Case: R v Hickman; Ex parte Fox and Clinton [1945] HCA 53 ; (1945) 70 CLR 598
Outcome: cited
Several references were made to the principle enunciated by Dixon J in R v Hickman; Ex parte Fox and Clinton [1945] HCA 53 ; (1945) 70 CLR 598 at 615, where, as is well known, his Honour said that a privative clause (cf s 177(1)) is given effect despite non-compliance with provisions governing the exercise of a power, provided always that the purported exercise (1) is a bona fide attempt to exercise the power, (2) relates to the subject matter of the legislation, and (3) is reasonably capable of being regarded as referable to the power ("the Hickman principle"). 127 It was held (Mason CJ, Dawson, Toohey and McHugh JJ) that s 177(1) of the ITAA does not purport to deprive this Court of the jurisdiction conferred on it by s 39B of the Judiciary Act; (Deane and Gaudron JJ) that s 39B overrides or amends s 177(1) to the extent that s 177(1) would make a notice of assessment conclusive evidence of the due making of an assessment in a proceeding under s 39B in which the applicant's case is that an assessment is invalid on the ground that it was not made bona fide; (Brennan J) that in proceedings other than reviews or appeals under Pt IVC of the TAA, ss 175 and 177(1) operate congruently and are to be given effect consistently with the Hickman principle. Brennan J said that in proceedings under Pt IVC, however, s 177(1) presents no obstacle to giving full effect to the general provisions of the ITAA governing the assessment of the taxpayer's taxable income and tax liability (at 198). 128 Mason CJ observed (at 178) that the making of a determination under s 177F "forms part of the process of assessment and goes to the ascertainment of the substantive liability of the taxpayer to tax " (emphasis in original). His Honour referred to the distinction recognised in George , McAndrew , FJ Bloemen and Dalco , between the procedural mechanism by which taxable income is ascertained on the one hand, and the taxpayer's substantive liability on the other, the former (alone) involving the "due making" of the assessment (at 182-184). After referring to certain illustrations of the distinction, the Chief Justice observed (at 184): "... the making of a determination by the Commissioner under s 177F of the [ITAA] is a determination going to substantive liability and, in conformity with the interpretation of s 177(1) adopted in George , McAndrew , FJ Bloemen and Dalco , is put in issue by an appeal which challenges the assessment on the ground that it is excessive." Later, Mason CJ referred specifically to the susceptibility of a determination under s 177F to attack in an appeal to this Court against an objection decision. His Honour stated (at 187-8): "In such an appeal, it is for the taxpayer to show that the assessment is excessive. In that context, the existence of an inadmissible purpose on the part of the Commissioner plays no part. The central element of the legislative r&eacute;gime is the making of an assessment by the Commissioner which ascertains the taxpayer's liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantive liability to tax. In such an appeal, the taxpayer is at liberty to challenge the exercise of any relevant discretion by the Commissioner. Thus, on appeal, the court will set aside the assessment if any relevant exercise of discretion by the Commissioner is affected by error of law, if he has taken an extraneous factor into account or if he has failed to consider a material factor [citing Avon Downs at 360]" (emphasis added). 129 Unguided by later authority, one might be excused for thinking that the effect of both passages from the judgment of Mason CJ is that it is open to a taxpayer on an appeal to this Court under Pt IVC of the TAA to challenge a determination under s 177F, and, I suggest it would follow, under s 136AD, on judicial review grounds. The reason is that the taxable income and tax are as high as they are only because the discretion to make a determination was exercised, and it is open to the taxpayer to show the excessiveness of the assessment by bringing down the determination. As will be seen, however, in the case to be discussed next, both the primary Judge and a Full Court of this Court understood Mason CJ differently. 137 The primary Judge, RD Nicholson, held ( Sleight v Commissioner of Taxation (2003) 53 ATR 667 at (697)) that the making of a s 177F determination was "part of the process of making the assessment ... and not liable to challenge in this proceeding save in respect of matters going to substantive liability: Richard Walter at CLR 178, 203". His Honour held that it followed that any deficiency was validated by s 175. For this last proposition, his Honour referred to Richard Walter at 182, 187-8, 193-5, 196-7, 198-9, 209-211, 222-3 and 240-2. Finally, his Honour noted that no argument had been made that the case fell within "the conditions delineated in R v Hickman ". 143 Hill J also said (at 237) that Richard Walter was consistent with what the High Court said in Peabody at 382 (the passage set out at [119] above). I respectfully agree that that passage in Peabody does favour the view that the only basis on which a determination by the Commissioner under s 177F (and, it would follow, determinations by him under s 136AD) could be challenged, even in an appeal, is the non-fulfilment of the statutorily specified conditions precedent to the enlivening of the discretion (and, I suggest, the Hickman principle). 144 In both ss 177F and 136AD, the ITAA specifies a number of conditions, and provides that if they are met, the Commissioner may make a determination, the effect of which is that the taxpayer's taxable income will be greater than it would otherwise have been. With one exception, all of the conditions are "objective" (the exception is the condition in s 136AD(1)(b) and s 136AD(2)(b) (and s 136AD(3)(b), not presently relevant) that the Commissioner is satisfied that the parties to the international agreement were not dealing at arm's length with each other). Neither section makes the existence of any particular state of mind of the Commissioner in relation to the making of the determination, a condition of the power to make it. Sleight should be regarded as establishing that the legislature has revealed an intention that even in an appeal under Pt IVC of the TAA, the Commissioner's reasoning that led him to make the determination is shielded by s 177(1) from attack on judicial review grounds as part of the "due making" of the assessment. Of course, the fact itself of the making of the determination goes to the substantive liability to tax: if a determination was not even purportedly made, or if a determination purportedly made was not authorised by the ITAA because the statutorily prescribed conditions of the enlivening of the power were not satisfied, or, I suggest, failed to satisfy the Hickman principle, the assessment will be shown to be excessive. 145 Consistently with Sleight , so understood, not only should the Commissioner not be ordered to provide particulars relating to judicial review grounds, but also he should not be required to give discovery, and the taxpayer should not be entitled to lead evidence or to cross-examine any witnesses called by the Commissioner, in each case in relation to such grounds . 158 Although the Taxpayers are not at liberty to attempt to bring down the present determinations on judicial review grounds, the determinations remain vulnerable to attack in the appeals on the basis of both non-satisfaction of the statutory conditions of the Commissioner's power to make them, and the Hickman principle. 159 For the above reasons, both motions will be dismissed with costs. I certify that the preceding one hundred and fifty-nine (159) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 20 September 2006 Counsel for Applicant in each proceeding: Mr JW Durack SC, Ms RL Seiden and Mr JH Momsen Solicitors for Applicant in each proceeding: Becwell Legal Services Pty Ltd Counsel for the Respondent in each proceeding: Ms MM Gordon SC and Mr HP Steward Solicitor for the Respondent in each proceeding: Australian Government Solicitor Date of Hearing: 29 June 2006 Date of Judgment: 20 September 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/1252.html