Oil Basins Ltd v Commonwealth [1993] HCA 60; (1993) 178 CLR 643; (1993) 93 ATC 4747; (1993) 117 ALR 338; (1993) 67 ALJR 955; (1993) 26 ATR 603 (10 November 1993)

HIGH COURT OF AUSTRALIA

OIL BASINS LIMITED v THE COMMONWEALTH OF AUSTRALIA AND OTHERS [1993] HCA 60; (1993) 178 CLR 643, (1993) 93 ATC 4747, (1993) 117 ALR 338, (1993) 67 ALJR 955, (1993) 26 ATR 603
S. 93/015
Number of pages - 7

Courts

HIGH COURT OF AUSTRALIA
DAWSON J

CATCHWORDS

Courts - Practice - Declaration - Jurisdiction - Declaration against Commissioner of Taxation negating party's liability to pay a particular tax - Declaration that particular tax not paid on behalf of plaintiff by party other than Commissioner - Commencement of action before issue of assessment - No act of Commissioner impugned - Whether Commissioner proper party - Whether jurisdiction to grant declaration against Commissioner excluded by taxing statute - Petroleum Resource Rent Tax Assessment Act 1987 (Cth), ss. 69, 69A, 106(1) - Taxation Administration Act 1953 (Cth), Pt IVc.

HEARING

1993 MELBOURNE, October 19, CANBERRA, November 10.
10:11:1993

ORDER

Dismiss the applications of the first and second defendants dated 14 October 1993.

Dismiss the applications of the third, fourth and fifth defendants dated 11 October 1993.

DECISION

DAWSON J On 1 October 1993 I gave leave to the defendants to enter
conditional appearances for the purpose of enabling them to argue that
the first and second defendants should be removed from this action
upon the basis that no justiciable issue exists between the plaintiff
and them. If the first and second defendants, the Commonwealth
of Australia and the Commissioner of Taxation, were removed from
the action, it would cease to be a matter under s.75(iii) of the
Constitution in which the Commonwealth, or a person suing or being
sued on behalf of the Commonwealth, is a party, and this Court would
cease to have original jurisdiction.

2. I now have before me two summonses, one issued by the first and second defendants and the other issued by the third, four and fifth
defendants. They seek orders that the first and second defendants be
removed or struck out as parties and that the proceedings otherwise be
brought to an end. It is desirable to set out some of the background
to the action.

3. On 28 December 1960 Dr Weeks, an American petroleum geologist, entered into a consultancy agreement with the third defendant, The
Broken Hill Proprietary Company Limited ("BHP"), to advise it in its
search for crude oil and gas. Under the consultancy agreement BHP
agreed, amongst other things, to pay to Dr Weeks or his nominee an
overriding royalty of 2 1/2 % of the gross value of all hydrocarbons
produced and recovered by BHP within, amongst other areas, the area in
Bass Strait covered by an exploration permit taken out on the advice
of Dr Weeks. BHP granted to Oil Basins Incorporated ("OBI") the
overriding royalty for which the consultancy agreement provided. By
a series of assignments, the obligations under the royalty agreement
were assigned to the fourth defendant, BHP Petroleum (Bass Strait)
Pty. Ltd., and the right to receive the royalty was assigned to
the plaintiff, Oil Basins Limited. On 12 May 1964 the fifth
defendant, Esso Australia Resources Ltd., then known as Esso
Exploration and Production Australia Inc., farmed into the relevant
exploration permit area subject to a 2 1/2 % overriding royalty in favour
of OBI.

4. The royalty agreement between BHP and OBI provided that the royalty should be paid in cash unless OBI elected to receive the same
in kind. After the discovery of crude oil and gas in the relevant
area, the royalty was paid in cash.

5. On 26 June 1991 the Petroleum Resource Rent Legislation Amendment Act 1991 (Cth) was enacted. Retrospectively from 1 July 1990, that
Act replaced the existing tax scheme which applied to the Bass Strait
project with a petroleum resource rent tax ("PRRT") ((1) Petroleum
Resource Rent Tax Assessment Act 1987 (Cth), s.31(g) inserted by
Petroleum Resource Rent Legislation Amendment Act 1991 (Cth), s.9.).
As a result, petroleum produced by the Bass Strait project attracts
tax under the Petroleum Resource Rent Tax Assessment Act 1987 (Cth)
("PRRT Assessment Act"). The tax is payable on "the taxable profit of
a person ... in relation to a petroleum project" ((2) PRRT
Assessment Act, s.21.). Taxable profit is relevantly defined as "the
assessable receipts derived by a person" less the "deductible
expenditure incurred by the person" ((3) ibid., s.22.). The
"assessable receipts" are relevantly defined as the sum of "assessable
petroleum receipts" and "assessable exploration recovery receipts"
((4) ibid., s.23(1).). "Assessable petroleum receipts" are based upon
the sale price or market value of petroleum "recovered" from the
project area ((5) ibid., s.24.).

6. The fourth and fifth defendants ("the producers") filed returns pursuant to s.59 of the PRRT Assessment Act for the financial years
ended 30 June 1991 and 1992. Notices of assessment were issued in
response to these returns. The producers filed returns for the
financial year ended 30 June 1993 but accompanied them with letters
stating that the producers intended to lodge returns on behalf of the
plaintiff and "amended and additional returns" on their own behalf.
The assessments for 1993 were issued on 10 August 1993. The producers
lodged notices of objection to these assessments on 8 October 1993.
These notices alleged that part of the assessed taxable profit was
derived, not by the producers in relation to a petroleum project, but
by the producers in their capacity as representatives, agents or
trustees of the plaintiff. In effect, the producers claimed that the
plaintiff had an interest in 2 1/2 % of the production and that the
plaintiff, not the producers, should pay PRRT in relation to that
interest.

7. A dispute over the amount payable pursuant to the royalty agreement was first referred to arbitration in September 1984. An
appeal against an interim award was determined when in August 1988
this Court refused applications for special leave to appeal from the
judgment of the Full Court of the Supreme Court of Victoria. The
arbitration continued, and a final award was made on 8 May 1992. In
July 1992 the plaintiff referred to arbitration another dispute under
the agreement. Preliminary steps in that arbitration have been
completed and the hearing is scheduled to begin on 24 November 1993.

8. The current arbitration also involves a dispute about the amount payable to the plaintiff under the royalty agreement. One issue
arises from the producers' claim that some of the PRRT paid by them
was paid on behalf of the plaintiff. They claim to be entitled to
deduct the amount paid from the royalty payments. The plaintiff
disputes that it was liable to pay PRRT and that the producers paid
tax on its behalf. The amounts involved are substantial.

9. On 20 September 1993 the plaintiff commenced this action in this Court. The amended statement of claim seeks declarations that the
plaintiff is not liable to pay PRRT and that the producers did not pay
PRRT on the plaintiff's behalf. It seeks an injunction restraining
the producers from paying tax on the plaintiff's behalf in the future.

10. The second defendant, the Commissioner of Taxation, has not issued any assessment pursuant to the PRRT Assessment Act against the
plaintiff. However, he concedes that he has given no indication that
he has formed a view that the plaintiff was or was not liable to pay
PRRT. The first defendant, the Commonwealth, appeared by the same
counsel whose submissions drew no distinction between the Commonwealth
and the Commissioner. It is convenient to refer to his submissions as
those of the Commissioner. The submissions made by the Commissioner
were adopted by the third, fourth and fifth defendants.

11. The Commissioner contends that the plaintiff is not entitled to any relief against him because the statement of claim does not allege
any material fact from which it might be concluded that there has
been or will be any wrongful act or omission on the part of the
Commissioner. He contends that nothing he has done is impugned.

12. Be that as it may, it is plain that the plaintiff has a real interest in obtaining a declaration that it is not liable to pay PRRT.
In Russian Commercial and Industrial Bank v. British Bank for Foreign
Trade Ltd. ((6) (1921) 2 AC 438, at p.448.) in a passage cited in
Forster v. Jododex Aust. Pty. Ltd. ((7) [1972] HCA 61; (1972) 127 CLR 421, at
pp.437-438.), Lord Dunedin set out the requirements which must be
satisfied before a court will exercise its discretion to make a
declaration:
"The question must be a real and not a theoretical question;
the person raising it must have a real interest to raise it;
he must be able to secure a proper contradictor, that is to
say, some one presently existing who has a true interest to
oppose the declaration sought."
Court said ((8) [1992] HCA 10; (1992) 175 CLR 564, at pp.581-582.):

"It is now accepted that superior courts have inherent
power to grant declaratory relief. It is a discretionary
power which '(i)t is neither possible nor desirable to
fetter by laying down rules as to the manner of its
exercise.' However, it is confined by the considerations
which mark out the boundaries of judicial power. Hence,
declaratory relief must be directed to the determination
of legal controversies and not to answering abstract or
hypothetical questions. The person seeking relief must have
'a real interest' and relief will not be granted if the
question 'is purely hypothetical', if relief is 'claimed in
relation to circumstances that (have) not occurred and might
never happen' or if 'the Court's declaration will produce no
foreseeable consequences for the parties'."

13. The question raised by the plaintiff is neither abstract nor hypothetical and the answer to that question will clearly produce
consequences for the parties. In those circumstances I would, for my
own part, doubt whether the failure on the part of the Commissioner
to indicate whether or not he disputes the plaintiff's claim could
preclude the plaintiff from seeking against him the relief which it
does. The most that could be urged is that there is no proper
contradictor, but I doubt whether that is so when the Commissioner's
participation in the action is likely to force him to abandon his
present stand of neutrality. Even if he were to maintain that
stand, I doubt whether that would prevent him from being a proper
contradictor. He clearly has a true interest in the plaintiff's claim
and, if he were to choose not to oppose it and to abide by any order
which the Court might make, that might perhaps amount to no more than
the performance of his role as a contradictor in a particular manner.

14. But there is no need in this case to reach any conclusion whether the Commissioner is a proper contradictor because the producers
obviously have a true interest in opposing the declaration sought.
There is no requirement that all defendants in an action claiming a
declaration must oppose the plaintiff. In Forster v. Jododex Aust.
Pty. Ltd., for example, the mining warden submitted to the order of
the court ((9) See Jododex Australia Pty. Ltd. v. Forster (1971) 2
NSWLR 299, at p.300.), but the court made a declaration binding
upon him where another party opposed the declaration being made.

15. The Commissioner then submitted that the Court lacks jurisdiction to make a declaration binding upon the Commissioner or, if it does
have jurisdiction, would inevitably decline to exercise it. The basis
of this submission is the provision in the PRRT Assessment Act for
conclusive assessments subject only to objection and appeal in the
manner laid down by the legislation.

16. Section 69 of the PRRT Assessment Act provides:

"The validity of any assessment is not affected by
reason that any provision of this Act has not been complied
with."

Section 106(1) provides:

"The mere production of -
(a) a notice of assessment; or
(b) 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,
is conclusive evidence of the due making of the assessment
and, except in proceedings under Part IVC of the Taxation
Administration Act 1953 on a review or appeal relating to
the assessment, that the amounts and all of the particulars
of the assessment are correct."

Under s.69A of the PRRT Assessment Act "a person who is dissatisfied
with an assessment made in relation to the person may object against
it in the manner set out in Part IVC of the Taxation Administration
Act 1953". The Taxation Administration Act 1953 (Cth), s.14ZZ
provides that a taxpayer dissatisfied with the Commissioner's decision
on the objection may apply for review by the Administrative Appeals
Tribunal or appeal to the Federal Court.

17. These provisions mirror the scheme of the Income Tax Assessment Act 1936 (Cth). Sections 175 and 177(1) of that Act are in similar
terms to ss.69 and 106(1) of the PRRT Act. Objections against
assessment under the Income Tax Assessment Act are also dealt with in
accordance with Pt IVC of the Taxation Administration Act ((10) Income
Tax Assessment Act 1936 (Cth), s.175A.).

18. As I understand it, the Commissioner's contention is based upon the proposition that liability to tax under the PRRT Assessment Act
can only be contested under the provisions of Pt IVC of the Taxation
Administration Act, and that the original jurisdiction of this Court
is excluded.

19. Where an assessment has been made, that proposition finds support in F.J Bloemen Pty. Ltd. v. Federal Commissioner of Taxation ((11)
[1981] HCA 27; (1981) 147 CLR 360.). That case decided that because a notice of
assessment is conclusive evidence that the assessment was duly made and
that the amounts and all of the particulars of the assessment are
correct ((12) Income Tax Assessment Act, s.177(1).), a taxpayer
cannot challenge an assessment on any ground in proceedings other than
an appeal against the assessment. ((13) The effect of s.75(v) of the
Constitution on this decision was not argued before me: cf. David
Jones Finance and Investments Pty. Ltd. v. Federal Commissioner of
Taxation (1991) 99 ALR 447.)

20. The same conclusion does not follow when an assessment has not been made. The plaintiff has not been assessed under the PRRT
Assessment Act in this case and s.106(1) of that Act does not apply.
If the jurisdiction of this Court to make a declaration were to be
excluded it would have to be by implication and the implication would
have to be a necessary one ((14) See Forster v. Jododex Aust. Pty.
Ltd. (1972) 127 CLR, at pp.435-436.). In my view no such
necessary implication arises. I can see no good reason why, in the
absence of any assessment or, at all events, any immediate prospect of
one being made ((15) cf. Lucas v. O'Reilly (1979) 36 FLR 102.),
the Court should be precluded from determining the liability to tax of
a person in proceedings for a declaration if there is a real question.

21. Indeed, there are, as the plaintiff points out, good reasons why such a jurisdiction should exist. A person who derives assessable
receipts in relation to a petroleum project is obliged to furnish a
return ((16) PRRT Assessment Act, s.59.). The Commissioner may
decide at any time that a person is liable to tax and issue a default
assessment for those years in which he considers that person should
have made a return ((17) See, ibid., s.63.). The failure to lodge a
return attracts a penalty equal to double the amount of tax payable
((18) ibid., s.101.). A person is also liable under Div.2 of Pt VIII
of the PRRT Assessment Act to pay tax by instalments. An ascertainment
of liability to pay an instalment is specifically deemed not to be an
assessment ((19) ibid., s.93(2).). The Commissioner may determine
that a person should have paid instalments ((20) ibid., s.97(2).) and
the amount determined immediately becomes payable ((21) See, ibid.,
ss.98(1), 97(2), 96, 95.). The Commissioner is able to substitute
liability to pay pursuant to an assessment for the liability to pay an
instalment ((22) ibid., s.100(1).), although he is not required to do
so if more than one instalment is outstanding ((23) ibid., s.100(2).).

22. There being substantial obligations created by the PRRT Assessment Act which are not dependent upon the making of an assessment, I do not
think that I should conclude that the jurisdiction of this Court to
determine questions arising under the legislation is, in the absence
of an assessment, excluded by implication. The PRRT Assessment Act
does not require such an implication to be drawn and I do not think
that it should be drawn.

23. In Lucas v. O'Reilly ((24) (1979) 36 FLR 102.) the plaintiff sought to restrain the Commissioner from assessing him to additional
income tax. Young CJ refused to grant an interlocutory injunction
upon the basis that in making an assessment, the Commissioner owed no
duty to the plaintiff to assess his liability to tax in accordance with
the provisions of the Act, that duty being owed only to the Crown
((25) ibid., at pp.107-108.). Young CJ expressed the view that the
remedy of a taxpayer who claims to have been wrongly assessed is
limited to the objection and appeal procedures laid down. Doubt is
thrown upon the correctness of the basis of the decision in Lucas v.
O'Reilly by the subsequent decision of the Full Court of the Supreme
Court of Victoria in Federal Commissioner of Taxation v. Biga Nominees
Pty. Ltd. ((26) (1988) VR 1006.). That Court held that the
plaintiff was entitled to declaratory relief concerning the application
of the Sales Tax Assessment Act (No.1) 1930 (Cth) ((27) ibid., at
p.1015-1016.). In any event, the question in this case arises in the
absence of an assessment. The plaintiff does not seek to restrain the
Commissioner from assessing its liability and so to prevent him from
putting in train the procedures which would, if an assessment were
made, confine the plaintiff to the remedies provided in Pt IVC of the
Taxation Administration Act. The plaintiff seeks to ascertain its
liability, if any, since those remedies are denied to it in the absence
of an assessment.

24. Similarly, the decision of the House of Lords in Vandervell Trustees Ltd. v. White ((28) (1971) AC 912.) has no application in
the circumstances of this case. In that case the High Court was held
to have no jurisdiction to adjudicate between a taxpayer and the Inland
Revenue Commissioners as to the correctness of an assessment. That
jurisdiction was conferred upon special commissioners to the exclusion
of a court of law except for an appeal on a point of law. In this
case, as I have pointed out, there is no assessment.

25. It may be noted in passing that the plaintiff's problems would be alleviated if the tax in question were income tax rather than PRRT.
Under Pt IVAA of the Taxation Administration Act the Commissioner can
make a private ruling on the application of tax laws ((29) Taxation
Administration Act, ss.14ZAF, 14ZAL(1).). However, the provisions
enabling him to do so are confined to income tax and fringe benefits
tax and do not apply to PRRT ((30) See, ibid., s.14ZAF and the
definition of "tax law" by ss.14ZAA(2), 14ZAAA.). A private ruling
amounts in effect to a decision as to the way in which the Income Tax
Assessment Act applies to a particular taxpayer ((31) See, ibid.,
s.14ZAF.). A taxpayer who acts in accordance with a ruling is
protected from any subsequent change of heart by the Commissioner
((32) Income Tax Assessment Act, s.170BB; Fringe Benefits Tax Assessment
Act 1986 (Cth), s.74B.). A taxpayer may appeal against a private
ruling using the same process of appeal as applies to an assessment of
tax by the Commissioner ((33) Taxation Administration Act,
s.14ZAZA(1).). The rulings themselves are immune from attack in
judicial proceedings outside the Taxation Administration Act ((34)
ibid., ss.15AA, 15AB.).

26. Having concluded that the jurisdiction of the Court to grant declaratory relief is not excluded and is not improperly invoked, it
is not possible in my view to contend that the Commonwealth and the
Commissioner - no distinction was drawn between them - are not
properly joined as defendants. The plaintiff seeks to determine its
liability to PRRT in circumstances where that is an issue between
it and the other defendants. But it is also an issue between the
plaintiff and the Commissioner. The determination of the issue and
any subsequent declaration go to their rights and obligations
inter se ((35) cf. Australian Tape Manufacturers Association Ltd. v.
The Commonwealth [1990] HCA 38; (1990) 64 ALJR 530; 94 ALR 641, where no
order was sought determining the rights of the plaintiffs
against the persons seeking to be joined as defendants.). The
Commissioner cannot successfully argue that, because he is indifferent
to the determination of that issue one way or the other as between the
plaintiff and the other defendants, he cannot be joined as a defendant
in order to determine that issue as between the plaintiff and himself.
It is desirable that the issue be determined the same way as between
all parties but, apart from that, the joinder of the Commonwealth and
the Commissioner as defendants is in my view a proper joinder.

27. I would dismiss both summonses.