [1963] V.R. 129, at p. 130. 3. (1879) 12 Ch. D. 454, at p. 458. 4. [1937] V.L.R. 142. 5. (1918) 25 C.L.R. 369, at p. 375. In this case the Commissioner submits that special circumstances exist for three reasons. First, he says that the correspondence between the parties indicates that they entered into an agreement upon the basis of the Deputy Commissioner's letter dated 20 March 1984 which is evidenced by the taxpayer's payment of half the disputed tax. The taxpayer denies any agreement and contends that the terms of the letter dated 20 March 1984 amounted to no more than a dispensation on the part of the Commissioner which the taxpayer at the time was in no position to reject, its objection having been disallowed and its appeal not having been determined. I am inclined to accept the taxpayer's version of the circumstances in which the sum of $10,435,100 was paid by it and I am not prepared to conclude upon the material before me that there was any agreement on the part of the taxpayer not to pursue its remedies to the full, including the execution of any judgment which it might obtain in its favour. On the other hand, the taxpayer has taken no steps until now to enforce the judgment which it obtained in the Supreme Court and I think that the failure of the Commissioner to seek a stay upon an earlier occasion is sufficiently explained by the taxpayer's apparent acceptance of the arrangement under which it paid half of the tax due. For that reason, I do not think that the taxpayer can, as it seeks to do in resisting this application, rely upon delay on the part of the Commissioner. This application was made promptly enough when it became apparent that the taxpayer was seeking to execute the judgment in its favour. Secondly, the Commissioner contends that if he is obliged pursuant to the Supreme Court judgment to issue an amended assessment, he will not only be obliged under s. 172 of the Income Tax Assessment Act to repay the sum of $10,435,100 which he now holds, but he will also be obliged under s. 9 of the Taxation (Interest on Overpayments) Act 1983 Cth to pay interest upon that sum at the rate fixed under the Act which, pursuant to s. 10(3), is currently 14.026 per cent per annum. There is no dispute between the parties that interest will be payable upon this basis but it is the submission of the Commissioner that it will not be recoverable once paid even if he is ultimately successful in his appeal. Under s. 37 of the Judiciary Act, this Court in the exercise of its appellate jurisdiction may affirm, reverse or modify the judgment appealed from and may give such judgment as ought to have been given in the first instance. The court at first instance, the Supreme Court, was empowered under s. 199 of the Income Tax Assessment Act to make such order as it thought fit and might by such order have confirmed, reduced, increased or varied the assessment. The Supreme Court could not, however, according to the Commissioner, have ordered repayment of interest which at the time it gave judgment had not been paid. For that reason, he says, this Court would upon appeal have no power to make an order for repayment of interest. The taxpayer disputes the Commissioner's contention and maintains that this Court's powers would, if the appeal were concluded in favour of the Commissioner, extend to ordering the repayment of interest paid pursuant to the provisions of the Taxation (Interest on Overpayments) Act. Whilst I was initially inclined to accept the taxpayer's submission, upon reflection I think that there is sufficient force in the argument advanced by the Commissioner to cast doubt upon the power of this Court to grant relief upon appeal as the taxpayer contends. I do not think that in these proceedings I have to go further than that; I do not have to conclude the issue. It is sufficient to say that, in my view, there is a real risk that if the judgment made by the Supreme Court is not stayed, the Commissioner may be prejudiced by the payment, pursuant to a statutory obligation, of a substantial amount of money which will prove to be irrecoverable notwithstanding the conclusion of the appeal in his favour. That is, in my view, a sufficiently exceptional circumstance to justify my granting the stay sought. There is, however, a third reason advanced by the Commissioner why I should do so. Under s. 207 of the Income Tax Assessment Act additional tax is due and payable upon any tax remaining unpaid after the due date for payment. Section 202 of the Act provides, so far as is relevant, that where by reason of an alteration of an assessment on appeal a person's liability to tax is reduced, the amount by which the tax is so reduced shall be taken, for the purposes of s. 207, never to have been payable. If, pursuant to the judgment of the Supreme Court, an amended assessment is issued, the taxpayer's liability will, the Commissioner contends, be reduced and, even if he is successful on appeal and the amount by which it is reduced is restored, it will not attract additional tax under s. 207 before the time of its restoration because of the effect of s. 202, nor can this Court make any order which would render the taxpayer liable to additional tax upon that amount before that time. The taxpayer does not dispute that this is the effect of the legislation but says that it is a result which was intended, is not unjust and cannot constitute any prejudice to the Commissioner. Having regard to the view which I have already expressed, I need do no more than say that I am not sufficiently persuaded for the purposes of this application that s. 202 should be so interpreted or that the powers of this Court would be so circumscribed should the Commissioner be successful in his appeal and I place no reliance upon this ground in making the order which I propose to make. For the reason given there will be a stay upon the execution of the judgment of the Supreme Court in this matter dated 20 March 1985, save for the order for costs, until the hearing and determination of the appeal or further order.