Whitlam J

Federal Court

Judgment date: Judgment handed down 9 May 1995

Whitlam J

Each of the respondents, the Commissioner of Taxation and the Official Trustee in Bankruptcy, applies by notice of motion seeking orders effectively terminating this proceeding.

The applicant is a bankrupt. The sequestration order against his estate was made on the petition of the Commissioner, who relied upon a debt due under a judgment obtained on 23 February 1990. That judgment was given in respect of the applicant's liability for income tax stated in a notice of assessment issued on 1 October 1986. The Official Trustee is the trustee of the applicant's estate.

By his application, as amended in the form of the document filed in court upon the hearing of the respondents' notices of motion, the applicant claims against the Commissioner the following relief:

``3. An order removing the record of the decision of the [Commissioner] to make the assessment in or about late 1986 into this Court.

4. A declaration that the assessment made by the [Commissioner] in about late 1986 was not made for the purposes or within the meaning of the Income Tax Assessment Act 1936.

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5. A declaration that the assessment by the [ Commissioner] in or about late 1986 was not made by the [Commissioner] as a proper exercise of the powers vested in the [ Commissioner] pursuant to the Income Tax Assessment Act 1936.

5A. A declaration that the assessment by the [ Commissioner] in or about late 1986 was made male [sic] fides in that it was made for the purposes of providing evidence to the New South Wales Police to be used by the Police to oppose the applicant being released from prison on bail.

6. An order quashing the decision of the [ Commissioner] in or about late 1986 to make the assessment against the applicant.

7. Damages and exemplary damages for misfeasance in public office.''

The source of the Court's jurisdiction to entertain such claims against the Commissioner is not specified in the application. Section 39B of the Judiciary Act 1903 is not expressly invoked, and a writ of mandamus or prohibition or an injunction is not sought against the Commissioner. The causes of action appear to be modelled on those relied on in
Briggs v DFC of T & Ors: Ex parte Briggs 86 ATC 4748; (1986) 12 FCR 301. That case did involve a challenge to an assessment under the Income Tax Assessment Act 1936 (``the Tax Act'') by way of an application for mandamus and prohibition. (The applicant there also claimed, in the exercise of the Court's accrued jurisdiction, damages for misfeasance in public office, but that aspect of the claim was not dealt with.)

In Briggs the respondents had submitted that, by operation of s 177(1) of the Tax Act, once notices of assessment are tendered in proceedings, the Court is deprived of jurisdiction to entertain an application for the issue of prerogative writs. However, the Full Court held that where, as in that case, the respondents admitted that the documents issued were not, in truth, assessments of taxable income, s 177(1) could have no operation.

In the present case the allegations in paragraph 3(a)-(e) of the statement of claim repeat almost verbatim the facts, which were agreed in Briggs (at ATC 4750; FCR 303) and which, according to the Full Court (at ATC 4755-4756; FCR 308-309), indicated that no attempt at assessment of income tax had been made at all. Nonetheless, counsel for the Commissioner relies upon the production of a copy of the subject notice of assessment and s 177(1) of the Tax Act. He submits that Briggs may be distinguished from the present case by reference to the particulars furnished by the applicant of all the allegations of invalidity in the statement of claim.

The effect of s 177(1) of the Tax Act upon the exercise of s 39B jurisdiction has since been considered by the High Court in
DFC of T v Richard Walter Pty Ltd 95 ATC 4067; (1995) 69 ALJR 223. An assessment will be excluded from any general judicial review, but it must still satisfy the principle formulated by Dixon J in
R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 at 615. Deane and Gaudron JJ identified (ALJR at 246) three requirements of that principle in order to protect an assessment. A purported assessment must (i) be ``a bona fide attempt'' by the Commissioner to exercise powers conferred by the Tax Act, (ii) relate to ``the subject matter'' of the Tax Act, and (iii) be ``reasonably capable of reference to'' those powers.

Here the statement of claim contains allegations to the effect that the Commissioner did not comply with provisions of the Tax Act. Specifically, it is alleged that a default assessment was made when the applicant's return was not due; that the date for payment specified in the notice of assessment was the date of its service; and that the applicant's taxable income was not properly calculated. In respect of these allegations the assessment is plainly protected by ss 175 and 177 of the Tax Act, and no suggestion could be made that the Hickman principle has not been observed.

In addition, however, the statement of claim contains a curious allegation. It is alleged that the subject assessment was made ``at the request of the New South Wales Police'' so that it might be used for the purpose of opposing an application for bail to be made by the applicant on 2 October 1986. Evidence was received on this aspect of the challenge to the assessment.

Affidavits by the applicant were read. He was not cross-examined. The applicant said that in September 1986 he was arrested and charged with ``conspiracy to supply heroin'' and that he was remanded in custody. He said that in late 1986 (he did not say on 2 October 1986) he was present in the Supreme Court of New South Wales for a bail application during which the

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Crown tendered a copy of the notice of assessment as evidence of his earnings. Bail was refused. The applicant said that he was admitted to bail in August 1987. He also said:

``23. In late 1989 I entered a plea of guilty to the offence with which I had been charged. I was sentenced to serve a term of imprisonment and served 2 years and 11 months. As I had already served 11 months whilst on remand I had only a further term of 2 years to serve. I was released in February 1990.''

There was also received in evidence a copy of the Australian Taxation Office report of the income tax investigation of the applicant during the period 26 September 1986 to 3 October 1986. The report contains a handwritten note dated 29 September 1986:

``During the 1986 year of income the taxpayer has sold heroin being a total sale figure of $856,000.

As the police hold $188,720 and it appears likely the taxpayer through this solicitors will attempt to regain at least $174,500 urgent action must be taken.

Initially it is proposed to raise an assessment on an income of $856,000 and issue a 218 notice on the police to recover the outstanding tax.

It is therefore submitted to:-

  • (1) Issue a manual assessment based on a taxable income of $856,000 for the year ended 30th June 1986, and,
  • (2) Issue a notice on the police department to recover outstanding taxes held by them.''

This recommendation was approved and the applicant's taxable income was assessed as $856,000.

Counsel for the applicant submitted that this report would support not only the pleaded basis of challenge, namely, that the assessment was made for the purpose of opposing bail, but also a contention that the assessment was made for the purpose of giving a notice under s 218 of the Tax Act to obtain payment of the moneys held by the police. I think that it may be readily inferred that the information in the report came from the police. However, having gone into the facts as Dixon J did in
Cox v Journeaux [No. 2] (1935) 52 CLR 713, I am firmly of the view that the extraordinary allegation as to collusion about bail cannot be sustained. It is quite hopeless and may be properly described as frivolous or vexatious.

On the other hand, if the Commissioner had it in mind to issue a s 218 notice when the assessment was made, that could hardly vitiate the process. The handwritten note refers to the recovery of ``outstanding taxes''. Such an assessment is patently bona fide within the Hickman principle.

Nor may the applicant, in my opinion, derive any support for a collateral attack upon the assessment from either the recommendation ``initially'' to raise an assessment on an income of $856,000 or the apparent calculation of the whole of the proceeds of the sale of drugs as equivalent to the applicant's taxable income. There is nothing provisional or tentative about the assessment. The Commissioner does not appear to have had any material available to suggest that there were any deductions allowable as a result of the inclusion of such proceeds in the applicant's assessable income. Again, the assessment is protected by ss 175 and 177(1) of the Tax Act so long as it is made bona fide. Any excessiveness in the assessment is to be determined in accordance with the objection, review and appeal procedures.

An assessment made for the purpose of opposing bail would not be a bona fide attempt to exercise the power of the Commissioner. But it is quite clear from the material adduced on the hearing of the present motions that there is no real question of fact to be determined that such was the case. There is simply no real and genuine controversy. Accordingly, the applicant lacks a cause of action to obtain the declarations sought or to quash the assessment.

There is another reason why the applicant's claim to quash the assessment is bound to fail. That is the applicant's bankruptcy.

Daemar v Industrial Commission of New South Wales (1988) 12 NSWLR 45 the claimant sought prerogative relief to set aside a money judgment against him. After the commencement of proceedings he was made bankrupt. The Court of Appeal held that the proceedings constituted an ``action'' within s 60(2) of the Bankruptcy Act 1966 (``the Act''). Kirby P pointed out (at 54) that the claimant sought ``relief affecting his property''. His Honour left open the question whether such proceedings could be commenced after bankruptcy. The Court of Appeal also held that the proceedings

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did not fall within the exception in s 60(4)(a) of the Act. On this issue Kirby P said (at 56):

``The exemption is limited to those cases where it has been considered appropriate to sever the personal interests of the person subsequently made bankrupt from his property and to reserve to him the prosecution of and benefits derived from such litigation as not being legitimately entitlements of the creditors. In the present case the so called `wrong' of which the claimant complains is the very source of the financial problems which have led to his bankruptcy.''

The Court of Appeal considered the matter again after the claimant had been discharged from bankruptcy in
Daemar v Industrial Commission of New South Wales [No. 2] (1990) 22 NSWLR 178. The Court held that the proceedings originally instituted by the claimant remained ``property'' vested in his trustee within s 152 of the Act. Kirby P said (at 185):

``[Section 152] assumes that property vested in a trustee at the time of sequestration remains vested in that trustee even after the discharge of the bankrupt. There is nothing in the section which specifically re-vests in the discharged bankrupt the property which was, by the sequestration order vested in the trustee. That property included choses in action.... Under [the] Act it is the function of the trustee to gather in for the benefit of the creditors the property of the bankrupt at the time of sequestration. Save for the exceptions provided by the Act, such property is to be then available for distribution to the creditors. The property includes choses in action. It thus includes the `actions' which a bankrupt may have commenced at the time of the sequestration order. The Act exempts certain personal actions. But for reasons which were given in the original stay proceedings the claimant's action against the Industrial Commission and Mr Sheath is not in that class: see (at 55-66) and
Cox v Journeaux [No. 2] (1935) 52 CLR 713 at 721.

Therefore the `action' which the claimant had to challenge the orders of the Industrial Commission so far at least as it relates to the claim for relief from the burden of those orders requiring him to pay an amount to the second opponent remains vested in the trustee.''

In the present case the applicant seeks to quash the tax levied by the service of the notice of assessment. He wishes to undo his tax liability in the same way as Mr Daemar claimed to set aside his liability to the judgment creditor. The Court of Appeal in New South Wales held that such a claim for prerogative relief was a chose in action and ``property'' of a bankrupt which vested in a trustee at the time of sequestration. See s 58(1) of the Act. I respectfully agree.

It follows that the right to institute and prosecute such a claim is vested not in the applicant, but in the Official Trustee as the trustee of his estate. See
Fuller v Beach Petroleum NL (1993) 43 FCR 60 and
Heath v Tang [1993] 1 WLR 1421 (CA). Quashing the subject assessment would not, of course, result in a ``money verdict'' in favour of the applicant's estate, but it may affect the debts provable in his bankruptcy. I say that, although the tax debt originally due to the Commonwealth has merged in the judgment obtained by the Commissioner, and notwithstanding that the applicant by his counsel explicitly declines at present to challenge that judgment debt. I cannot perceive any other possible utility in the relief sought.

It is convenient now to consider the applicant's damages claim for misfeasance in public office. The applicant submits that this is a right within s 116(2)(g) of the Act.

The tort has recently been explained by the High Court in
Northern Territory v Mengel (unreported, 19 April 1995). The judgments in that case show that, quite apart from his status as a bankrupt, the applicant faces insurmountable obstacles in getting the cause of action he has pleaded to trial.

As Brennan J points out (at 37) the first element of the tort requires that a purported exercise of power be invalid. In the present case s 177(1) of the Tax Act gives conclusive evidentiary effect to the notice of assessment for the purposes of the tort claim too, and I have already stated why the assessment cannot be attacked on the basis of the Hickman principle. It is not to the point that the assessment may be excessive. It will not for that reason be an invalid exercise of power.

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It is clear beyond dispute that the applicant also could not make out the mental element of the tort of misfeasance in public office. He has pleaded that the Commissioner acted maliciously and consciously exceeded his powers. But the evidence reveals this claim to be without foundation so as to be vexatious.

Counsel for the Commissioner also submitted that the loss alleged by the applicant as the gist of his cause of action, namely the procuring of the judgment against him and the making of the sequestration order, could not be relied upon whilst such judgment and order still stand. Counsel cited by way of analogy
Metropolitan Bank v Pooley (1885) 10 App Cas 210 (HL), where it was held that a bankrupt whose adjudication in bankruptcy had not been set aside could not maintain an action for maliciously procuring the bankruptcy.

This is an interesting submission and, whilst I do not find it necessary to decide the point, it highlights the nature of the damages allegedly suffered. They relate to the applicant's property or estate and not to pain felt by him in respect of his ``body, mind or character''. (See
Faulkner v Bluett (1981) 52 FLR 115 at 122.) The cause of action pleaded does not answer the description of a right to recover damages within s 116(2)(g) of the Act.

It is true that paragraph 7 of the application in its finally amended form also claims exemplary damages. One may conceive of how a sum could have been claimed for the applicant personally in respect of the contumely and affront of being unfairly denied bail. (It may, of course, be difficult to do so in fact in view of the way his time in custody on remand evidently counted in reduction of the time on his sentence.) No matter, whatever ingenuity a pleader may display in relation to this aspect of the cause of action, the applicant was bound to fail.

After commencing this proceeding against the Commissioner, the applicant's solicitors wrote to the Official Trustee asking whether he was prepared to commence proceedings seeking the relief sought herein by the applicant or to continue this proceeding. The Official Trustee declined to pursue either course, and the applicant now seeks an order against the Official Trustee that he be allowed to bring this proceeding either in the name of the trustee or in his own name.

The applicant relies upon s 178 of the Act as the source of the Court's power to make such an order. Counsel for the Official Trustee and the Commissioner submit that this aspect of the application is completely misconceived. They say that, in effect, the applicant wishes to challenge the decision of the Official Trustee to admit the Commissioner's proof of debt and that s 99 of the Act provides a specific route for such challenge. They refer to the principle that where there is a conflict between general and specific provisions, the specific provision prevails (generalia specialibus non derogant). That principle has a particular application where the conflict arises from different provisions in the same statute:
Smith v R (1994) 69 ALJR 24 at 28. Accordingly, it is submitted that s 178 of the Act can have no application.

Some support for this submission may be gained from an observation in Fuller v Beach Petroleum NL, where Hill J in his dissenting judgment (at 76) suggests that the proof of debts provisions in the Act are the mechanism for contesting liability constituted by a judgment. However, Gummow and Whitlam JJ refer expressly (at 67-68) to the wide power of a trustee under s 134(1)(j) and to the possibility of testing decisions of a trustee under s 178. It seems to me that the Official Trustee's refusal to bring proceedings for prerogative relief in respect of the assessment can be the subject of an application under s 178 of the Act. The section then confers a very wide discretion upon the Court:
Re Tyndall (1977) 30 FLR 6. In Heath v Tang Hoffman LJ referred to the rule that a bankrupt could not sue on a cause of action vested in his trustee and said (at 1423):

``But in any case in which he was aggrieved by the trustee's refusal to prosecute a claim he could apply to the judge having jurisdiction in bankruptcy to direct the trustee to bring an action, or to allow the bankrupt to conduct the proceedings in the name of the trustee. The jurisdiction of the bankruptcy judge to give such directions is now conferred by statute.''

His Lordship then cited the United Kingdom equivalent of s 178.

Be that as it may, the argument is a sterile one. The claims that the applicant wishes to pursue are hopeless. They are bound to fail. This may or may not have been the view of the Official Trustee. It does not matter. Although the claims are vested in the Official Trustee, the

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Commissioner would be entitled to have them stayed.

The proceeding should, therefore, be stayed generally against the Commissioner and the Official Trustee. The application does, however, also contain a claim for relief against the applicant's former wife who is named as first respondent. I am informed that this is a mistake and that the application had not been served upon her. Great care must, of course, be taken in framing orders summarily disposing of proceedings, having regard to the terms of the motions before the Court:
Munnings v Australian Government Solicitor [No 2] (1994) 68 ALJR 429 at 430-431. However, the appropriate order is that the application be dismissed with costs.


1. The application be dismissed.

2. The applicant pay the costs of the second respondent and of the third respondent.


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