The NSW Supreme Court has rejected orders sought by a taxpayer to have a default judgment against him set aside.
In essence, the case involved the taxpayer’s dispute with ATO about a default judgment entered against him. At issue was whether the default judgment was inconsistent with a previous decision of the Court, consideration of Anshun estoppel, and whether the default judgment should be reopened because there was a real issued to be litigated.
The Court said the defendant failed to lodge tax returns for the 2005 to 2009 years, inclusive. In 2009, orders were made against him in the NSW Supreme Court in favour of a Mr Norman Hilton. That was on the basis that the defendant owed Mr Hilton $398,180 because of a loan from Mr Hilton to the defendant that the defendant had not repaid (referred to as “the first judgment”). On 20 October 2011, the Deputy Commissioner filed a statement of claim in the Court seeking just over id=”mce_marker”.6m. No defence was filed by the defendant. In July 2012, substituted service was effected upon the defendant pursuant to an order of the Court. Again, no defence was filed. Default judgment was entered on 21 January 2013. Part of that judgment was founded on the proposition that the sum referred to above was not a loan from Mr Hilton, but rather income of the defendant upon which he was obliged to pay tax (referred to as “the second judgment”).
After negotiations, in October 2013, the Deputy Commissioner accepted that the sum was a loan, not income that attracted income tax, and therefore that it should be “deducted” from the judgment debt. However, the Court said the Deputy Commissioner had not applied to amend the second judgment. Meanwhile, the defendant had commenced proceedings in the Federal Court to impugn the assessment upon which the second judgment was based.
The Court said the defendant had filed a notice of motion that sought “a plethora of orders”, mainly founded upon 2 propositions: (i) the second judgment cannot stand with the first judgment; (ii) the defendant knew nothing of the proceedings brought by the Deputy Commissioner against him. In short, the Court said there were 2 issues that required resolution: (1) When considering the 2 judgments, was there a basis upon which the second judgment should be set aside? (2) Should the second judgment be set aside, because there was a real issue to be litigated in the Court?
After reviewing the facts and evidence, the Court refused to make the orders sought as it rejected all the submissions on which they were founded.
(DCT v Shears [2014] NSWSC 1653, NSW Supreme Court, Button J, 14 November 2014.)
[FJM Note: I don’t know why the Court would not allow the default taxation judgment to be set aside given the ATO had already conceded that the loan the subject of the first action was real and was not income.]
[LTN 227, 24/11/14]