New South Wales Supreme Court CITATION : DCT v Glennan [2004] NSWSC 885 HEARING DATE(S) : 16 September 2004 JUDGMENT DATE : 24 September 2004 JURISDICTION: Common Law JUDGMENT OF : Master Harrison DECISION : (1) The amended defence and cross-claim are struck out; (2) Judgment to be entered in favour of the plaintiff; (3) The defendant is to pay the plaintiff the sum of $5,667,207.09; (4) The defendant is to pay the plaintiff's costs as agreed or assessed. CATCHWORDS : Strike out defence and cross-claim Administrative Appeals Tribunal Act 1975 - s 37(1); s 14ZZ; s 14ZY(2); s 25; s 44(1) Contract Review Act 1980 (NSW) LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth) - s 26(e); s 177 Supreme Court Rules 1970 (NSW) - Part 13 r 2; Part 34(3) Taxation Administration Act 1953 (Cth) - Part IVC CBC v Pollard & Anor (1983) 1 NSWLR 74 DCT v Walker (1994) 183 CLR 168 CASES CITED : Henderson v Henderson [1843-60] All ER 378 Mooney v DCT (1906) 3 CLR 221 Port Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 Deputy Commissioner of Taxation (Plaintiff) PARTIES : Michael J Glennan (Defendant) FILE NUMBER(S) : SC 11821/2003 COUNSEL : Mr S Gageler SC with Mr R Quinn (Plaintiff) Ms Ria Vavakis (Plaintiff) SOLICITORS : Mr D Knaggs (Defendant) Mr M J Glennan (Defendant in person) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON FRIDAY, 24 SEPTEMBER 2004 11821/2003 - DEPUTY COMMISSIONER OF TAXATION v MICHAEL J GLENNAN JUDGMENT (Strike out defence and cross-claim) 1 MASTER: By notice of motion filed 4 December 2003 the plaintiff seeks: firstly, an order that the defendant's defence filed 11 September 2003 be struck out and that judgment be entered for the plaintiff; and secondly, an order that the defendant's cross-claim be dismissed or alternatively struck out and that the defendant/cross-claimant pay the plaintiff's costs of these proceeds and of the cross-claim including the costs of this motion. The plaintiff relied on the affidavit of Larry William Bourne sworn 26 November 2003 and the affidavit of Ria Vavakis sworn 2 December 2003. The defendant relied on his affidavit sworn 13 August 2004. 2 On 20 July 2004 the defendant was granted an adjournment, as he was not ready to proceed. On 10 August 2004 the defendant filed an amended defence and cross-claim. The defendant has sought default judgment on the amended cross-claim. 3 By statement of claim filed 23 July 2003, the plaintiff seeks recovery of the sum of $4,922,677.75 in respect of income tax and additional charges for lay payment (para 6). The assessments relate to the years ending, 30 June 1980, 30 June 1981, 30 June 1982, 30 June 1983, 30 June 1984, 30 June 1985, 30 June 1986, 30 June 1987, 30 June 1988, 30 June 1989, 30 June 1990 and 30 June 1991. On 8 May 1995 the defendant issued notices of assessment of the defendant/cross-claimant for the income of the years ended 30 June 1980 to 30 June 1991 inclusive. As at 15 September 2004 the amount outstanding was $5,667,207.09 (Aff L Bourne 15 Sept 2004, para 5). In the defendant's affidavit and defence (13 August 2004 – para 3) he admits liability in respect of the plaintiff's claim, save and except to the extent it relates to income tax claimed with respect to the year ended 30 June 1988. This judgment focuses on the 1988 tax return. 4 On 8 May 1995, the plaintiff issued a Notice of Assessment for the year ending 30 June 1988 (Aff L Bourne, Ann Q). Section 177 of the Income Tax Assessment Act 1936 (Cth) (ITAA) provides that the production of a Notice of Assessment of a document under the hand of the Deputy Commissioner of Taxation 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 (Cth) (TAA) on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. Part IVC of the TAA provides limited rights of challenge to an assessment of taxation either in the Administrative Appeals Tribunal (AAT) or the Federal Court. The law in relation to summary judgment 5 The relevant part of the Supreme Court Rules 1970 (NSW) (SCR), Part 13 r 2 says: "2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff: (a) there is evidence of the facts on which the claim or part is based, and (b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed, the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires. 6 The amended defence and cross-claim raise almost identical issues in relation to the 1988 assessment. These documents plead that the 1987 terms of settlement constituted a genuine compromise of several causes of action, that the receipt of moneys were payable under the terms of settlement as "income", that there was a confidential relationship between the parties and that the plaintiff should have disclosed Tax Ruling (TR) 93/58 to the defendant and constituted a breach of s 37(1) of the Administrative Appeals Tribunal Act 1975 (AAT Act), that the AAT Tribunal Member Block had a conflict of interest, that there was common law fraud by treating the settlement moneys as income and not disclosing TR 93/58, that the defendant exhausted all (statutory) rights to contest the amended assessment pursuant to the AAT and that the decisions of the AAT and Federal Court were unconstitutional. 7 Between 1978 and 1987 the defendant was a practising barrister. During the period 1983-1984, whilst continuing to practise at the Bar, the defendant, acting alone, and as a spare time exercise, conducted research for a major transport tunnel under the Sydney Harbour, selecting a route, drawing for cross-sectional plan; and devising the optimum engineering method (as ultimately constructed) [para 3.1.2]. 8 The defendant was a party to a joint venture in connection with a proposed engineering project involving the Sydney Harbour Tunnel. He sued in the Supreme Court of New South Wales for moneys he claimed were due to him under the agreement. The action was settled. He was paid $1,365.000.00. The Commissioner asserted that the amount was assessable income, and assessed accordingly. The plaintiff objected to the assessment. The objection was disallowed. The matter came before the AAT. 9 The assessment as to income tax for the year ended 30 June 1988 ("the 1988 assessment") and has been the subject of proceedings in the AAT, the Federal Court and the High Court. All of the following proceedings related to the 1988 assessment. The AAT proceedings 10 On 27 March 1996, the defendant filed an application in the AAT pursuant to s 14ZZ of the TAA for review of the plaintiff's objection decision, within the meaning of s 14ZY(2) in relation to the defendant's objection to the 1988 assessment. The Tribunal accepted that the payment of $1,365,000.00 might be a payment under s 26(e) of the ITAA. On 8 November 1996, the AAT affirmed the plaintiff's decision to disallow the defendant's objection (tax 2). The Federal Court proceedings 11 On 8 December 1996, the defendant filed a notice of appeal to the Federal Court from the decision of the AAT pursuant to s 44(1) of the AAT Act. On 13 February 1997 the defendant filed a supplementary notice of appeal. On 17 October 1997 Foster J set aside the decision of the AAT and ordered that the matter be remitted to the Tribunal for determination. 12 On 13 February 1998, the defendant filed a notice of motion seeking orders that the order for remittal to the AAT be rescinded and substituted with an order that the lump sum payment in relation to which the assessment was raised ("the lump sum") was not taxable. On 9 September 1998, Foster J varied the order of remittal by directing that the Tribunal find that the lump sum was not taxable under ss 25(1) or 25A(1) of the ITAA ("the second decision"). The Full Federal Court proceedings 13 On 30 September 1998, the plaintiff appealed to the Full Court of the Federal Court "the Full Court") in relation to both the first and second decisions. By notice of appeal dated 29 September 1998, the defendant also appealed to the Full Court in relation to the second decision. 14 The Full Court held that the Tribunal had not erred in law in concluding that the whole of the amount in question was income according to ordinary concepts, and assessable under s 25 (1) of the ITAA. The reasons for that conclusion turned upon the provisions of the joint venture agreement, the nature of the plaintiff's claim in the Supreme Court and the relationship between those claims and the settlement payment. 15 On 16 March 1999, following the hearing of the appeal, but before the Full Court had delivered its judgment, the defendant was granted leave to file further submissions limited to those matters raised by additional submissions in reply filed by the plaintiff. However, in the submissions the defendant (despite the limited leave granted by the Full Court on 16 March 1999) also sought to raise for the first time the existence of TD93/58 as an issue relevant to the proceedings. The defendant's submissions on TD93/58 did not fall within the parameters of the leave granted to him to file further submissions and the Full Court did not deal with that part of the submissions and allowed both of the plaintiff's appeals. Application to the High Court for special leave to appeal and for orders nisi 16 On 23 April 1999, the defendant applied to the High Court for special leave to appeal from the judgment of the Full Court of the Federal Court. On 9 April 2001, the defendant filed notices of discontinuance in those special leave applications. High Court in its original jurisdiction 17 On 26 May 2000, the defendant made an application in the High Court for orders nisi for constitutional writs (prohibition and mandamus) and for a grant of ancillary relief (certiorari and an extension of time). One of the grounds upon which the defendant sought relief related to an alleged failure by the plaintiff and his officers to assess the defendant's income in accordance with TD93/58 (tab 17). In relation to this ground, Kirby J concluded that he was not convinced that the defendant had made out a reasonably arguable case in relation to his claim for a constitutional writ of mandamus requiring the plaintiff and his officers to perform their alleged duty to comply with TD93/58. Kirby J noted that as long as the judgment of the Full Federal Court remained valid, the defendant's contention that he was entitled to a constitutional writ of mandamus was not made out (tab 18 – see paras 8-11, grounds 1 & 2). Kirby J held that the defendant was bound by the decision of the Full Court upholding the decision of the AAT. Appeal from the decision of Kirby J to the Full Court of the High Court 18 On 25 July 2000, the defendant filed an application for leave to appeal from the judgment of Kirby J. On 9 April 2001, the defendant filed a notice of discontinuance of the application for leave to appeal. Proceedings in the High Court's original jurisdiction (third proceedings) 19 On 9 April 2001, the defendant commenced proceedings by way of writ of summons and statement of claim in the High Court. On 17 December 2001 the defendant filed an amended statement of claim (tab 21). The main contention in the proceedings was an assertion that the assessment under challenge in the AAT and the Federal Court was inconsistent with the public ruling set out in TD93/58. 20 On 21 May 2002, the matter came before Gleeson CJ on the plaintiff's application to strike out the statement of claim. The matters raised in the ASC were: · A declaration that s 25(1) of the ITAA was impliedly repealed by the legislation relating to the self-assessment system, in its operation with respect to the amount received by the plaintiff byway of settlement of his Supreme Court action. · A declaration that the defendant's conduct in making the assessment was arbitrary and unconstitutional. · A declaration that the decisions of the AAT and the Federal Court are of no legal effect. · An order restraining the defendant from acting upon or giving effect to the assessment. · An order setting aside the decisions of the AAT and the Federal Court on the ground that they were procured by the defendant's equitable fraud. · Damages, including aggravated and exemplary damages. 21 Gleeson CJ considered whether the plaintiff acted inconsistently with the public ruling set out in TD93/58. Gleeson CJ concluded that he could not see any disconformity between TD93/58 and the assessment issued to the defendant. 22 The defendant also alleged that the plaintiff had improperly taken advantage of a relationship between the AAT Senior Member Block and Transfield Pty Ltd. Gleeson CJ found that the facts alleged did not make out an arguable case that the presiding member of the Tribunal was disqualified. 23 In relation to equitable fraud claim Gleeson CJ stated: "The equitable fraud alleged relates to the tax ruling, the representations said to have been involved in it, the failure to bring the ruling to the notice of the plaintiff, and the failure to bring the ruling to the notice of the Tribunal and the Federal Court. In that connection, a number of observations may be made. The ruling was a public ruling. It was never concealed from anybody. The plaintiff himself brought it to the notice of the Full Court of the Federal Court before the Full Court delivered judgment. Although the plaintiff represented himself in this Court, he was represented by Senior Counsel in the Full Court. There was nothing to prevent the plaintiff, at any stage, from making whatever use of the ruling he desired. The fact that he only came upon it at a late stage is not a ground for complaint against the defendant. It was not referred to in the notice of objection to the assessment, or relied on before the Administrative Appeals Tribunal. As I have indicated, I would not wish to be taken to be suggesting that such reliance would have been of any use to the plaintiff. But to make the absence of reference to the ruling the basis of an allegation of equitable fraud against the defendant goes beyond the bounds of even the most enthusiastic advocacy." 24 In relation to the jurisdiction issue, Gleeson CJ held that the Federal Court plainly had jurisdiction. The defendant was in essence seeking to relitigate his liability to income tax. He was seeking to make a collateral challenge to the decisions that went against him. Gleeson CJ ultimately ordered that the proceedings be dismissed on the basis that the pleading did not disclose a cause of action and that they were vexatious. Appeal from the decision of Gleeson CJ to the Full Court of the High Court 25 On 27 May 2002, the defendant appealed from the judgment of Gleeson CJ to the Full Court of the High Court (Gummow, Hayne and Callinan JJ). In its judgment, the Court noted that the alleged failure of the plaintiff to apply the ruling or to draw it to the attention of the defendant or the other decision makers could not amount to an equitable fraud. Application for orders absolute for constitutional writs 26 On 20 February 2003 the defendant filed a notice of motion for orders absolute for constitutional writs. On 17 June 2003 the High Court delivered judgment. The High Court noted that the draft order nisi sought to re-agitate various grounds and that there had been an attempt to put forward, as a new ground, the allegation of equitable fraud. The Court concluded that the argument as to equitable fraud must fail. 27 In the proceedings before this Court, the defendant's submissions were made in a somewhat unusual manner. Mr Knaggs, solicitor on behalf of the defendant made submissions and during the making of these submissions Mr Knaggs consulted with the defendant who was seated behind him. At the conclusion of those submissions Mr Glennan terminated Mr Knaggs retainer. He then eventually made the same submissions himself. The first submission was that while these submissions were being heard, the defendant was attempting through an agent to file a further statement of claim (Ex 1) in the registry. He sues Reginald Clark Rayner Hornibrook, Transfield Pty Limited, Kumagai Gumi Co Limited and Sydney Harbour Tunnel Company Limited. He seeks a review of the terms of settlement (and other transactions) pursuant to the Contracts Review Act 1980 (NSW) (CRA). The defendant was not seeking to amend his defence in these proceedings, but rather submitted that this other claim (Ex 1) under the CRA gave him an independent right to defeat an application for summary judgment in these proceedings or alternatively entitled him to a stay of proceedings while this other claim is determined. The defendant referred to the authority of CBC v Pollard & Anor (1983) 1 NSWLR 74. Pollard involved proceedings involving the same parties where Pollard sought relief under the CRA. Pollard does not assist the defendant in these proceedings. It is my view that a stay of these proceedings should not be granted. 28 Secondly, the defendant submitted that the amended defence pleads a new cause of action of common law fraud. The facts relied upon are essentially the same ones referred to in the earlier proceedings as equitable fraud. The defendant submitted that because the proceedings relate to a 1988 cause of action, fraud must be heard by a jury (see Part 34(3) of the SCR) and it was inconvenient to bring the fraud proceedings at the same time as other causes of action. In my view this submission is also hopeless. 29 The third submission concerned lack of jurisdiction. The defendant relied on DCT v Walker (1994) 183 CLR 168 and Mooney v DCT (1906) 3 CLR 221 particularly the passage in the headnote which stated that "The assessment by the Commissioners was therefore in excess of their jurisdiction, and invalid, and the appellant was not bound to appeal from it to the Court of Review, but was entitled to wait until sued for the tax, and dispute his liability in the action. The assessment is only conclusive as to matters within the jurisdiction of the Commissioners." 30 Gleeson CJ in the prior proceedings held that the Federal Court undoubtedly had jurisdiction. If any other jurisdiction was in doubt it could have been raised before Gleeson CJ – see Port Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 and Henderson v Henderson [1843-60] All ER 378 at 382 per Wigram VC. 31 The final submission concerned the claim where in the amended defence entitled "Where the defendant has exhausted all (statutory) rights to contest", the defendant referred to an article entitled 'A "Revolutionary" Approach to Unlawful Taxation' by David Wilder in the British Tax Review where he referred to Article 4 of the Bill of Rights (1689) which states: "That levying Money for or to the Use of the Crowne by p[re]tence of Prerogative without Grant of Parlyament for longer time or in other manner than the same is or shall be granted is Illegall." 32 The Bill of Rights subsequently provides: "That all and singular the Rights and Liberties asserted and claimed in the said declaration [including article 4] are the true auntient and indubitable Rights and Liberties of the People of this Kingdome and soe shall be esteemed allowed adjudge deemed and taken to be and that all and every the particulars aforesaid shall be firmly and strictly holden and observed as they are expressed in the said Declaration And all Officers and Ministers whatsoever shall serve their Majestyes and their Successors according to the same in all times to come." 33 Thus according to Wilder, there is a duty statutorily imposed upon servants of the Crown to observe Article 4. The defendant contended that the English Bill of Rights is applicable in Australia by virtue of the Charter of Justice. 'Where all statutory rights to contest are exhausted' is not a cause of action recognised in Australia. 34 The defendant's case as pleaded in the amended defence and amended cross-claim are hopeless. It is my view that the amended defence and cross-claim disclose no reasonable cause of action. The amended defence and cross-claim are vexatious and should be struck out. Judgment is to be entered in favour of the plaintiff. The defendant is to pay the plaintiff the sum of $5,667,207.09. Costs are discretionary. Costs normally follow the event. The defendant is to pay the plaintiff's costs as agreed or assessed. Orders (1) The amended defence and cross-claim are struck out. (2) Judgment to be entered in favour of the plaintiff. (3) The defendant is to pay the plaintiff the sum of $5,667,207.09. (4) The defendant is to pay the plaintiff's costs as agreed or assessed. ********** Last Modified: 09/28/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.