Cummins J

Supreme Court of Victoria

Judgment date: Judgment handed down 1 May 1991

Cummins J

This is an appeal by the Deputy Commissioner of Taxation of the Commonwealth of Australia from an order of Master Wheeler of this court staying to 30 April, 1992 or further order payment by the defendant to the plaintiff of the sum of $114,482.04 in which sum judgment was entered by the Master for the plaintiff against the defendant Theresa Gergis. The Master on 10 April 1991 ordered that the plaintiff have judgment in the sum of $107,396.85, together with interest of $7,085.19, totalling $114,442.04, together with costs of the proceeding.

In the order taken out and authenticated on 19 April 1991 by the Master he ordered that ``judgment ordered this day is stayed until 30 April, 1992, or further order'' and gave liberty to apply. Under the heading ``Other Matters'' the following item appears:

``The order hereunder is made to enable this court (so far as possible) to ensure the due prosecution of an appeal. Having determined that it is appropriate to grant a stay pending determination of an objection to assessment and review or appeal therefrom (if any) on the grounds of hardship subject to the defendant executing a charge in registrable form over the house and land situate at 50 Lawley Street, Reservoir, and the plaintiff having announced that it does not require such a charge.''

The word in the order says ``change'' - I presume it means ``charge''.

On the same day the Master entered judgment on behalf of the plaintiff against the estranged husband of the defendant, Andreas Gergis, in the sum of $144,603.47.

The issue before me is whether there is such hardship upon the defendant that the exceptional course ought be taken of allowing a stay of execution and thus either dismissing the appeal or allowing a stay for a lesser period than the 12 months granted.

The relevant notices of assessments were for the years ended 30 June 1986, 1987 and 1988 respectively as to which the assessments were raised pursuant to Sections 167, 170 and 177 of the Income Tax Assessment Act, together with additional late tax. In each instance the taxable income was arrived at by the Asset Betterment Method. Before me as Exhibit AZ2 to the

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affidavit of Mr. Zafiriou, sworn 19 April, 1991, is the Asset Betterment Point-to-Point Basis, which shows a total four-year understatement for A. and T. Gergis of the sum of $323,200 which when distributed equally is $161,600 respectively as to each.

The provisions of Part VI of the Income Tax Assessment Act set forth a scheme providing for the collection and recovery of tax. By Section 204, any income tax assessed becomes due and payable by the taxpayer on the dates specified in the notice. By Section 208, income when it becomes due and payable is a debt due to the Commonwealth and payable to the Commissioner in the manner and at the place prescribed. By Section 209, any unpaid tax may be sued for and recovered in any court with competent jurisdiction by the plaintiff.

By Section 177(1), the making of an assessment and the amount are conclusively proved by the production and assessment of an authenticated copy.

The particular provision in Part V which concerns me, Section 201(1), is:

``The fact that a review or appeal is pending in relation to an assessment does not in the meantime interfere with, or affect, the assessment and income tax may be recovered as if no review or appeal were pending.''

It is in the present case intended by the defendant to prosecute in the Administrative Appeals Tribunal or the Federal Court, but at all events not in this jurisdictional hierarchy, her rights in relation to the assessments made.

By reason not only of this scheme of the Act and in particular the provisions of Section 201 but also by reason of a long established principle predicated upon the importance to the community of the protection of the revenue, the granting of a stay is an exceptional step. In
D.F.C. of T. v. Australian Machinery and Investment Company Pty. Ltd. (1945) 8 A.T.D. 133 at 135; (1945) 3 A.I.T.R. 236 at 241, Latham, C.J. stated:

``My brothers Rich, Dixon and Williams and myself are of opinion that the contention that there is no jurisdiction to grant a stay in these proceedings by reason of the provisions of the Income Tax Assessment Act, s. 201 and the associated sections should not be accepted. We are of opinion that there is jurisdiction to grant a stay in such proceedings, but that in considering any application for a stay the policy of the Act as stated in s. 201 is a matter to which great weight should be attached.''

I turn further to the principles which govern or guide me as the case may be. In
Snow v. D.F.C. of T. 87 ATC 4078; (1987) 18 A.T.R. 439, French J., having reviewed relevant authority, set forth seven propositions six of which are relevant before me. At ATC 4093-4094; A.T.R. 458 he stated as follows:

``It may generally be concluded from the preceding review, that the power of State courts to stay recovery proceedings instituted in them under the ITAA is well established and that courts exercising it have regard to the following propositions:

  • 1. The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer's appeal against his assessment.
  • 2. The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it.
  • 3. The merits of the taxpayer's appeal constitute a factor to be taken into account in the exercise of the discretion (although some judges have expressed different views on this point).
  • 4. Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax.
  • 5. A stay may be granted in a case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay.
  • 6. The mere imposition of the obligation to pay does not constitute hardship.''

Snow's case differs from the present case because in Snow's case there was a direct jurisdictional pathway, it being a federal case. Differential considerations as to stays apply where there is a disparate hierarchical pathway. Further, Snow's case was a case of contrived arrangements. As to such arrangements, I entirely agree with McGarvie, J. who, in
D.F.C. of T. v. Trower 86 ATC 4157, a

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judgment delivered on 27 February, 1986, said at page 4163 as to the discretion he was there called upon to consider:

``In exercising this discretion I need not shut my eyes to the fact that the schemes relied on, although lawful, are of a distinctly anti-social nature. The nature of the schemes is not altered by the fact that they were entered into upon the advice and with the assistance of senior counsel, solicitors and accountants.''

It is I consider a relevant consideration that there is in the instant case no scheme of that anti-social, albeit lawful, nature.

In the present case the issue is solely a question of hardship, not a question of the merits of the proposed review. Further, there is no evidence or suggestion in this case of any abuse of office by the Commissioner. The Commissioner has acted properly in the pursuit of the significant responsibilities vested in him.

Earlier in his judgment in Snow, at 4090 and 454-455 respectively, his Honour stated:

``Generally speaking those decisions support the view that the legislative scheme established in relation to income tax recovery especially as manifested in sec. 201 of the ITAA, reflects a clear policy favouring the revenue against the taxpayer.

As the High Court said in
Clyne v. D.F.C. of T. [(N.S.W.) (No. 3) (1983) 14 A.T.R. 563 at 565;] 83 ATC 4532 at p. 4534, the Commissioner is placed by the legislature in a position of special advantage.

D.F.C. of T. v. The Hell's Angels Ltd. (No. 1) [(1984) 15 A.T.R. 812 at 814;] 84 ATC 4545 at p. 4547 in the Supreme Court of Victoria, Beach, J. said:

  • `That provision can only be consistent with an intention by the legislature that the Deputy Commissioner take all appropriate steps to recover tax due (including the institution of legal proceedings) despite the fact that an appeal is pending.''

D.F.C. of T. v. Mackey 82 ATC 4571; (1982) 13 A.T.R. 547, again a case of contrived arrangements, a decision of the Court of Appeal of the Supreme Court of New South Wales, Hutley, J.A. stated as follows at 4575 and 551-552 respectively:

``The fact that a taxpayer may arrange his affairs in any manner consistent with the law provides no justification for a Court giving any assistance to him in his attempts to resist the collection of assessments issued by the the Commissioner of Taxation. In my opinion the power to stay under sec. 201 should be exercised with great caution and only under special circumstances. In deciding whether to exercise it, there is no similarity whatsoever to the issue which faces the Court when it is asked to grant an interlocutory injunction. A person who applies for an interlocutory injunction is applying for an exercise of the Court's power in his favour, and the burden lies on him to establish his right to it.

The Commissioner starts off with rights under sec. 201 and the taxpayer is seeking on special bases to have a special discretion exercised in his favour. It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so. It is an open-ended discretion.

But there are only two cases where it is clear the Court should exercise that discretion. First the comparatively rare case where the Commissioner abuses his position, for example by assessing and endeavouring to collect tax in defiance of a decision of the High Court or other superior Court precisely in point. Second, in cases of extreme personal hardship to a taxpayer called upon to pay. The obligation to pay which has been cast upon him by law is not a hardship of itself and the mitigation of the effect of inflation and the burden of interest is a matter for the legislature, not for the Court.

I am also of the opinion that speculation as to the result of appeals is not a significant factor to be borne in mind. This Court should be concerned only with the question of the impact of the assessment upon the particular person concerned and not with what is going to happen in the future to the appeal.''

That passage was cited with approval by Kaye, J. in
D.F.C. of T. v. Cameron, reported in 91 ATC 4056 at 4059-4060.

The principles I have briefly reviewed are, if I may respectfully say so, most helpfully and clearly set forth in the judgment of Kaye, J. in

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his judgment (in which Gobbo, J. agreed) in
Cywinski v. D.F.C. of T. 89 ATC 4512 at 4513; [1990] V.R. 193 at 194. That again was a case which turned on the merits of the appeal, which this case does not.

Although there is reference to the question of a stay of proceedings in the decision of the High Court of Dawson, J. in
F.C. of T. v. Myer Emporium Limited 86 ATC 4222; (1986) 160 C.L.R. 220; (1986) 17 A.T.R. 469, I am not here assisted by that very clear analysis because the facts of that case are far removed from the facts of the case before me.

Held v. D.F.C. of T. 88 ATC 4315; (1988) 19 A.T.R. 1213, was a matter in the same jurisdictional pathway and was again a case involving contrived arrangements. The Full Court at ATC 4321; A.T.R. 1215 reviewed the suggested hardship, and concluded as a matter of fact that sufficient hardship did not arise. The facts in Held in terms of the derivation to the obligation to pay and the likelihood of hardship are markedly different from the case presently before me.

Finally, I refer to the
D.F.C. of T. v. Chamberlain 86 ATC 4420, a decision of the Supreme Court of the Australian Capital Territory and thus in the Federal structure, in which Kelly, J. granted a stay for the reasons there set forth.

It thus is evident from that albeit brief review of the authorities that there is a substantial onus upon a person to seek a stay granted in this court in relation to pending review proceedings in another jurisdiction and that the policy of the Act as stated in Section 201 as Latham, C.J. said in D.F.C. of T. v. Australian Machinery and Investment Company Pty. Ltd. is, ``a matter to which great weight should be attached''.

Applying the principles as curially laid down and the provisions of the legislation as I am required to do, I turn to the peculiar facts of this case.

The defendant is a mother of four children. She is not a professional person who has sought to obtain an advantage of contrived and artificial schemes and fallen upon unhappy consequences therefrom. She is not an entrepreneur who has sought to exist on the outer parameters of lawful business conduct. She is a person with no formal qualifications, who left school at the age of 15 and who has spent her working life, until caring for her children became her proper and primary occupation, as a cashier with Safeway. Her children are aged 13, 7, 5, and 15 months. She has not been in employment since 1985. She worked full time until the birth of her first child in 1978, thereafter to 1985 worked part-time and thereafter has cared for her children. Her children, as one would expect, are fully dependent upon her financially and emotionally in the circumstances to which I shall shortly allude.

It is an unfortunate fact that in marriages one party or another is sometimes met with very unhappy and surprising behaviour of the other party. In this case the defendant's husband, he having apparently been a businessman in the field of boilermaker equipment repairer, was charged on 31 October, 1989 with armed robbery: at first one charge and then four more. It appears that the allegations by the Crown are at present the subject of trial in the County Court in this State and thus, of course, I make no comment about them except to say the allegation of the Crown is that there was involved over a period of time substantial armed hold-ups involving extensive criminality and large sums of money. Although the plaintiff has knowledge of the charges there is no suggestion in this case that Mrs. Gergis knowingly was a beneficiary of the alleged illegality. It appears that she was a wife living at home with her children who did not know the unhappy truth, if it be truth, of her husband's behaviour. He is in custody. He has been in custody since 31 October 1989. If the charges are found proved, he is likely to remain in custody for many years.

The marriage has now broken down. The defendant thus has not only lost her husband, as many spouses lose their partners, but has lost him in the most harrowing and shocking circumstances, if the allegations are true. In the meantime pending the jury determination of the matter, she has the burden of knowing what her husband is alleged to have done.

She, the defendant, has as her only means of financial support a supporting parent's benefit of $265 a week which she commenced to receive when her husband went into prison, plus a family allowance a fortnight of $186.70. Out of that family allowance she pays the general living and household expenses. She sets

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forth in her affadavit - and I do not intend to rehearse it in detail - sworn on 28 March, 1991, her liabilities, assets and her expenditure and income. Hers is a modest life.

She and her husband received a gift from his parents in 1985 of property in Reservoir, a northern suburb of Melbourne. Upon it they built a 3 bedroom home, 50 Lawley Street, Reservoir. I have been shown photographs as Exhibit 1 of it. It is a comfortable home, but not luxurious, and certainly not extravagant. It is said to be worth some $220,000 to $250,000. In the home live the defendant and her four children and her mother. The mother does not contribute financially towards the household expenses except for payment of half of the telephone bill. She is on a widow's pension. The sleeping arrangements in the home are that in one bedroom sleeps the defendant and one daughter, in another bedroom sleeps the mother and one of the defendant's daughters and in another sleep the other two children.

By reason of arrangements set forth in the affidavit material and the subject of sworn evidence by the solicitor for the defendant, Mr. Steart, it appears that when the most difficult position that the defendant found herself in was fully revealed by reason of her husband's incarceration and given her inability to make financial advancement on her own behalf by reason of lack of training and education and by reason of her proper commitment to the four children, the family assets were rationalized by sale of the car and like items thereby enabling the mortgage on the house to be paid out. The defendant is thus living in an unencumbered home, and to that extent it can be properly said that she is not in a position of hardship, but indeed may be said to be better off than many persons in the community. But, in my view, to predicate my decision on that matter in isolation would be narrow indeed. I consider that one must look at the total situation in which the defendant finds herself and I can conceive of few more difficult psychological, emotional, personal as well as financial situations than that in which the defendant currently finds herself. I think it would be heartless indeed to view this matter as simply a matter of an unencumbered house in which the defendant has the security of a pension. She has significant emotional and psychological burdens to bear which I would expect are not likely to get easier in the future. She is a mother caring for four children, not a rapacious and unsuccessful adventurer.

The plaintiff has very properly in my view proposed that a period of time be allowed in order for the defendant further to rationalise her financial affairs. It suggests a period of up to six months to enable her to sell the house (which on the affidavit material could well raise $230,000 or thereabouts), and to purchase a three bedroom weatherboard house in the same area for $130,000. On the affidavit material, such weatherboard houses for $130,000 may be available in the area. The plaintiff further very properly in my view has said that the payment of not more than $100,000 would be required at the end of that time pending determination of the appeal process. The essential thrust of the plaintiff's submission in that regard is that the defendant and her family move to another house in the same area, being a three bedroom, weatherboard and even more modest home, thereby obviating her having to generate income which plainly she cannot do. The plaintiff has put that that proposal precludes or significantly ameliorates any hardship which might occur and certainly results in her not being put in a position of extreme hardship as is contemplated by the authorities for the granting of a stay.

The plaintiff also said that a difficulty with a stay is that interest is being incurred and in that sense both the revenue is prejudiced and the defendant herself is prejudiced by postponing the resolution of the financial situation.

However, I consider that in this particular case it would be wrong to require a mother with four children in her very difficult position to move to another house. I consider that this case, looking at the emotional and psychological and domestic position of the defendant as well as the financial position, properly is characterised as one of extreme hardship. It is true, as the plaintiff says, in the reality of life, particularly today, that persons do have to move home in order to meet financial obligations. But I would venture to say not many people would be required to move home with the emotional pressure that is presently upon this defendant with an estranged husband facing five armed robbery charges and four little children to care for.

I consider a very significant factor in the defendant's favour in this appeal is the

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combined circumstance that the assessments were predicated upon asset betterment and that the defendant was ignorant of her husband's (alleged) nefarious activities.

The defendant has offered an equitable charge over the property, which I consider is a proper offer. The plaintiff, as is revealed in the affidavit of Mrs. Zafiriou sworn on 18 April 1991, declined to accept the offer because it considered that that might be seen to acknowledge legal ownership of the property, thereby prejudicing any future bankruptcy action against the husband. I think that position of the plaintiff on the material then before it was reasonable. There is, however, by reason of the evidence called before me, now more material available to the plaintiff to consider its position as to whether a proper arrangement was reached between the estranged husband and wife in the interests of genuine security for the wife and four children or whether there was some inappropriate or sham arrangement reached between them to defeat proper recovery. Whether the plaintiff seeks or does not seek to take advantage of that offer is a matter for it in the light of that further material. But, as I say, on the material before me, what appears to have occurred is that the wife has been made privy to information of a distressing sort and has sought to protect her family in a legitimate and lawful sense, being herself and her children, from harm.

Accordingly I dismiss the appeal of the plaintiff from the order of Master Wheeler. I do not consider it is appropriate to allow the appeal in part and to lessen the stay from 12 months down to six or some other amount. I consider that the order of the Master in the circumstances was eminently fair and reasonable. Thus, I dismiss the appeal.

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