Unreported National Court Decisions
N1779
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
WS 250 OF 1996
BETWEEN: THE COMMISSIONER 
GENERAL OF INTERNAL
REVENUE
PLAINTIFF
AND: JULIAN PAUL LEACH
DEFENDANT
AND: JULIAN PAUL LEACH
CROSS-CLAIMANT
AND: THE COMMISSIONER 
GENERAL OF INTERNAL
REVENUE
CROSS-DEFENDANT
Waigani
Sevua J
22 April 1998
24 September 1998
INCOME TAX – Collection and recovery – Section 272 Notices requiring payment to plaintiff of all monies due to taxpayer - Initial assessment of taxable income at K1.5m – Reassessment of taxable income at K71,496.00 three years later – Taxpayer’s request to revoke s.272 notices – Whether non-revocation of s.272 notices reasonable – Whether there was failure by Internal Revenue Commission to take relevant considerations into account – Whether s.272 was intended as an instrument of oppression or punishment of a taxpayer – Whether there was a breach of natural justice.
INCOME TAX – Collection and recovery – Statutory right to lodge objection – Whether Internal Revenue Commission’s right to sue taxpayer can be exercised prior to the taxpayer’s exercise of his statutory right – Whether the Commission’s failure to recognize taxpayer’s right to lodge objection amounts to a breach of duty to act fairly - s.59(2) Constitution and s.245(1) Income Tax Act.
ASSESSMENT OF DAMAGES – Loss of salary – Loss of monies owed by debtors – Mental distress – General and Exemplary damages – Whether taxpayer entitled to all these.
Held
1.       In all the circumstances, the non-revocation of the s.272 notices was unreasonable given the fact that firstly, there was no basis at all for the plaintiff to hold that the taxpayer’s taxable income was K1.5m, and secondly, that a subsequent reassessment of the taxpayers taxable income of K71,496.00 meant that the total sum of K2,687,384.94 demanded by the Commission was erroneous, unreasonable and without any legal basis.
2.       There was a failure by the Internal Revenue Commission to take into account relevant considerations by simply ignoring the taxpayer’s right of objection under s.245(1) and its own process of review following an objection, resulting in neglecting to abide by the due process of law by reviewing the assessment prior to issuing its writ of summons.
3.       The Commission’s right to sue to compel payment confers no license to it to proceed with legal proceedings while the taxpayer’s objection has yet to be reviewed by the due process of law.
4.       There was a breach of natural justice in that the Commission had failed in its duty to act fairly pursuant to s.59(2) of the Constitution.
5.       In all the circumstances, the defendant cross claimant is entitled to general and exemplary damages including damages for mental distress.
Cases Cited
Apa & Ors -v- The State [1995] PNGLR 43
Harding -v- Teperoi Timbers Pty Ltd [1988] PNGLR 128
Edelsten -v- Wilcox & Anor (1988) 88 ATC 4484
Counsel
Ms C Korus for Plaintiff/Cross-Defendant
Mr P Payne for Defendant/Cross-Claimant
24 September 1998
SEVUA J: This is a trial on assessment of damages on the defendant’s cross-claim. 
In brief, the defendant had filed a defence and cross claim on 20th May, 1996 which was served on the plaintiff on the same date. On 27th September, 1996, the defendant/cross claimant obtained default judgment with damages to be assessed, as the plaintiff cross-defendant had failed to file a defence to the cross claim. Subsequently on 4th October, 1996, the proceedings on the writ of summons were dismissed for want of prosecution.
The brief facts are these. The defendant cross claimant was employed by Lahari Engineering Pty Ltd as its General Manager on renumeration. On 1st September, 1992, the Internal Revenue Commission issued a notice of assessment of personal income in the sum of K2,687,560.94 (Exhibit “A”) for the year 31st December, 1991. The notice was received by the defendant cross claimant’s accountant on 8th September, 1992 who re-directed it to the defendant cross claimant. The notice demanded immediate payment of the whole sum of K2,687,560.94 on the date of issue, however, by the time the notice reached the accountant, it was already past due.
A series of notice pursuant to s.272 of the Income Tax Act (s.272 notice) were issued to various debtors of the defendant cross claimant including his employer and bank. These were Alan Beckingham – Exhibit “D”, Barry Shackle – Exhibit “E”, Ken Braddock – Exhibit “F”, ANZ Bank – Exhibit “G” and Lahari Engineering – Exhibit “C”. These s.272 notices were issued on the same date the notice of assessment was issued.
The assessment was based on the defendant cross claimant’s purported annual income of K1,500,000.00 for 1991. However, there is no evidence before that, he earned personal income of one and a half million kina. There was no evidence as to how the plaintiff arrived at that assessment, and if there was, it has not been adduced in this trial.
On 7th September, 1992, the Internal Revenue Commission issued a writ of summons, WS 681 of 1992, out of the National Court claiming a total amount of K2,687,384.94. In addition, a restraining order was taken out against the defendant cross claimant’s boat, “Lahara”. These actions were perpetrated despite the fact that the defendant cross claimant had a statutory right of objection pursuant to s.245(1) of the Income Tax Act which provides a 60 days period to lodge the objection. The defendant cross claimant subsequently lodged an objection on 30th October, 1992.
On 9th February, 1996, the plaintiff cross defendant notified the defendant cross claimant in writing that the latter’s objection had been allowed in part and that an amended assessment issued on 22nd September, 1995, had reduced his taxable income to K71,496.00. Exhibit “A”, states the 1991 taxable income as K1,500.000.00. The reduced taxable income meant, a very substantial amount (K1,428,504.00) was wrongfully and incorrectly assessed by the plaintiff cross defendant. 
By this time, the defendant cross claimant says, his ability to earn an income had been completely destroyed by the Internal Revenue Commission’s conduct in 1992. He had therefore suffered loss and damages as a result of the conduct of the plaintiff cross defendant.
The defendant cross claimant’s sworn testimony is largely uncontested and I accept his evidence in toto.
In 1991, he was earning a salary of K63,185.00 per annum which was inclusive of a housing allowance in the sum of K8,311.00 from a property investment.
As alluded to, the Internal Revenue Commission, on 22nd September, 1995, reassessed the defendant’s taxable income at K71,496.00. But before this was done, the Internal Revenue Commission had already instituted legal proceedings against the defendant. In addition, a restraining order was issued against the defendant’s boat the “Lahara”. The effect of the actions of the Internal Revenue Commission was that, it was practically impossible for the defendant to earn an income. Simply put, the Internal Revenue Commission made life very difficult for Mr Leach. The combined effect of the s.272 notices was that all of Mr Leach’s debtors including his employer were to pay monies owed to him to the plaintiff. I think all these actions raised the question of whether the Internal Revenue Commission acted constitutionally, and lawfully. I will revert to this issue later.
As a result of the action or conduct of the Internal Revenue Commission, the defendant cross claimant, Mr Leach, had suffered great losses. I accept his evidence that he lost the capacity to earn an income since 1st September, 1992, because the notice issued to his employer meant he was not going to be paid any wages. This meant that between September, 1992 and the date of hearing, the defendant cross claimant was never paid any wages.
Since he was earning the sum of K63,185.00 per annum, the Court accepts that he had lost that salary between September, 1992 and the date of trial. I consider that the salary loss was up to the date of trial, even up to the date of decision, because the Internal Revenue Commission, has never revoked the s.272 notices despite the fact that in 1992, the taxable income of the taxpayer was assessed at K71,496.00.
I also accept Mr Leach’s evidence that he also lost the benefit of monies lent to friends or associates due to the effect of the s.272 notices. His debtors could not repay him because of the notices. As a result, he lost the sum of K3,200.00 lent to Alan Beckingham with 15% interest, K16,273.00 lent to Barry Shackles with 15% interest, and $A16,000.00 lent to Ken Braddock with $A500.00 interest per month. 
A s.272 notice was also sent to ANZ Bank. As a result, monies standing to Mr Leach’s credit were subsumed into his loan accounts to give a credit balance. However, I think the most significant effect was that Mr Leach had lost good credit standing, and the withdrawal of an approved loan of K200,000.00 for a commercial investment property development. Of course, the defendant cross claimant, not only lost the money in his account, he also lost his credit standing, and his financial reputation as a credit worthy client of ANZ Bank. In the business world, one’s good credit standing and financial reputation are very important. Mr Leach lost these.
In assessing damages, I find that the defendant cross claimant has suffered loss and damages in that the conduct of the plaintiff had directly affected his earning capacity that he had not been able to receive a salary up to the date of trial. In my view, he is entitled to the lost salaries during that period. Mr Leach’s damages for loss of salary are therefore assessed as follows:-
LOSS OF SALARY
K63,185.00 per annum based on 1991 amended assessment.
10.09.92 to 31.12.92	K 19,388.27	
01.01.93 to 31.12.93	 63,185.00	
01.01.94 to 31.12.94	 63,185.00	
01.01.95 to 31.12.95	 63,185.00	
01.01.96 to 31.12.96	 63,185.00	
01.01.97 to 31.12.97	 63,185.00	
01.01.98 to 22.04.98	 19,388.27	
SUB TOTAL	K354,701.54	
Not only did Mr Leach suffered from the loss of his salary, there were monies he had lent to friends and associates with agreed rates of interest. His debtors were also issued with s.272 notices and he lost the benefit of repayment with interest from his debtors. I accept his evidence of these losses, which he is entitled to. I assess these losses as follows.
LOSS OF UNPAID DEBTS
(a) Alan Beckingham: Principal: (Paid to IRC 04.01.93)	3,200.00	
Interest at 15% pa for 5 years 3 months to trial	 	
5.25 years x K480.00 pa 	2,520.00	
 Sub Total	5,720.00	
(b) Barry Shackles: Principal:	13,520.00	
Interest at 15% pa for 5.6 years to trial.	 	
5.6 yrs x K2028.00 pa	11,356.80	
 Sub Total	24,876.80	
(c) Ken Braddock: Principal:	AUD16,000.00	
Interest at AUD500.00 per month 01.08.91-31.03.98	 	
80 months x AUD500.00	AUD40,000.00	
AUD56,000.00	 	
Rate at trial K1 = $A0.75	 K 74,666.66	
 Sub Total	 K 74,666.66	
As a direct result of the conduct of the plaintiff, Mr Leach had to resettle in Australia. Costs of resettlement was to have been borne by his employer, however, due to the fact that his employer had been served with a s.272 notice, he was not able to be paid any resettlement costs. He therefore claimed the sum of K5,000.00. However, there is no evidence of the actual cost. In my view, Mr Leach has to provide evidence of costs of airfares for himself and his family and removal of personal or household items etc. There is no evidence before me of these costs except an estimated sum of K5,000.00. Whilst I accept that he had incurred some costs, I am not satisfied that he has proved this amount. He is therefore not entitled to the sum of K5,000.00
The defendant cross claimant in my view, is entitled to both general and exemplary damages. The basis for this can be basically summarised hereunder. 
Mr Leach’s uncontested evidence is that there was no basis at all for the Internal Revenue Commission’s assessment of his taxable income at K1.5m. This evidence is uncontested and I accept it. No evidence of this assessment has been produced in this Court. In any event, the Internal Revenue Commission had, in Septemer 1995, amended its assessment of Mr Leach’s taxable income from K1.5m to K71,496.00. However, even then, all the s.272 notices were not withdrawn or revoked. There could be no lawful justification for this at all. In all the circumstances, the non-revocation of the s.272 notices in respect of the sum of K2,687,384.94 was quite unreasonable and without any legal basis or justification.
Despite the fact that an objection had been lodged against the assessment of taxable income of K1.5m, the plaintiff proceeded with legal proceedings, WS 681 of 1992, against Mr Leach claiming the sum of K2,687,384.94.
The writ in that action was issued in the National Court, Waigani on 7th September, 1992. Whilst the plaintiff had exercised its right to institute legal proceedings, it failed to consider that the defendant had a statutory right pursuant to s.245(1) of Income Tax Act, to lodge an objection, which he had exercised, and the objection was yet to be dealt with. As it were, the plaintiff proceeded to obtain default judgment against the defendant which was subsequently set aside by Amet, J (as he then was) on 16th July, 1993. And as if that was not adequate, a restraining order was taken out against Mr Leach’s boat, the “Lahara”. The boat, valued at K220,000.00, was subsequently sold. Whilst I am told that is the subject of a separate pending suit, I mention it here to highlight a series of conduct by the plaintiff which clearly had no basis in law.
The Internal Revenue Commission subsequently reassessed the defendant’s taxable income at K71,496.00. It follows therefore, in my view, that the whole conduct of the plaintiff had no basis whatsoever in law. To me, common sense, fair play, fairness and indeed justice were not accorded Mr Leach. I consider that there was a breach of s.59(2) of Constitution in that the Internal Revenue Commission failed in its duty to act fairly, under the circumstances.
It seems obvious to me that the Internal Revenue Commission was out to destroy Mr Leach at all cost, and clearly there was no legal basis at all for the series of conduct by the Commission. It set out on a campaign to crucify Mr Leach for reasons that it has not brought before this Court by way of evidence. Consequently, the Internal Revenue Commission completely destroyed Mr Leach’s life, his business, good credit and financial standing and his prospect of an investment valued at more than K200,000.00. His assets like debts owed to him, boat, salary, etc were affected.
Surely, all these must have greatly affected the life of Mr Leach. He must have endured great stress and mental anxiety at what seemed to him to be a never ending saga, and I accept this evidence that all these affected his life, both personal and business.
I refer to parts of his evidence which clearly reveal the traumatic experience of what I consider as unnecessary stress and anxiety.
“Well, it has been very difficult for me to lose my job. Just to be in to see the taxation department, I don’t know how many times I have been in to see officers of the taxation department to try and sort this matter out. I spent thousands, with accountants and lawyers. I got about my fifth legal company now trying to sort this affair out. It is nearly 6 years, it will be 6 years this year since the problem started……….I have probably flown back here, I would say, 18 times in that period, constantly in and out of Court trying to get this matter sorted out. It has been very difficult for me.”
Mr Leach was asked, has it caused you personal stress or anxiety? His reply was:
“Yes it did. I mean, at the start, I didn’t know what the hell was going on. Everyday, there was either a new tax bill or a new seizure notice or a new 272 order and I just could not get anywhere with the tax department. Like I said, I have visited that office so many times.
I mean I virtually know everyone in the whole office……………Everytime we start to get things sorted out, an officer would go finish and with that someone else trying to sort the case out and it just got anywhere. The last time when this WS 250 started, we were going to get somewhere, then I ended up with another writ on my table.”
Mr Leach’s ability to obtain employment in Australia was affected as well. He could not afford to get a full time job because of his constant travel back to PNG to sort out this matter. He spent the whole of 1993 trying to do that then gave up and went to Australia. He came to PNG about four times in 1997. He therefore could not maintain a full time job.
Despite the Internal Revenue Commission having agreed that the defendant’s income was only K71,496.00, and despite the fact that Mr Leach had requested the Commission to revoked these s.272 notices, the Commission has not done so. In my view, there can be no lawful justification for this. I mean, if it is money that the Internal Revenue Commission wants, why can’t it revoke the s.272 notices so that Mr Leach could organise himself and resume his business and pay whatever he owes? It seems so unfair, unreasonable and oppressive for the Internal Revenue Commission to continue to maintain the s.272 notices, when, by its own concession, Mr Leach did and does not owe them K2,687,384.94. In the circumstances, the Internal Revenue Commission’s failure to revoke the s.272 notices was so unreasonable that no reasonable person or responsible authority could have acted in that manner.
Having alluded to what had transpired here, the conduct of the Internal Revenue Commission could, in my view, be best described as outrageous, unfair and unconstitutional. The Commission had a duty to act fairly but failed to act fairly. Not only was the requirement of the principle of natural justice not done, but it was not seen to be done in this case.
It was not one single act or conduct of the Internal Revenue Commission, but a series of conduct which were oppressive and arbitrary in nature. Not only did the business and assets of Mr Leach were affected, but his whole life was disrupted as well, and all I can say is that Mr Leach, must be a very strong willed and spirited man, who had endured all these sufferings.
Section 245(1) of the Income Tax Act gives a taxpayer a right to lodge an objection within 60 days from the date of service of a notice of assessment if he is not satisfied with that assessment. As alluded to, without the plaintiff considering the defendant cross claimant’s statutory right, it proceeded to sue him in WS 681 of 1992 on 7th September, 1992, six days after the notice of assessment and s.272 notices were given. It succeeded in securing default judgment for the sum of K2,687,384.94. That judgment was set aside on 16th July, 1993 by His Honour Amet, J (as he then was).
I cite what His Honour said in page 4 of his unnumbered judgment. “In these circumstances then I am of the view that whilst that statutory review process has been invoked by the aggrieved taxpayer and has not yet been constituted to consider that objection, it is inappropriate for the Commissioner General to then proceed to exercising the right to sue for the assessed income tax in the Court. It is furthermore quite inappropriate to have issued notice specifying that the assessed income tax was due and payable on the same date as the notice was issued and to proceed to the issuing of the Writ on the basis of that notice of the assessed income to be due and payable."
His Honour continued, “it seems to me to be quite simply a matter of common sense and fairplay and indeed justice to enable the objection to be considered with expedition and then following the decision of the review tribunal, should the assessed taxpayer then delay or default in paying the assessed tax if there be no other appeal provisions or process available to the taxpayer which might be invoked, to then issue writ out of the National Court to compel payment.”
With respect, I adopt these statements here. I therefore find that there was a failure by the Internal Revenue Commission to take into account relevant considerations, infact, I find that the Commission simply ignored the taxpayer’s right and its own process of review in respect of the objection.
Whilst this Court acknowledges the Commission’s right to sue, that right does not confer a licence to the Commission to proceed to issuing a writ to compel payment without recognizing the taxpayer’s statutory right under s.245(1) and giving effect to the due process of law by reviewing the assessment following an objection.
I find that the manner in which the Internal Revenue Commission had dealt with Mr Leach was not only oppressive and arbitrary, but clearly capricious and whimsical. He had lost his business, assets, credit standing in the community and good financial reputation with his bank, and really, there was no justification for all these. The plaintiff, just had no right in law or under the Constitution to threaten, intimidate and harrass a taxpayer in the manner it did with Mr Leach.
Although the Commissioner General has a right and a duty under s.272 of the Act to collect monies from person owing money to a taxpayer, in my view, s.272 was never intended to become an instrument of oppression, capricious and arbitrary conduct to be utilised for extorting money from other sources, such as the defendant cross claimant’s debtors, employer and bank by making it impossible for the taxpayer to earn his living by the ordinary conduct of his business or profession.
Some of these issues were considered by Burchett, J in Edelsten -v- Wilcox & Anor (1988) 88 ATC 4484 and I have adopted some of his views here as I consider them appropriate and applicable in this case.
I therefore consider that Mr Leach is entitled to general and exemplary damages including damages for stress and anxiety or mental distress.
Mr Payne submitted in relation to exemplary damages that one third of the compensatory damages would be an appropriate figure. I agree that the loss suffered by Mr Leach was more an economy wrong than a personal wrong, nevertheless, I am of the view that he is entitled to both general and exemplary damages under these circumstances.
Counsel have not found any authority to assist me in my assessment and I, too, have been unable to find any authority to assist me in this assessment. However, I consider that a global figure of less than one third of the compensatory damages would be appropriate in the circumstances, taking into account, the number of years Mr Leach has suffered and the immense effect the whole saga had had on his business and his personal life.
It is not easy to quantify in money terms the loss suffered by the defendant, however, when considering the conduct of the Internal Revenue Commission, the number of years Mr Leach has had to endure and the suffering etc, I consider that a global figure of K110,000.00 for general and exemplary damages is a substantial sum, adequate and fair in this case. That sum equates to approximately K20,000.00 per year that the defendant had suffered, and he had suffered for five years and six months. Some assistance can be derived from Apa & Ors -v- The State [1995] PNGLR 43.
In respect of damages for mental distress, I adopt what the former Chief Justice said in Harding -v- Teperoi Timbers Pty Ltd [1988] PNGLR 128 at 136. His Honour applied the nominal sum of K1,000.00 equivalent to 500 pounds in the English jurisdiction. His Honour said, the more serious and intense the degree of mental distress and frustration, the higher the amount of damages to be awarded. I agree with that approach. I consider that in this case, the stress and anxiety suffered over five years six months was quite intense that the award for mental distress should be higher than the nominal sum of K1,000.00. I consider that a figure of K10,000.00 for damages for mental distress is fair in the circumstances.
In respect of the loss resulting from unpaid debts owed to Mr Leach, interest has already been calculated on the rates agreed to by the parties. That is, the loans to Mr Beckingham and Mr Shackles were with an interest rate of 15%, whilst the loan to Mr Braddock was at an interest rate of $500.00 per month. 
In respect of interest on the loss of salary claim, Mr Leach was lawfully entitled to the salary which he lost. He is therefore entitled to interest at the normal rate of 8% from 10th September, 1992 to 22nd April, 1998.
In conclusion, damages suffered by the defendant cross claimant can be summarised as follows:
1.	Loss of Salary 10.09.92 – 22.04.98	354,701.54	
2.	Interest at 8% for same period	 26,225.88	
3.	Loss of Debts inclusive of interest	105,262.46	
4.	General & Exemplary Damages	110,000.00	
5.	Damages for Mental Distress	 10,000.00	
 	Total	K606,189.88	
Accordingly, I assess the defendant cross claimant’s damages at a total sum of K606,189.88, and order the Internal Revenue Commission to pay that sum to Mr Leach. I award interest at 8% to run from the date of judgment till final settlement. Costs will follow the event, therefore the plaintiff shall pay the defendant’s costs of these proceedings.
Lawyer for Plaintiff/Cross Defendant: Bill Nouairi
Lawyer for Defendant/Cross Claimant: Blake Dawson Waldron