Deputy Commissioner of Taxation v England, Richard Anthony Fountayne (As liquidator of UB Minerals Inc (Nevada)) [1997] FCA 1419

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - application to strike out defence under O 11 r 16 Federal Court Rules - discretion to strike out should be "sparingly employed" - difficult questions of law - possibility of further evidence - defence not untenable - application refused. Income Tax Assessment Act 1936 (Cth) s 177(1) Federal Court Rules O 11 r 16 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 considered Dey v Victorian Railways Commissioners (1949) 78 CLR 62 considered and applied Theseus Exploration NL v Foyster (1972) 126 CLR 507 considered and applied F.J. Bloemen Proprietary Ltd v Commissioner of Taxation (1980-1981) 147 CLR 360 considered Commissioner of Taxation v Hadidi (1991) 51 FCR 453 considered Hirachand Punamchand v Temple [1911] 2 KB 330 considered DEPUTY COMMISSIONER OF TAXATION v RICHARD ANTHONY FOUNTAYNE ENGLAND (AS LIQUIDATOR OF UB MINERALS INC (NEVADA)) SG 3130 OF 1996 MANSFIELD J ADELAIDE 12 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY SG 3130 of 1996

BETWEEN: deputy commissioner of taxation

Applicant

AND: richard anthony fountayne england

(as liquidator of ub minerals inc (nevada))

Respondent

JUDGE: MANSFIELD J

DATE OF ORDER: 12 DECEMBER 1997

WHERE MADE: ADELAIDE

THE COURT ORDERS THAT: On the applicant's notice of motion dated 15 April 1997: 1. Application refused. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY SG 3130 of 1996

BETWEEN: deputy commissioner of taxation

Applicant

AND: richard anthony fountayne england

(as liquidator of ub minerals inc (nevada))

Respondent

JUDGE: MANSFIELD J

DATE: 12 DECEMBER 1997

PLACE: ADELAIDE

REASONS FOR DECISION

These reasons for judgment relate to the notice of motion of the applicant dated 15 April 1997 made pursuant to O 11 r 16 of the Federal Court Rules ("the Rules") to strike out the respondent's defence in this matter, and thus to enter judgment for the applicant. There was also listed before the Court on the same day a notice of motion of the applicant dated 10 November 1997 for summary judgment against the respondent, made pursuant to O 20 r 1 of the Rules. On that application the applicant is not confined to the pleadings or documents incorporated by reference into the pleadings. There may be extensive evidence on that application. There have been extensive affidavits filed, presumably in part for the purpose of that application. There are also two notices of motion of the respondent, dated 26 May 1997 and 12 November 1997, made pursuant to O 19 r 2 and O 15 r 11 of the Rules for further discovery from the applicant. Those three notices of motion were, and are, to be heard and determined in sequence, provided they each remain relevant. It was agreed between the parties that I should first hear and determine the applicant's motion of 15 April 1997. After hearing submissions on that motion on 14 November 1997, I refused it. I then proceeded to hear the applicant's motion of 10 November 1997. Evidence was led on that motion by affidavit, and some cross-examination occurred. That evidence has not been completed. That application has been adjourned for further hearing. I was asked to provide detailed reasons for refusing the motion of 15 April 1997. These are my reasons for so doing. It is common ground that the jurisdiction summarily to terminate an action is to be "sparingly employed": per Barwick CJ, General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. His Honour, after referring to the need for exceptional caution in exercising that power, and referring to the remarks of Dixon J in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 to which I shall refer further below, said at 130: ". . . in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." In Theseus Exploration NL v Foyster (1972) 126 CLR 507, Barwick CJ made it plain that such considerations apply where the application is to strike out the defence as well as where the application is to dismiss the claim. His Honour said at 514: "The jurisdiction to give summary judgment should not be exercised "where a difficult question of law is raised: - see generally the Supreme Court Practice (1970) vol. 1, pp. 126-130. Perhaps the summary intervention to prevent the continuance of a plaintiff's action ought to be much rarer than the giving of summary judgment but there is sufficient correspondence in the two situations to make apposite to this case much of what I said in General Steel Industries Inc. v. Commissioner for Railways (N.S.W.)."

In this case, the Court regarded it as a proper exercise of the discretion of the primary judge not to have proceeded to hear and determine an application based upon legal argument upon uncontroverted material (in that instance uncontroverted documentary material). That point was forcefully made even though the High Court upon appeal, having considered the argument at length, reached a firm view as to its outcome and entered judgment: see per Gibbs J at 515: "However, in the present case the questions were serious and disputable and, assuming the learned primary judge had a discretion, it was entirely proper for him to decline to dispose of them in chambers." The High Court proceeded to decide the merits because it was pointless to remit the matter for hearing. There was no further evidence proposed to be led in any event. That is not like the present case where, as is apparent from the nature of the other motion now before me, and indeed from the existence of the extensive material which has been filed presumably in part at least for the purpose of that other motion, it is proposed to seek to lead evidence at the trial should the matter proceed that far. Barwick CJ at 514 also said that it was open to the judge to take the view that the extent and complexity of the matters of law and of argument thereon warranted a hearing, even though no further evidence on any issue was to be adduced. I have given consideration to whether it is appropriate to resolve the issues of law as to the construction of the agreement described below, or as to the proper operation of s 177 Income Tax Assessment Act 1936 (Cth) ("ITAA"), on this application. They were the two matters which were said for the applicant to demonstrate that the defence is unarguable. For reasons which appear below, I have decided that the defence is not so clearly untenable that it should be struck out. Nor, given that conclusion, would it be appropriate to resolve finally those issues at this point. It is not clear that, at the trial, there will be no further evidence. Given that there is a dispute between the parties as to the meaning and effect of that agreement, there may well be evidence as to the matrix of facts in which that agreement came to be arrived at: Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. There may be other evidence. I simply do not know. It is certainly not an instance where it is common ground that there will be no further evidence at the trial other than the pleadings, and the agreement which is referred to therein. Of course, if there were to be no further evidence, the Court would have to construe that agreement. But neither the applicant nor the respondent disavowed an intention to call evidence. I cannot be satisfied that no evidence is admissible which may throw light upon the proper construction of that agreement. As I find that there is some ambiguity as to its proper meaning, and that the respondent's interpretation is not unarguable, I should not now put the respondent out of Court on his defence without being given the opportunity of adducing such evidence as he wishes to adduce. The fact that the present arguments are of law only, in the sense that they involve the construction of an agreement and the legal significance of s 177 ITAA, does not oblige the Court to proceed finally to determine those matters. In Dey (above), Dixon J at 91 said: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that the transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purposes of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process."

I observe that his Honour's remarks, referred to with approval by Barwick CJ in General Steel Industries (above) refer to a real question "whether of fact or law". That passage was cited with approval in the judgment of Mason CJ, Deane J and Dawson J in Webster v Lampard (1993) 177 CLR 598 at 602. Similarly, in Munnings v Australian Government Solicitor (1994) 118 ALR 385, Dawson J at 389 said expressly: "Where any real question of fact or law emerges upon which the rights of the parties depend, then that question must be determined and it is not possible to stay the action as frivolous or vexatious."

I turn then to consider the issues raised by the pleadings. I assume that the facts alleged in the defence and, to the extent that they are not in issue, in the statement of claim will be proved in due course. Most of the allegations in the statement of claim are not in issue. In particular, the following facts are clear. Prior to 29 July 1996 UB Minerals Inc (Nevada) ("UBM") was a registered foreign company under the Corporations Law 1991 ("the Law"), and a taxpayer within the meaning of that term in the provisions of the ITAA. UBM was assessed for income tax for the year of income ended 30 June 1986. Pursuant to the ITAA, on 11 December 1991 the applicant issued a notice of amended assessment in respect of the year of income ended 30 June 1986 ("the notice") to UBM specifying $1,980,212.02 ("the primary tax") as the tax payable by UBM. That notice specified the date for payment of that tax as 16 January 1992. That tax has not been paid. I note that the defence puts in issue, by non admission, that the notice was served on UBM in accordance with the ITAA, but the submissions of counsel for the respondent did not address that "technical" matter but addressed the substantive issues said to arise. That was a sensible course to adopt. I do not need to consider the consequences of that non-admission. The primary tax has not been paid in accordance with the notice. On 29 February 1996 UBM was ordered to be wound up. The respondent was appointed liquidator of UBM's affairs. On 28 June 1996 the respondent called for proofs of debt from the creditors of UBM. On 2 July 1996 the applicant submitted a proof of debt to the respondent claiming the primary tax and an additional amount for late payment pursuant to s 207 ITAA of $1,361,264.63, making a total of $3,341,482.65. On 1 November 1996, the respondent gave notice that he rejected that proof of debt by the applicant. The applicant's claim, put simply, is for an order that the proof of debt be admitted. It also seeks that the respondent pay the applicant's costs of this application personally on an indemnity basis. The claim appears straightforward, but for the specific denials that UBM was in fact liable to pay the primary tax, or the additional amount, or that by reason of the notice it was in fact indebted to the applicant for the primary tax from 16 January 1992. As might be expected, the defence explains the basis for the denials. It refers to an agreement, the performance of which is said to have led to UBM's taxation liability being discharged. The reply acknowledges most of the facts alleged. On about 16 September 1991 the applicant entered into an agreement with Australian Consolidated Investments Ltd ("ACIL") pursuant to which the applicant agreed to accept $29,217,906.63 in full and final settlement of, inter alia, the tax liabilities for the 1986 financial year of ACIL and "each of its subsidiary companies" ("the agreement"). It will be necessary to refer to the terms of the agreement in detail. In 1986 UBM was a subsidiary of ACIL. ACIL paid the agreed sum of $29,217,906.63. Thus, the respondent says that the applicant accepted that payment in satisfaction of the taxation liability of UBM for income tax for the 1986 financial year so that UBM was discharged from its taxation debt. An alternative plea of accord and satisfaction is raised in the defence but not advanced in submissions. The defence does not assert that UBM was a subsidiary of ACIL on 19 September 1991, when the agreement was made. The reply asserts that UBM ceased to be a subsidiary of ACIL in September 1989, and further says that none of the issues arising out of the applicant's audit into the affairs of ACIL related to any matter concerning the taxation returns or taxation liability of UBM. The respondent has not pleaded in response to those additional maters, but is not to be taken as having admitted them: O 11 rr 13-15 of the Rules. Having regard to the precise allegation in the defence, however, I proceed on the basis that UBM was a subsidiary of ACIL during the 1986 financial year but was not a subsidiary of ACIL at the time of the agreement. The other matter raised by the reply which was argued on this motion was that the provisions of s 177(1) ITAA preclude UBM from relying upon the terms of the agreement in any event. The notice is said to be conclusive evidence of the due making of the assessment and that "the amount and particulars thereof" are correct. Thus, it is contended as a matter of law, the respondent is not entitled to deny liability for the primary tax (or the additional amount) by rejecting the applicant's proof of debt.

It is upon determination of those two general issues, namely: 1. upon the proper construction of the agreement and its performance, whether UBM's taxation liability for the 1986 financial year was discharged, and alternatively 2. by reason of s 177 ITAA, whether UBM and the respondent may dispute the assessment made and contained in the notice in these proceedings that the resolution of this motion depends. THE AGREEMENT The agreement is contained in a letter from ACIL to the applicant dated 16 September 1991. The applicant's acceptance is endorsed on the letter on 19 September 1991. The relevant provisions of the agreement, for present purposes, record: "The directors of ACIL have resolved to make the offer contained in this letter to settle all disputes arising out of the audit conducted by the Australian Taxation Office ("ATO") in respect of ACIL and its subsidiaries in relation to the tax years ended 30 June 1984, 30 June 1985, 30 June 1986 and 30 June 1987. The audit issues related to the following: . . . (6) The grouping of tax losses pursuant to s 80G of the Income Tax Assessment Act and whether certain notices purportedly were given in accordance with that section by various ACIL group companies are valid. OFFER ACIL offers to pay the total sum of $29,217,906.63 on the terms and subject to the conditions set out below: (a) The ATO issues assessments to ACIL and its relevant wholly owned subsidiaries which together with the assessment issued to ACIL in respect of the year ended 30 June 1984 are for the aggregate sum of $29,217,906.63 . . ." It then recorded that amount as having been calculated in relation to primary tax, culpability penalty, late lodgment penalty and per annum interest penalty totalling $29,217,906.63. In relation to the primary tax it reads: "PRIMARY TAX calculated as set out in Appendix A to this letter and subject to the Commissioner in his discretion pursuant to s 80G(6)(c) of the Act, accepting the attached loss transfer notices pursuant to that section - $19,935,985.60" The conditions include the following: "1. The ATO acknowledges that the proposed assessments are in respect of all issues which arise out of the returns of income of ACIL and each of its subsidiary companies in relation to the years ended 30 June 1984, 30 June 1985, 30 June 1986 and 30 June 1987. . . . . . 4. Pursuant to s 80G(6)(c) the Deputy Commissioner accepts that each of the attached notices pursuant to s 80G is valid and allows each notice to be given notwithstanding that it was not given on or before the date of lodgment of the returns of income for each of the income companies referred to in the notices. . . ." Appendix A to that letter contains a series of columns detailing the primary tax and other taxation liabilities of ACIL and apparently of certain of its subsidiaries: Bell Resources Finance Pty Ltd, Bell Resources Development Pty Ltd and Bell Resources (UK) Ltd. There was also attached to that letter twenty two notices under s 80G(6) ITAA relating to transfer of loss deduction for various income years ended 30 June 1985, 30 June 1986 and 30 June 1987. They were all dated 11 September 1991. One such document records that UBM received a taxation loss transferred to it by Bell Coal Pty Ltd of $22,522,067.00 for the year of income 1987, the consideration for that transfer being the sum of $11,035,813.00 (49 per cent of the loss transferred). It also records that at relevant times during the financial year ended 30 June 1987 all the shares in both UBM and Bell Coal Pty Ltd were beneficially owned by ACIL. It is contended by the applicant that the agreement is plain on its face. And that the agreement was made only with respect to the taxation liabilities of ACIL and of those subsidiaries of ACIL which were subsidiaries at the time of the agreement. As UBM had apparently ceased to be a subsidiary of ACIL during 1989, its taxation liability was not affected by the agreement. In my view, the position is not as clear as the applicant contends. The offer is to settle all disputes arising out of the taxation audit referred to. That does include issues relating to the grouping of tax losses and the validity of certain notices given under s 80G ITAA. One such issue may include the validity of the transfer of a substantial tax loss between UBM and Bell Coal Pty Ltd; if it were not valid, the incidence of tax upon both UBM and Bell Coal Pty Ltd would be different, and Bell Coal Pty Ltd might have to account to UBM for the consideration it received for the transfer of that tax loss to UBM. That is because audit issue (6) and condition (4) in the agreement, and one of the attached s 80G notices, are apparently directed to validating the transfer of that particular taxation loss referred to. Thus, in my view, it is not untenable for the respondent to assert that the introductory words to the offer contained in the letter include within their compass a dispute concerning the taxation liability of UBM, so that the expression "ACIL and its subsidiaries" in relation to the taxation years identified may include UBM. UBM is eligible to fall within that description as it was in fact a subsidiary of ACIL during those years. Paragraph (a) of the offer is said necessarily to exclude that possibility. In my view, it does not render that proposition untenable. It deals with the proposed assessments to be issued, and in that context uses the expression "relevant wholly owned subsidiaries". The relevant wholly owned subsidiaries may be those in respect of which assessments are proposed to be issued by reason of the offer. It is not necessarily the case that all wholly owned subsidiaries of ACIL, either those at the time of the taxation years under review or those at the time of the agreement, are proposed to have assessments issued to them by reason of the offer. If anything, I think the reverse may be the case, particularly bearing in mind that grouping of tax losses is intended to be validated by the s 80G(6) notices for which approval was a precondition to the agreement. Their validity is, or is arguably, the foundation upon which the proposed assessment of primary tax and other penalties on the four entities referred to should be made. In that regard it may be noteworthy that, apart from ACIL and the three subsidiaries specifically mentioned in Appendix A in respect of which taxation assessments asked to be issued, those notices deal also with eleven other corporate entities. Condition 1 also, in my view, does not necessarily mean that the subsidiary companies to which it refers are only those of ACIL at the time of the agreement, as distinct from those at the time of the years of income to which it relates. It may be consistent with the respondent's contention that the proposed assessments for $29,217,906.63 are offered in exchange for all issues which arise out of the returns of income of ACIL and its subsidiaries at the time of the years of income under review, rather than only ACIL and its subsidiaries at the time of the offer but in respect of those years. It is certainly capable of extending the protection proposed by the offer beyond the four companies specifically identified by Appendix A, and in my view it is not untenable to argue that the reference to "ACIL and each of its subsidiary companies" refers to its subsidiaries at the time of the income years under review. There are two further arguments or matters to which I briefly refer. The applicant contended that the agreement could not have been intended to discharge, by its performance, the tax liability of UBM because ACIL did not have authority to do so at the time. That is simply because it was not a subsidiary at the time. There is clearly some merit in that observation. However, on the other hand, it is also unclear what were the implications of validating the loss transfer between UBM and Bell Coal Pty Ltd. I do not know the financial position of UBM in 1986 and 1987, in particular the significance to it of the acceptance of the tax loss or the payment of the consideration to Bell Coal Pty Ltd. If, as may be the case, the taxation audit raised some question as to the legal integrity of that transaction, it might also be asked rhetorically by what mandate did ACIL negotiate to put into place the validity of that transaction when UBM might have been interested in undoing it, or accepting that it was not in the first place legally effective. Secondly, it was pointed out that the s 80G notice which does refer to UBM relates to the 30 June 1987 financial year, whereas the assessment which is the subject of this claim relates to the 30 June 1986 financial year. I do not think that point, either alone or with the other matters raised, means that the agreement to settle "all issues" arising out of the audit in respect of "ACIL and its subsidiaries" in relation to the three tax years identified necessarily excludes UBM from the scope of its operation. Furthermore, I do not know whether, in respect of UBM or for that matter a number of other companies, there were any issues extending beyond those specifically identified by name in the list of audit issues. Some of those audit issues are general in their terms, and do not refer to or confine the issue to particular named entities. In particular, the material to which I may properly refer on this motion does not positively exclude the possibility that the assessment, the subject of this claim, may have been one of the issues arising out of the audit to which the agreement refers. For those reasons, in my view, the agreement does not, in its terms, clearly exclude UBM from the ambit of its operation. It may or it may not do so. Further, there may be admissible evidence which may throw light in a legitimate way on its proper construction. In those circumstances, I do not consider that the defence raised is untenable. Counsel for the applicant did not strongly contend that, if the agreement did encompass UBM within its terms and payment of the $29,217,906.63 was made, then that payment was not capable of discharging UBM's taxation liability. It is at least arguable that a taxation debt is a debt in the ordinary sense of the word: Commissioner of State Taxation v Pollock (1993) 11 WAR 64 at 74 - 77, and so is capable of being discharged by payment by a third party: Hirachand Punamchand v Temple [1911] 2 KB 330. SECTION 177, ITAA Section 177(1), ITAA provides: "The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, 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 IV C of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct." F.J. Bloemen Proprietary Ltd v Commissioner of Taxation (1980-1981) 147 CLR 360 decided that s 177(1) made it impossible for a taxpayer, in proceedings other than by way of objection or appeal under Pt V ITAA, to challenge an assessment on any ground. Mason and Wilson JJ (at 375) said: "This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of s. 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V." The Court found that the attack upon an assessment other than by the procedures provided under Pt V ITAA was not competent. Consistent with that decision, and a few months before it, Lush J in Commonwealth of Australia v Duncan [1981] VR 879 concluded that the liquidator of a number of companies in voluntary liquidation was obliged to admit proofs of debt provided by the Commissioner supported by, and consisting of, notices of assessment to which s 177(1) ITAA applied. The liquidator, in the face of such notices, was not entitled to question the assessments or to seek particulars concerning the proofs of debt. There is no question in this case of the respondent seeking to challenge the assessments as having been made in bad faith: cp. Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168; Madden v Madden (1996) 136 ALR 98. The respondent accepts that position. However, he contends that, notwithstanding that the applicant relies upon s 177 ITAA, the defence is maintainable. That is because it does not seek to challenge the assessment in any way, but to assert that the uncontested (and, in these proceedings, uncontestable) liability has been discharged. That is said to be so despite the agreement having been reached prior to the amended assessment. The respondent contends that the liability of UBM to pay income taxation for the financial year ended 30 June 1986 arose by operation of the ITAA: Re Mendonca; ex parte Commissioner of Taxation (1969) 15 FLR 256 per Gibbs J at 259; Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 per Gibbs CJ at 9. Accordingly, it is said, the notice of assessment does no more than determine the amount of that taxation liability and fix a date for its payment. If a notice of assessment were issued, and payment then made, it could not be the intent of s 177(1) ITAA if the Commissioner through administrative error were later to seek to assert that taxation debt in proceedings against the taxpayer relying on a notice of assessment under s 177(1), that the taxpayer could not put in issue the question of payment. To do so may not in any way challenge the assessment. It is then argued that a taxation liability may be satisfied by discharge of that liability by payment by a third party; reliance is placed upon Commissioner of Taxation v Hadidi (1991) 51 FCR 453. Hadidi (above) involved an appeal from the dismissal of a winding up petition. The petition had been presented by the Commissioner following the taxpayer's failure to fully perform an agreement between them in compromise of a taxation liability. It had been dismissed because that agreement amounted to an accord and satisfaction. On appeal, the Court (Beaumont, Wilcox and Heerey JJ) concluded that the satisfaction accepted by the Commissioner was the performance of the promise to pay in accordance with the agreement, rather than the agreement itself. There is no indication in the judgment that the Commissioner sought to rely upon a notice of assessment, by reason of s 177 ITAA, as distinct from a default judgment for the taxation liability upon which the compromise agreement was made. It is not in that sense directly on point. But it is capable of supporting the contention that the Commissioner may compromise a claim for a taxation liability and that any such an agreement is enforceable. The next step in the contention of the respondent is that the discharge of a debt may be effected by a third party. I am prepared to accept that that proposition is, at the least, arguable. One authority cited in support of it was Hirachand Punamchand v Temple (above) by way of illustration. In that case, a father of a debtor tendered an amount in satisfaction of a larger debt owing by his son to a money lender. It was found that the money lender had agreed to accept the tendered sum on that basis. The money lender could not later sue the son for the balance outstanding. Both Fletcher Moulton and Farwell LJJ based their decision upon the debt thereby being extinguished (at 339 and 340 respectively). If such an agreement can be made, I have concluded that with respect to the agreement it is arguable that it does constitute such a transaction. If it did so, in my view it is also arguable that it is enforceable notwithstanding the assessment notice, as s 177 may not disentitle the respondent from accepting the taxation liability to which the notice refers but then asserting that that liability has been discharged by agreement or by full payment or by some form of compromise payment. As noted above, it is consistent with such an argument that the liability to pay tax itself arises by operation of the ITAA and before the assessment itself. If it is arguable that the liability to pay tax arises by operation of the ITAA, and is capable of discharge by payment or by some form of compromise payment, then I am not satisfied that the fact that the notice of assessment issued after the agreement was entered into necessarily alters the position to the point where, by reason of that later assessment, the defence now raised is untenable. CONCLUSION For those reasons, I am not persuaded that I should now strike out the respondent's defence with the consequence that the applicant would, in effect, be entitled to judgment on his claim. It has not been suggested that any further or different grounds of defence could be raised. Although each of the matters argued by the applicant has apparent merit, the applicant has not satisfied me that the matters raised on the defence are so clearly untenable that they cannot possibly succeed. The matters raised are largely matters of law, although some evidence touching upon their resolution may be admissible at the trial. To the extent to which it might be said that I should proceed to determine them without any evidence, and on the pleadings, I would exercise my discretion against doing so. The reason is that, as there may be some evidence relevant to resolution of those issues, it would be unfair to the respondent to proceed in that way. It might equally be unfair to the applicant, if the matters were resolved adversely to him. No doubt, for that very reason, neither party has urged that I should go beyond deciding whether the defence should be struck out under O 11 r 16 of the Rules. I decline to do so. When I announced my decision on this motion, the motion for summary judgment under O 21 r 1 of the Rules proceeded. It is part heard. It was anticipated that it would be further listed for hearing and determination on 17-19 December 1997. It now appears that the period cannot be availed of by the parties. Rather than await the next hearing date, I therefore publish these reasons in the meantime. Pursuant to O 52 r 10(2)(b) of the Rules, I fix the time within which any notice of application may be filed and served for leave to appeal from this judgment to be ten days from the date of publication of these reasons.

I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.

Associate: Dated: 12 December 1997 Counsel for the Applicant: Mr M McCusker QC with him Ms S Maharaj

Solicitors for the Applicant: Australian Government Solicitor

Counsel for the Respondent: Mr D R Meagher QC with him Mr J Karas

Solicitors for the Respondent: Fisher Jeffries

Date of Hearing: 14 November 1997

Date of Decision: 12 December 1997