High Court: February 2022

Taxation

United Kingdom Convention

In the High Court decision of Addy v Commissioner of Taxation [2021] HCA 34 (3 November 2021) the High Court was required to determine whether Part III of Schedule 7 of the Income Tax Rates Act 1986 (Cth) (‘Rates Act’) breaches article 25(1) of the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (‘United Kingdom Convention’).

In December 2016 a new tax rate was introduced for people holding working holiday visas. Part III of Schedule 7 of the Rates Act applied a flat rate of tax of 15 per cent to the first $37,000 of a person’s working holiday taxable income (a maximum tax liability of $5500). But, under Part I of Schedule 7 of the Rates Act, the taxable burden for an Australian national, for taxable income from the same source and over the same period, was less – they were entitled to a tax-free threshold for the first $18,200 and were thereafter taxed at 19 per cent up to $37,000 (a maximum tax liability of $3572).

Article 25(1) of the United Kingdom Convention provides that nationals of the United Kingdom shall not be subjected in Australia to ‘other or more burdensome’ taxation than is imposed on Australian nationals ‘in the same circumstances, in particular with respect to residence’.

Ms Addy is a national of the United Kingdom. During the 2017 taxable year, Ms Addy derived taxable income working in casual employment in Australia on a working holiday visa. The Commissioner of Taxation (‘Commissioner’) applied Part III of Schedule 7 of the Rates Act to Ms Addy’s assessable income. Ms Addy objected. At first instance the primary judge held that Part III of Schedule 7 did breach article 25(1). The Commissioner successfully appealed to the Full Court of the Federal Court. Derrington and Steward JJ, in separate judgments, considered that Part III of Schedule 7 did breach article 25(1) because they reasoned that the holding of a particular type of visa was not necessarily bound to nationality. Davies J, in dissent, held that article 25(1) was infringed because a person’s visa status could not be divorced from the person’s nationality.

The High Court (Keifel CJ, Gageler, Gordon, Edelman and Gleeson JJ) unanimously agreed with Davies J. In reaching this conclusion the High Court observed that ‘international instruments should be interpreted in a more liberal manner than would be adopted if the court was required to construe exclusively domestic legislation’ (at [23]). The High Court considered that article 25(1) required a comparison between a national of the United Kingdom and a national of Australia who is ‘in the same circumstances, in particular with respect to residence’ (at [24]). The Commissioner tried to argue that a comparison was not possible because an Australian national cannot hold a working holiday visa. The High Court  roundly rejected this argument (at [30]). The High Court held that Part III of Schedule 7 did impose a more burdensome taxation on those holding working holiday visas (in breach of the United Kingdom Convention for nationals of the United Kingdom) and allowed Addy’s appeal (at [31]).

Torts

Damages

Arsalan v Rixon; Nguyen v Cassim [2021] HCA 40 (8 December 2021) concerned two separate appeals in which the High Court was required to determine whether the appellants, who had admitted liability for the cost of repair to cars damaged in traffic accidents, were also liable for the costs of hiring equivalent substitute cars until the completion of repairs.

In both appeals the respondents owned prestige vehicles and hired equivalent cars during the period of repair. The Court of Appeal of the Supreme Court of NSW allowed the respondents to recover their hire costs from the appellants. The appellants sought special leave and appealed to the High Court.

The High Court (Keifel CJ, Gageler, Keane, Edelman and Steward JJ) unanimously dismissed the appeals. The High Court, observing the divergence of views in the courts below, considered that ‘this division of opinion reflects the lack of any clear recognition in Australian law of loss of amenity, in the sense of loss of pleasure or enjoyment, in the use of a chattel, as a recoverable head of damage’ (at [17]). The High Court rejected the appellants’ argument that compensation for negligent damage to a chattel should be assessed any differently from negligent damage to real property to exclude loss of amenity (at [25]). In particular, the High Court rejected the concept of ‘need’ for an equivalent hire car in assessing damages (at [28]-[32]). The High Court recognised that the respondent’s consequential loss was not limited to the purposes or uses for which the (now damaged and unavailable) car was likely to have been put to during the repair period but included loss of amenity of the car, ‘… including their enjoyment of the safety features, pleasurable functions, and other specifications of those cars’ (at [40]).

Practice and procedure

Worldwide Freezing Order

In Deputy Commissioner v Huang [2021] HCA 43 (8 December 2021) the High Court was required to determine whether the Federal Court of Australia can only exercise its power, under r 7.32 of the Federal Court Rules 2011 (Cth) (‘Rules’), to make a Worldwide Freezing Order if there is proof of a realistic possibility of enforcement of a judgment debt against the person’s assets in each of the foreign jurisdictions to which the freezing order relates.

Rule 7.32 provides:

‘The Court may make an order (a freezing order), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or a prospective judgment of the Court will be wholly or partly unsatisfied.

A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.’

The background facts in this case concerned the tax liability and shortfall penalty of the respondent (‘Huang’) as assessed by the Commissioner of Taxation (‘Commissioner’) of a whopping $141 million (‘Assessments’). Prior to the Commissioner making the Assessments, Huang and his wife left Australia for the People’s Republic of China (‘PRC’). On 16 September 2019, the Commissioner commenced proceedings against Huang seeking judgment against Huang based on the Assessments. That same day, Katzmann J made an ex parte interim Worldwide Freezing Order against Huang. Later, the Commissioner applied for a summary judgment against Huang and a Worldwide Freezing Order until further order.

Before the primary judge, Jagot J, Huang only objected to the making of a freezing order in respect of his assets outside Australia (and in particular his assets in Hong Kong and the PRC). Huang argued that the Worldwide Freezing Order did not serve the purpose of protecting or preventing the frustration of the Federal Court’s processes because there was no process available for the enforcement of the judgment debt in the Deputy Commissioner’s favour in those jurisdictions. Jagot J rejected Huang’s contention and made a Worldwide Freezing Order until further order in the same terms as Katzmann J’s interim order.

Huang successfully appealed Jagot J’s order in the Full Court of the Federal Court. The Full Court considered that if the assets were beyond the Court’s enforcement processes then a freezing order did not meet the purpose identified in r 7.32; being to prevent the frustration or inhibition of the Court’s processes by meeting a danger that a judgment or a prospective judgment of the Court will be wholly or partly unsatisfied. In determining whether assets were beyond the Court’s reach, the Full Court favoured a ‘realistic possibility’ over a ‘not impossible’ test in assessing the likelihood of enforcing a judgment.

The Deputy Commissioner appealed to the High Court. The High Court (Edelman J dissenting) allowed the Deputy Commissioner’s appeal. The majority (Gageler, Keane, Gordon and Gleeson JJ) rejected the limitations, contended for by Huang, on the Court’s power to exercise a Worldwide Freezing Order for broadly five reasons. First, the majority rejected Huang’s contention that r 7.35 qualified the operation of r 7.32. The majority observed that r 7.35 is not expressed to affect r 7.32; nor does r 7.35 ‘cover the field’ with respect to ordering a freezing order where there is a judgment debt (at [21]). Second, the majority saw no reason to imply an ‘unexpressed limitation’ on the power in r 7.32 when the rule was a restatement of the Court’s power under s 23 of the Federal Court of Australia Act 1976 (Cth) and the Court’s implied power and there is no similar limitation on those powers (at [24]). Third, the majority noted the limitation is inconsistent with the in personam nature of a freezing order (at [25]). Fourth, the majority considered that the limitation was inconsistent with the ‘evident purpose’ of r 7.32 and restricted power under the rule ‘in a manner that would significantly impair its capacity to protect the Federal Court’s process, including granting urgent relief’ (at [26]). Fifth, the majority considered that the limitation was inconsistent with the power to make a Worldwide Freezing Order, similar to the power recognised in many forging jurisdictions, because it would necessarily require identification of the defendant’s foreign assets as well as potential means of enforcement in that jurisdiction (at [28]).

Edelman J conceded that the majority’s decision would ‘enhance the efficacy of the “worldwide freezing order”’ (at [33]) and expressed ‘some regret’ in dissenting from the majority (at [34]). But Edelman J considered that, construing the wording of r 7.32, the Court’s power to make a freezing order is restricted to meeting the purpose of preventing the frustration or inhibition of the Court’s processes. As for the personal nature of a freezing order, Edelman J argued: ‘Merely because a court has personal jurisdiction… does not mean that it has unlimited jurisdiction to make orders against that person’ (at [46]).

Dr Michelle Sharpe is a barrister in Castan Chambers in Melbourne.