Chamberlain v. Deputy Federal Commissioner of Taxation

Judges: Brennan J

Deane J
Dawson J
Toohey J
Gaudron J

Court:
Full High Court

Judgment date: Judgment handed down 12 May 1988.

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Deane, Toohey and Gaudron JJ.

On 26 July 1984 the respondent issued a writ against the appellant out of the Supreme Court of the Australian Capital Territory. In the writ the respondent claimed the sum of $25,557.92, ``being a debt due to the Crown from the Defendant'' in respect of income tax assessments for the years ended 30 June 1975 to 1982 inclusive together with additional tax for late payment in respect of each of those years except 1977 or 1978 (it is not clear as to which year). An addition of the amounts set out in the writ in respect of each assessment and amount for additional tax, allowing for various credits, shows a total of $255,579.20 rather than the amount claimed.

The appellant entered an appearance to the writ. Thereafter terms of settlement were lodged and judgment entered in favour of the respondent to give effect to those terms. The terms of settlement were expressed in these words:

``By Consent and without admission of liability: -

• 1. Judgment for the Plaintiff in the sum of $25,557.92 together with costs to be assessed and agreed at $115.
• 2. The settlement moneys to be paid by the Defendant to the Plaintiff forthwith.''

Judgment was entered in these terms:

``Terms of Settlement having been filed herein IT IS THIS DAY ADJUDGED that the Plaintiff recover against the Defendant the sum of $25,557.92 for debt and $115 for costs.''

On 10 August 1984, four days after judgment had been entered, the respondent issued a further writ against the appellant, also out of the Supreme Court of the Australian Capital Territory. The respondent claimed $230,021.28, ``being a debt due to the Crown from the Defendant'' in respect of the same assessments of income tax and the same amounts of additional tax for late payment as were identified in the earlier proceeding. The same credits were allowed as before; in addition however the later writ credited the appellant with payment on 3 August 1984 of $25,557.92.

In support of the later writ, the respondent lodged a statement of claim in which he pleaded in detail the original and amended assessments raised against the appellant, service of those assessments, the fact that the amounts referred to in the assessments thereupon became due, the accretion of additional tax for late payment and the crediting of various amounts, together with a prayer for relief in the form of a claim for $230,021.28 plus interest and costs.

To that statement of claim the appellant lodged a defence. In part the defence consists of denials and non-admissions. But it also pleads the earlier action between the parties and the entry of judgment ``for the same debt and in respect of the same cause of action as that alleged in the statement of claim herein''. By reason thereof, it is said, ``the plaintiff is estopped and precluded from maintaining his claim in this action against the defendant''.

There is a further plea of estoppel, framed in somewhat different terms. The defence pleads an agreement between the parties whereby the defendant would consent to judgment in the sum of $25,557.92 together with costs of $115,

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would pay those moneys and withdraw all outstanding objections to assessments raised against him and that:

``The plaintiff would accept the aforesaid payment and withdrawal of outstanding objections in full and final satisfaction and discharge of any claims which the plaintiff then had, or but for the said agreement might have had, against the defendant.''

The defence then pleads performance by the defendant of his obligations under the agreement, with a consequent allegation that ``the plaintiff is estopped and precluded from alleging that the defendant is further indebted to him''.

The second action proceeded to trial and on 18 June 1986 Kelly J. entered judgment [reported at 86 ATC 4387] against the appellant in the sum of $256,476.25, being the amount claimed with interest thereon. The appellant appealed to the Full Court of the Federal Court [reported at 87 ATC 4103] which dismissed his appeal though on somewhat different grounds to those relied on by the primary Judge.

The appellant's appeal to this Court was argued essentially on the basis that the plea of estoppel should have been upheld for the reason that the cause of action upon which the respondent relied in the second proceeding had merged in the earlier judgment. The appellant did not press the defence that there had been an agreement between the parties which he had performed. The appellant had not given evidence at trial and there was nothing to support the agreement pleaded.

Before dealing with the real issue between the parties, it is as well to dispose of one aspect which might be thought to arise. If the amount claimed in the original proceeding was an error and should have read $255,579.20, why did not the respondent, seek to have the earlier judgment set aside as having been entered by mistake? Or again, in the later proceeding why did not the respondent plead mistake by way of reply to the defence of estoppel? These are questions to which we can give no answer for none was provided to us. While not conceding that there was no mistake, the respondent has at all times taken a clear position that the second action brought against the appellant is to be determined without reference to any question of mistake. The appeal must be disposed of accordingly.

Although the defence in the second action uses the language of estoppel, it is apparent that what the appellant relies upon is res judicata. The matter was so argued. The point was made by Gibbs C.J., Mason and Aickin JJ. in
Port of Melbourne Authority v. Anshun Pty. Ltd. (1981) 147 C.L.R. 589 at p. 597 in this way:

``The distinction between res judicata (in England called `cause of action estoppel') and issue estoppel was expressed by Dixon J. in
Blair v. Curran (1939) 62 C.L.R. 464 , at p. 532 in these terms: `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, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.'

The distinction was restated by Fullagar J. in his dissenting judgment in
Jackson v. Goldsmith (1950) 81 C.L.R. 446 , at p. 466 . His Honour expressed the rule as to res judicata by saying: `where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. This rule is not, to my mind, correctly classified under the heading of estoppel at all. It is broad rule of public policy based on the principles expressed in the maxims `interest reipublicae ut sit finis litium' and `nemo debet bis vexari pro eadem causa' .' His Honour went on to discuss issue estoppel, citing the comment of Dixon J. in Blair v. Curran, at p. 531: `A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies.'

...

The rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which has merged into judgment in a prior proceeding.''

The question in this appeal is whether the cause of action claimed by the second respondent in the second proceeding had

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already passed into judgment so as to lose its independent existence.

In Port of Melbourne Authority Brennan J. drew attention to the imprecision in the words ``cause of action''. These words, his Honour said at p. 610, are:

``... sometimes used to mean the facts which support a right to judgment... sometimes to mean a right which has been infringed... and sometimes to mean the substance of an action as distinct from its form...''

In the appellant's submission, whatever meaning is attached to the expression ``cause of action'', the cause of action claimed in the first proceeding brought by the respondent against the appellant was the same as that upon which the respondent relied in the second action. And, argued the appellant, that cause of action passed into judgment in the first proceeding and, the judgment standing, it no longer has an independent existence.

To determine whether or not the appellant's argument should succeed, it is necessary to identify the cause of action upon which the respondent relied in the first proceeding. There can be no doubt that the respondent sued for a debt due to the Crown by the appellant in respect of income tax assessments and additional tax for late payment for the years in question. Equally, there is no doubt that in the second proceeding the respondent sued for a debt due to the Crown in respect of the same assessments and the same additional tax for late payment. Whether one focuses on the facts supporting a right to judgment or on the right impugned or on the substance of the action, the conclusion is inevitable that the cause of action relied upon by the respondent in the second proceeding is that upon which he had earlier relied. The additional credit reflecting the amount paid by the appellant after judgment was entered in the earlier proceeding was not part of the cause of action; it was simply an amount paid in respect of that cause of action.

The fact that a judgment is entered by consent may on occasion make it hard to say what was necessarily decided by the judgment, especially where it is the defendant who wishes to bring action at a later date:
Isaacs v. The Ocean Accident and Guarantee Corporation Ltd. (1958) S.R. (N.S.W.) 69 per Street C.J. and Roper C.J. in Equity at p. 75; cf. Owen J. at pp. 79-80. But the principle of res judicata holds good in such a case.

Kelly J. accepted the argument of the appellant to this point but, relying upon a passage in
Henderson v. Henderson (1843) 3 Hare 100 ; 67 E.R. 313 , his Honour held that the principle of res judicata was excluded in the present case. In Henderson v. Henderson Wigram V.C. said at p. 115 (E.R. at p. 319):

``... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest...''

(emphasis added).

The existence of the principle in Henderson v. Henderson has been affirmed on a number of occasions: Port of Melbourne Authority at p. 598; also
Vervaeke v. Smith (1983) 1 A.C. 145 at pp. 157 and 163 . The primary Judge concluded that because the Commissioner of Taxation has no power to excuse taxpayers from the duty of paying taxes in accordance with the law, unless expressly authorised to do so by statute, there were special circumstances making the operation of res judicata inapplicable. Though it dismissed the appeal, the Full Court of the Federal Court rejected the conclusion based on Henderson v. Henderson. It did so, rightly we think, because the sections of the Income Tax Assessment Act 1936 (Cth) (``the Act'') giving rise to a liability to pay tax and empowering the Commissioner to sue for that tax are spent once judgment is entered in favour of the Commissioner. In truth Henderson v. Henderson was not concerned with res judicata in its strict sense but rather with its implications when an issue is sought to be raised ``which could and should have been litigated in the earlier proceedings'': Port of Melbourne Authority at p. 598.

The reason why the Full Court dismissed the appeal may be found in the following paragraph from its judgment [at p. 4111]:

``This is a very unusual case. Indeed, it borders on the absurd. One would hope that its circumstances would not be repeated. Be that as it may, it is our opinion that a principle founded on public policy should

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not be permitted to force a court to reach a conclusion which not only confounds another public policy, namely, that people should, generally speaking, pay their debts whether they are debts due to governments, to other persons or to private undertakings or concerns, but which itself involves an absurdity.''

Before us the respondent's answer to the arguments based on res judicata was that sec. 209 of the Act empowered the Commissioner or a Deputy Commissioner to sue for and recover any tax unpaid. Thus, in bringing the second action, the respondent was exercising a statutory right in respect of which res judicata could have no application. This argument was not based on any suggestion that the amount of the judgment in the first action was the result of some mistake. As has been said, the respondent has not sought to rely upon any such suggestion.

We do not accept the argument. It may well be true that, as the respondent submitted, estoppel by representation affords no answer to a claim in exercise of a statutory power or duty or a right conferred in the public interest: see
Maritime Electric Co. Ltd. v. General Dairies Ltd. (1937) A.C. 610 at pp. 619-621 . And it may well be that no conduct on the part of the Commissioner can operate as an estoppel against the operation of the Act:
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at p. 117 . It is equally true that the Commissioner is not bound by a determination made in respect of an assessment for one year, so far as other years are concerned:
Caffoor v. I.R. Commr (1961) A.C. 584 at pp. 598-601 . Likewise there can be no issue estoppel against the operation of a statute which creates public rights and duties or which enacts imperative provisions:
Bradshaw v. M'Mullan (1920) 2 I.R. 412 at pp. 425-426 ;
Griffiths v. Davies (1943) K.B. 618 ;
Kok Hoong v. Leong Cheong Kwang Mines Ltd. (1964) A.C. 993 at pp. 1015-1017 .

All this may be accepted for the purposes of the present appeal but it has little to do with the question at issue. This is not a situation in which all that is involved is the conduct of the respondent or indeed the operation of an Act which imposes liability for income tax and provides the means by which that tax may be assessed and recovered. The point of the present appeal is that the respondent brought an action against the appellant and recovered judgment against him. He obtained a judgment of the Court in which the cause of action upon which he relied merged, thereby destroying its independent existence so long as that judgment stood. And, so long as that judgment stands, it is not competent for the respondent to bring further proceedings in respect of that same cause of action. It is no answer to say that the Court might, if appropriate, stay the second action as an abuse of process. The impediment goes deeper than that; res judicata may sustain a plea of abuse of process but in that case the appropriate remedy is to strike out the later action:
Greenhalgh v. Mallard (1947) 2 All E.R. 255 at p. 257 ;
Dallal v. Bank Mellat (1986) Q.B. 441 at pp. 451-454 . So long as the respondent chooses, as he does, to take no step to set aside the judgment and to raise no issue in the second action as to the circumstances in which that judgment was obtained, he must accept the consequences of res judicata. There is nothing in the Act or arising from the position of the respondent as a public officer that precludes the operation of that doctrine. The matter is not one for the discretion of the Court; by operation of law the cause of action relied upon by the respondent has ceased to exist.

The respondent addressed an argument to the Court based on sec. 202 of the Act, a section which has now been repealed though it has its counterpart in sec. 172. Section 202 imposed an obligation on the Commissioner to refund tax overpaid or apply it against a liability of the taxpayer where, ``by reason of an alteration of an assessment on an appeal or reference, a person's liability to tax is reduced''. The argument was that the obtaining of judgment by the Commissioner against a taxpayer does not interfere with the processes of objection, reference and appeal under the Act nor the obligation of the Commissioner to make a refund pursuant to sec. 202. Therefore, it was submitted, there could be no merger of an assessment in a judgment for tax assessed when that assessment was subject to objection, reference or appeal.

There are factual difficulties in the way of this argument. The appellant's defence in the second proceeding includes an allegation that on 6 August 1984 he withdrew all outstanding objections to assessments against him. The respondent's reply contains a general joinder of issue. Kelly J. did not make a finding as to

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whether the objections were withdrawn but equally there was no finding that any of the assessments were, at the time the second action was brought, subject to objection, reference or appeal. The material before the Court does not permit a conclusion to be drawn one way or the other.

But more fundamentally, the respondent sued the appellant on a cause of action for which he received judgment, then, without seeking to have that judgment set aside or otherwise to impugn it on the ground that it had been entered or obtained by mistake, sought to sue again in respect of the same cause of action. A statutory obligation to refund tax as a consequence of a successful appeal or reference by the taxpayer has nothing to do with the existence and character of the cause of action involved. Nor has it anything to do with the operation of res judicata.

The appeal should be allowed and the respondent's claim against the appellant dismissed.