3D Scaffolding Pty Ltd v Commissioner of Taxation

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY DEPUTY PRESIDENT J BLOCK

Introduction 1 These are appeals pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act') from a decision of the Administrative Appeals Tribunal ('the Tribunal') given on 19 October 2007, affirming the objection decisions of the respondent ('the Commissioner'). 2 In the case of 3D Scaffolding Pty Ltd ('3D'), the assessments under objection concern the four years ended 30 June 1998 - 2001; the issue in all four years being the Commissioner's disallowance of a deduction under s 8-1 of the Income Tax Assessment Act 1997 (Cth) ('the ITAA 97') for outgoings claimed to have been incurred by 3D in respect of the hire of scaffolding equipment from a company, Modular Scaffold Hire Pty Ltd ('MSH'), which the Tribunal found, and all parties agreed, did not exist. 3 In the case of James Docherty ('Mr Docherty'), the assessments under objection concern the three years ended 30 June 1998 - 2000; the issue in all three years being whether the Commissioner was entitled, in reliance on Div 7A of the Income Tax Assessment Act 1936 (Cth) ('the ITAA 36'), to include in the assessable income of Mr Docherty, the amounts set opposite those years, namely: 1998 $111,500 1999 $112,948 2000 $332,992 calculated as follows: Deemed Dividend Calculation 1998 1999 2000 Amounts paid by 3D for alleged hire of equipment but disallowed as deductions; taken to be paid to Mr Docherty as dividends under section 109C(2) $111,500 $609,508 $781,731 Distributable Surplus $352,322 $112,948 $332,922 Reduced Deemed Dividend under section 109Y $111,500 $112,948 $332,922

4 The Tribunal approached the issues raised by the respective applications for review, correctly in my view, on the basis that they were 'linked', that is, if 3D succeeded then the Div 7A assessments against Mr Docherty could not stand. In the events, 3D did not succeed and nor did Mr Docherty.

Notices of Appeal in this Court 5 3D's notice of appeal asserts that four questions of law are raised on the appeal, namely: '2.1 Whether the Tribunal failed to accord procedural fairness to Mrs Lynette Montgomery, and the other witnesses for the applicant, by taking into account in its decision a number of assertions/allegations contained in Exhibit RS1 paras [56] to [101] (being the submissions of the respondent) as to the integrity of the Price Spreadsheets and related documentation where those assertions/allegations were not put to the witnesses in cross examination by the respondent. 2.2 Whether outgoings were incurred by the applicant in gaining or producing assessable income, or necessarily incurred by the applicant in carrying on a business for the purpose of gaining or producing its assessable income, was the test that had been applied by the Tribunal. 2.3 Whether the Tribunal misdirected itself by failing to consider evidence relating to the hire of equipment by the applicant, by deciding that the scaffolding was not hired by the applicant from Mr Borg (or Modular Scaffolding Hire). 2.4 Whether the Tribunal, was bound to consider the evidence relating to the costs incurred by the applicant in the acquisition of the scaffolding, once it decided that it accepted that there had been an increase in revenue during the relevant period by the applicant, arising from the acquisition by the applicant of scaffolding.' in the context of three grounds: '4.1 The Tribunal erred in law in taking into account a number of allegations/assertions made by the respondent in its submissions contained in Exhibit RS1 paras [56] to [101] as to the integrity of the Price Spreadsheets and related documentation where those assertions/allegations were not put to Mrs Lynette Montgomery or any other witness in cross examination by the respondent. 4.2 The Tribunal erred in law in that the issue it sought to determine at law was whether the amounts were paid by the applicant to Mr Borg (or Modular Scaffolding Hire) for the hire of the scaffolding. The issue the Tribunal was required to determine at law was whether the amounts were paid by the applicant for the hire of the scaffolding. 4.3 The Tribunal erred in law in that once it decided that it accepted that there had been an increase in revenue during the relevant period by the applicant arising from the acquisition of scaffolding it was bound at law to consider the evidence relating to the costs incurred by the applicant in the acquisition of the scaffolding.' 6 Mr Docherty's notice of appeal asserts that two questions of law are raised on the appeal, namely: '2.1 Whether it was open to the Tribunal on the evidence to find that the applicant was the sole director of 3D Scaffolding Pty Limited; 2.2 If, in applying the correct test as to whether 3D Scaffolding Pty Ltd "pays an amount" to the applicant for the purposes of section 109C(1) of the Income Tax Assessment Act 1936, was the Tribunal required to take into account the undisputed fact that there were two directors (the applicant and Mr Robert Docherty) of 3D Scaffolding Pty Ltd during the relevant period.' in the context of two grounds: '4.1 The Tribunal erred in that it held that the applicant [w]as the only director of 3D Scaffolding Pty Ltd. There was no evidence to support the finding that the applicant was the sole director of 3D Scaffolding Pty Ltd. The undisputed evidence was that there were two directors of 3D Scaffolding Pty Ltd during the relevant period namely the applicant and Mr Robert Docherty. 4.2 The Tribunal erred in holding that because the applicant was the sole director he was also the controller of 3D Scaffolding Pty Ltd and, accordingly, the payments made by 3D Scaffolding Pty Ltd to the applicant were made with the acquiescence of 3D Scaffolding Pty Ltd.'

Findings and Reasons of the Tribunal 7 The Tribunal made a number of findings which were critical to the conclusions it reached. These were: (1) MSH did not exist: [8]. This was not challenged on appeal. (2) Mr Borg, the alleged human face of MSH, to whom the outlays which have been disallowed as deductions were alleged to have been made, did not exist: [13], [37]. This was not challenged on appeal. (3) Mr Borg is Mr Docherty: [47], and he received the cash outlays: [137]. These were not challenged on appeal. (4) 3D did not hire equipment from Mr Borg and has not discharged the onus upon it under s 14ZZK of the Taxation Administration Act 1953 (Cth) ('the TAA'): [47], [140]. This was not challenged on appeal. (5) 3D was controlled by Mr Docherty who was its only director: [150]. The finding that Mr Docherty was the sole director of 3D during the relevant years (see also at [9], [152] and [153]) was challenged on appeal and conceded by the Commissioner to be wrong; but not the findings that Mr Docherty controlled 3D; or that '3D did exactly as he directed': [152]; or that 'Docherty treated 3D as his own and took its money for his own use': [153]. 8 Because of the critical findings in [7(2)] and [7(3)] above, the Tribunal said at [48] and [49]: '48. Having come to the conclusion that Borg did not exist, the elaborate arrangements alleged as to how he, Borg, was paid, may be of limited relevance. Put in very broad terms (and as noted previously), the computing system was faulty and did not achieve its desired purpose. Spreadsheets were prepared, but new information was inserted in place of the prior information, without saving the old. Price Spreadsheets were reconstructed comparatively late in the chain of events. 49. I do not think it necessary to go into great detail as to the accounting and related problems which arose in this context. At the same time, and in the interests of completeness, it is necessary to deal with those aspects, at least to some extent.' The Tribunal then went on to refer to paras 56 to 101 of the Commissioner's submissions below which were annexed as Annexure A to the Tribunal's reasons. It described these paragraphs as 'an admirable (and correct) summary of the evidence given', albeit of only 'peripheral evidence'.

3D - The second and third grounds 9 It is convenient to first deal with the second (4.2) and third (4.3) of 3D's grounds of appeal: that the Tribunal applied the wrong test in determining whether the outlays were an allowable deduction under s 8-1 of the ITAA 97 - the issue was not to whom the payments were made, but what the payments were for - it is that latter issue which the Tribunal should have addressed; and that once the Tribunal accepted that there had been an increase in revenue during the relevant period by 3D arising from the acquisition of scaffolding, the Tribunal was bound at law to consider the evidence relating to the costs incurred by 3D in the acquisition of the scaffolding. 10 The submissions made on behalf of 3D in this regard were to the following effect: (1) The Tribunal seems to have decided the matter on the basis that it was Mr Docherty and not Mr Borg who received the moneys. It then decided that because Mr Borg did not exist, and because the terms were not commercial, there could not possibly have been such a transaction between 3D and Mr Borg. (2) The issue to be decided was not to whom the moneys were paid, but whether they were incurred for the scaffolding under a hire/buy arrangement (and therefore deductible under s 8-1). (3) The Tribunal accepted that there was a significant increase in revenue derived by 3D from the hiring of equipment during the relevant years, and that 3D must have acquired scaffolding at some time. Nevertheless, the Tribunal completely disregards, for no good reason, accounting expert evidence adduced by 3D (and not rejected by the Commissioner's expert) to demonstrate the fact that the scaffolding was acquired in the relevant years (when cash was paid by 3D). (4) The Tribunal rejects the expert evidence on the basis that the payments were not made to MSH or Mr Borg, but to Mr Docherty. The point is that it does not matter to whom the payments were made, but what the payments were for. The Tribunal even concedes at [140] that: 'The probabilities are that the scaffolding equipment in question had been acquired somehow or another by Docherty, but this too is conjecture.' 11 The submissions made on behalf of the Commissioner were to the following effect: (1) Para 2.2 of the notice of appeal does not identify any question of law. It identifies a question of fact as to whether the circumstances of the disputed payments in this case fell within the settled meaning of either limb of s 8-1 of the ITAA 97. Ground 4.2 makes clear that only questions of fact arise in relation to the operation of s 8-1 in this case. Namely, whether there existed a Mr Borg to whom payments were made for the purposes asserted by 3D. (2) In respect of paras 2.3 and 4.2 of the notice of appeal, the only way in which 3D sought to advance its case that the disputed payments were made on account of scaffolding hire was by propounding a transaction with a particular, nominated hirer. Namely, Mr Borg trading through a corporation, MSH. The Tribunal was invited by 3D to determine whether the purpose of the payments was for the hire of scaffolding by deciding whether or not there existed a Mr Borg, a corporation named Modular Scaffold Hire Pty Ltd and some transactions between those entities and 3D. The Tribunal did not err, in law or otherwise, by deciding the case on that basis. (3) At para 2.4 of the notice of appeal, it is asserted that a question of law arises because the Tribunal, on finding that there had been an increase in revenue, was bound to consider the evidence relating to the costs incurred. The issue raised by these paragraphs is not a question of law but one of pure fact. (4) The Tribunal found that: (a) Mr Borg did not exist and that it was Mr Docherty who received the disputed payments from 3D; (b) the alleged transactions concerning the hire/purchase of the scaffolding from Mr Borg did not occur; (c) 3D did not hire equipment from Mr Borg. (5) The only case presented by 3D in its evidence was one premised on the hire/purchase of scaffolding from a Mr Borg. Clearly the Tribunal did consider the evidence of Mr Borg's existence and of transactions with him - and rejected it. Such residual evidence as might arguably have supported a factual finding that some quantity of scaffolding was acquired from some unidentified source pursuant to an unidentified transaction, was not sufficient to support, let alone compel, a conclusion that the disputed payments had been made in respect of such scaffolding in circumstances that would bring the payments within s 8-1.

Analysis 12 These grounds of appeal provide no foundation to sustain this appeal. For a start, they do not raise pure questions of law and that is what is required to found an appeal to this Court from a decision of the Tribunal pursuant to s 44 of the AAT Act: Birdseye v Australian Securities and Investment Commission (2003) 76 ALD 321 at [18] per Branson and Stone JJ. At best, they are mixed questions of fact and law; at worst, pure questions of fact. 13 Second, even if these grounds of appeal did raise pure questions of law, they are ill conceived. There are no errors of the kind alleged. During the course of argument, Senior Counsel for 3D conceded, contrary to 3D's written submissions at [20], that the identity of the payee of an outgoing could be relevant, if not determinative, to whether the outgoing was an allowable deduction to the payer. For example, in the facts of the present case, without knowing the identity of the payee, one would have no way of testing whether the outgoings were being made to the owner of the equipment; that would be relevant to a determination of the proper characterisation of the outgoings; in other words, what they were paid for. 14 Third, having regard to the way in which 3D advanced its case in the Tribunal, namely, that the outgoings were paid to Mr Borg for the hire/purchase of equipment from MSH, and in the complete absence of any evidence that such equipment was hired/purchased from any other person, the Tribunal's findings that neither MSH nor Mr Borg existed is determinative of the s 8-1 issue. As the Tribunal concluded, 3D failed to discharge the onus it carried.

3D - The first ground 15 The Tribunal was said to have erred in law in taking into account a number of allegations/assertions made by the Commissioner in his submissions, which are Annexure A to the Tribunal's reasons, as to the integrity of the Price Spreadsheets and related documentation where those assertions/allegations were not put to Mrs Lynette Montgomery ('Mrs Montgomery') or any other witness in cross-examination by the Commissioner. This, it is said, involved the Tribunal in failing to accord procedural fairness to Mrs Montgomery and the other witnesses for 3D. 16 The submissions made on behalf of 3D in this regard were to the following effect: (1) To the extent that assertions were made by the Commissioner against 3D, those accusations had to be squarely put to the relevant witnesses. (2) As certain accusations were not put to the witnesses for 3D, the Tribunal fell into serious error by taking those assertions into account in making its determination. Not only did the Tribunal take those assertions into account but made findings of fact, and findings on credit, based upon matters never put to witnesses (in particular Mrs Montgomery). (3) In this regard the Tribunal must apply notions of procedural fairness: Kioa v West (1985) 159 CLR 550; Jagelman v FCT 96 ATC 4055, Fletcher & Ors v FCT (1988) 19 FCR 442, Commissioner of Taxation v Metaskills Pty Ltd (2003) 130 FCR 248. A breach of these principles constitutes an error of law: Australian Postal Commission v Hayes (1989) 23 FCR 320at 326 per Wilcox J. The first part of s 39(1) of the AAT Act provides statutory recognition of these principles: Sullivan v Department of Transport (1978) 20 ALR 323. (4) The integrity of the Price Spreadsheets was of fundamental importance to the case sought to be put by 3D. The Price Spreadsheets were recognised by the Commissioner as 'the central plank in the Applicants' case'. (5) In the course of the hearing, counsel for the Commissioner put to Mrs Montgomery in respect of the Price Spreadsheets that '…the numbers have been massaged and fiddled with'. (6) Counsel for 3D strenuously objected to such a question on the following basis: 'Mr McGovern: I object to that, because it is quite important. That proposition may be an ultimate submission, but in fairness to the witness - and she is here now - my friend should take her directly to each of the figures which he asserts to have been massaged, each of which has been fiddled with, so that we all know, rather than put it globally. Its unfair to the witness to do it otherwise.' Later: 'Mr Fagan: I don't purport to be able to put a positive to this witness about which number has been adjusted in which respect. I submit that it's quite appropriate to put, in this sort of circumstance, to this witness that the whole thing has been an adjustment and fiddling of numbers to reach a number to correspond with a cheque that as [sic] cashed. The Deputy President: I can see no reason why it can't be put. She can deny it if she likes.' Later: 'Mr McGovern: … But at this point, and this is not just forensic flourish, this is really a question for the decision-maker at the end of the day to have to make a grave determination about this lady's credibility and whether you accept her or not, and, in those circumstances, to just put a rolled-up general proposition which is, now we know, unsupportable by - as he frankly confesses he can't ascribe any particularity to any massaged figures or numbers, at least what should be done … … Mr Fagan: … I am entitled to put this general proposition that they have been fabricated, by its very nature I wouldn't know how.' (7) As counsel for 3D feared, and as ultimately eventuated both in the Commissioner's written and oral submissions, counsel for the Commissioner proceeded to make submissions with some particularity as to discrepancies within the Price Spreadsheets. The alleged discrepancies, being the basis for the Commissioner's submissions, were not put to the witness, particularly Mrs Montgomery. Accordingly she was denied an opportunity to be heard on the matter in response. (8) In this regard, the Commissioner's submissions (both written and oral) asserted with some particularity the manner in which the Price Spreadsheets were allegedly manipulated, and these submissions were both taken into account, and adopted by the Tribunal, without demur, in finding against 3D. (9) For the Tribunal to accept submissions on such matters not put to the witness was an error in law, being a clear failure to provide procedural fairness to 3D on a crucial part of 3D's case. (10) In such circumstances it is difficult to resist the conclusion that an acceptance of the Commissioner's submissions by the Tribunal amounted to gross unfairness. (11) Mrs Montgomery in particular was confronted in the witness box with an imprecise, generalised and unspecified assertion about 'fudging and fiddling' the contemporaneous records, but the final submissions, which she was not offered opportunity to address in evidence, then contained detailed allegations never put to her. This was a clear breach of the rule in Browne v Dunn (1893) 6 R 67 (HL), and that rule has been treated as an aspect of procedural fairness, and if breached will give rise to a vitiation of the decision of the Tribunal; see Hoskins v Repatriation Commission (1991) 32 FCR 443 at 446. 17 The submissions made on behalf of the Commissioner were to the following effect: (1) There was no denial of procedural fairness by the Tribunal for the following reasons: (a) It was squarely put to Mrs Montgomery who had reconstructed the Price Spreadsheets that she had 'fabricated' or 'massaged' or 'fiddled' the figures in the Price Spreadsheets. (b) The Tribunal in reviewing a decision is not bound by technicalities, legal forms or rules of evidence and must act according to substantial justice and the merits of the case. In those circumstances, the rule in Browne v Dunn has no application. (c) The Tribunal was entitled to look at the Price Spreadsheets and draw its own conclusions where it was obvious that information had been omitted or falsely inserted, in order to reach a figure corresponding to the cheque which was drawn. (d) In relation to one subject matter, 3D was invited by the Tribunal during closing submissions to re-open its case and call further evidence. It was clearly open to 3D to seek leave to recall Mrs Montgomery in order to overcome any perceived deficiency in the opportunity she had been afforded, when first cross-examined, to explain discrepancies in the relevant documents. 3D did not seek such leave. The substance of the fabrication was put to Mrs Montgomery (2) 3D has submitted that there was a denial of procedural fairness because it is alleged the specific detail of the Commissioner's analysis of the Price Spreadsheets, which forms Annexure A to the Tribunal's reasons for decision, was not put to Mrs Montgomery. The Tribunal referred to this submission but found it to be without substance. (3) From the commencement of the audit and in the hearing before the Tribunal, the Commissioner had directly challenged the story put forward as to the existence of MSH and Mr Borg. It was manifest that any documentation put forward by the taxpayer in support of that story was also under challenge. (4) The Commissioner's challenge to the Price Spreadsheets was also fully appreciated by 3D. So much is clear from paras 14 and 15 of the Submissions of the Applicant dated 1 June 2007 which were provided to the Tribunal before the Commissioner made the submissions of which 3D presently complains. (5) It is significant that notwithstanding the opportunity to do so in submissions in reply, 3D made no submissions about the fabrications in the Price Spreadsheets, but merely confined its complaint to what was said to be a denial of procedural fairness. Indeed, 3D could not possibly have had an answer to the fabrications, which were apparent on the face of the Price Spreadsheets when they were compared with the Job Balance record. (6) In any event, an evaluation of the Price Spreadsheets was not necessary to the Tribunal's decision. Once it found that Mr Borg did not exist, the 'elaborate arrangements alleged as to how he … was paid may be of limited relevance.' For that reason, the Tribunal took the view that the submissions made by the Commissioner concerning the Price Spreadsheets were of 'peripheral relevance'. (7) It is clear that an immaterial error of law will not vitiate the decision of the Tribunal. Even though it was perhaps not necessary to do so once it found that Mr Borg did not exist, the Tribunal for the sake of completeness annexed the Commissioner's analysis of the Price Spreadsheets to its reasons, and held that it correctly summarised the evidence given in this regard. (8) The evidence showed that Mrs Montgomery, having prepared the Price Spreadsheets, was the person who was most familiar with those documents and may be taken to have intimately known the content of them. She must also be taken to have been aware that the figures in those documents had been manipulated in order to reach the totals on the cheques (as the Commissioner has demonstrated in Annexure A to the Tribunal's reasons). (9) It was also an incontrovertible fact that Mrs Montgomery had also managed to create a Price Spreadsheet in respect of items which proved not to be for hire at all but for sale, demonstrating the fact of its fabrication. Mrs Montgomery was cross-examined about this and it was directly put to her in the following terms: 'Really, Ms Montgomery, what this shows is that your documents at tab 14 are a fabrication, aren't they?---No, they're not. They came out of the computer program. You have told us that the starting point of one of them, the first one behind tab 14 for the week ending 28 December, is a real document from the time, haven't you?---That's right. It's nothing of the kind, is it?---Yes, it is. It's something that you have put together to try to substantiate numbers?---No. I took it out of - off the job balance generals. And then you have told us that you have extrapolated back, and, lo and behold, you have been able to extrapolate for the week ending 7 December by adding and subtracting advices and receipts to page 427, a number of 16,500, which you purport would explain another entry in the bank statements and on Mr Borg's statements of account?---These were all - these all came out of the computer program. These, being tab 14?---These were all worked out of the computer program. They have been massaged - the numbers have been massaged and fiddled with---?---No. ---and put together by you---' (10) Clearly Mrs Montgomery, as the author of the recreated Price Spreadsheets, was only too aware of what the cross-examiner was putting to her when he suggested that she had massaged and fiddled the numbers. If there was an answer to be made by her, 3D was on notice of the need to elicit that explanation in re-examination or by seeking leave to adduce further evidence in chief. Application of the Rule in Browne v Dunn (11) Section 33(1)(b) of the AAT Act stipulates that a proceeding before the Tribunal shall be conducted with as little formality and technicality as the legislation and a proper consideration of the matters permits. Consistent with that legislative approach, s 33(1)(c) provides that the Tribunal is not bound by the rules of evidence. (12) 3D, before the Tribunal, had suggested that there was a 'clear breach of the rule in Browne v Dunn'. In Re Ruddock (in his capacity as Minister for Immigration and Multicultural Affairs) and Another; Ex parte Applicant S154/2002(2003) 201 ALR 437, the High Court held that the rule in Browne v Dunn had no application to proceedings before the Refugee Review Tribunal. Section 420(2) of the Migration Act 1958 (Cth) (an equivalent provision to s 33 of the AAT Act) was relevant to that conclusion. The High Court held that the purpose of such provisions was to free bodies such as the Tribunal from certain constraints otherwise applicable in courts of law. (13) In any event, even assuming the rule was to apply, there was no breach of that rule. Where it is obvious that the evidence of the witness is challenged, failure to state this expressly will not necessarily involve a breach of the rule. (14) In Jagelman v Commissioner of Taxation 96 ATC 4055, it was submitted that there was a denial of procedural fairness by reason of a failure to put a matter to the applicant. Justice Hill observed at 4060: 'However, it has been pointed out in a number of cases that the application of the rule in Browne v Dunn must depend upon the circumstances of the case. Where the issues in a case are such that it would readily be apparent to a party that a particular imputation has been made, there will be no necessity to put that imputation to a witness who denies it and, in consequence, there will have been no denial of procedural fairness: see Seymour v Australian Broadcasting Commission (unreported, Court of Appeal, NSW, 3 June 1977) discussed by Hunt J in Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1 at 21-2. In the latter case, Hunt J said (at 23): "In many cases, of course, counsel for the party calling the witness in question will be alert to the relevance of the other material in the case to be relied upon for the challenge to the truth of the evidence given by his witness or to the credit of that witness, and in those circumstances counsel will be able to give his witness the opportunity to deal with that other material in his own evidence in chief."' It was open to the Tribunal to look at the Price Spreadsheets and draw its own conclusions (15) Section 43 of the AAT Act provides that the Tribunal may exercise all the powers and discretions that are conferred on the decision-maker and stands in the shoes of the Commissioner. The Tribunal is not bound by the facts that were before the decision-maker. (16) The Price Spreadsheets and the Job Balance General were 3D's documents and their inherent want of authenticity could be gathered directly from them. 3D's written submissions in chief to the Tribunal invited consideration of the content of the documents, independent of any testimony about them - from which 3D asserted that their authenticity was self-evident. The Commissioner was entitled to (and did) respond on the same basis. It was open to the Tribunal to draw the conclusions which the Commissioner invited, simply by looking at the documents. In particular, that there had been manipulation of those documents by either omitting or falsely inserting information in order to reach a figure corresponding to the cheque which was drawn. Opportunity to Re-open (17) Section 39 of the AAT Act requires that the Tribunal ensure that every party to a proceeding before the Tribunal is given a reasonable opportunity to present his or her case. This section is a statutory recognition of the requirement to afford natural justice. Section 33(1)(c) has been held to permit the introduction of further evidence after the conclusion of the hearing. That requirement may extend to permitting a party to adduce new evidence once judgement has been reserved. It has been held that while normally a court will require exceptional circumstances to permit that course, so stringent a test does not apply in AAT hearings. (18) In Sullivan v Department of Transport (1978) 20 ALR 323, a party was afforded an opportunity by the Tribunal to call further evidence. Justice Deane said as follows: 'In the context of the express invitation to the appellant, at the conclusion of the evidence, to adduce any further evidence or other material and of the complete absence of any indication by the appellant that he was under any misapprehension or that he desired that the proceedings be adjourned, the failure of the Tribunal either to adjourn the proceedings of its own motion or expressly to inform the appellant of his right to seek an adjournment did not, in my view, constitute a failure to ensure that the appellant was given a reasonable opportunity of putting his case or otherwise involve a failure to observe the requirements of natural justice.' (19) After the conclusion of the evidence and during the course of 3D's submissions below, the Tribunal indicated that it would afford 3D an opportunity to reopen its case if Mr Borg could be found. The Tribunal later repeated this invitation a number of times, that 3D should 'go and find Mr Borg', for the reason that he was 'either crucial or important in this equation'. (20) 3D acknowledged that it was open to it to re-open its case. It was open to 3D to have recalled Mrs Montgomery or any other witness it thought could shed light on the figures in the Price Spreadsheets, the authenticity of which the Commissioner had challenged, first in cross-examination of Mrs Montgomery and subsequently in written submissions. It did not do so for the obvious reason that there was no possible explanation for the discrepancies identified by the Commissioner, other than that the figures had been manipulated or fabricated. (21) The Tribunal amply accorded natural justice in the present case by extending an opportunity to 3D to call further evidence and by providing a further opportunity to be heard. Thereafter, any potential lack of procedural fairness arising from the level of detail of the original cross-examination (the Commissioner does not accept that there was any) was averted. 3D did not avail itself of the opportunity.

Analysis 18 Despite the provisions of subs 33(1) of the AAT Act, I am not persuaded that everything that was said by Gummow and Heydon JJ (with whom Gleeson CJ agreed) in Applicant S154/2002 concerning the non-applicability of the rule in Browne v Dunn to proceedings in the Refugee Review Tribunal can be transported, so to speak, to proceedings in the Tribunal. At [55] and [56], their Honours said: '[55] On occasion the submissions advanced for the prosecutrix were couched in the language of a contention that the rule in Browne v Dunn had not been complied with. Where a complaint is made about the failure of a questioner to put to a person giving oral answers a particular question, it is natural for a lawyer's mind to turn to the rule in Browne v Dunn. In essence, and subject to numerous qualifications and exceptions, that rule requires the cross-examiner of a witness in adversarial litigation to put to that witness the nature of the case on which the cross-examiner's client proposes to rely in contradiction of that witness. [56] However, the rule has no application to proceedings in the tribunal. Section 420(2) of the Act states: The Tribunal, in reviewing a decision: (a) is not bound by technicalities, legal forms or rules of evidence; and (b) must act according to substantial justice and the merits of the case. The purpose of a provision such as s 420(2) is to free bodies such as the tribunal from certain constraints otherwise applicable in courts of law which the legislature regards as inappropriate. Further, as was emphasised in Minister for Immigration and Ethnic Affairs v Wu Shan Liang [(1996) 185 CLR 259 at 282], administrative decision-making is of a different nature from decisions to be made on civil litigation conducted under common law procedures. There, the court has to decide where, on the balance of probabilities, the truth lies as between the evidence the parties to the litigation have considered it in their respective interests to adduce at trial.' 19 However, at [57], their Honours said: '[57] Accordingly, the rule in Browne v Dunn has no application to proceedings in the tribunal. Those proceedings are not adversarial, but inquisitorial; the tribunal is not in the position of a contradictor of the case being advanced by the applicant. The tribunal member conducting the inquiry is not an adversarial cross-examiner, but an inquisitor obliged to be fair. The tribunal member has no "client", and has no "case" to put against the applicant. Cross-examiners must not only comply with Browne v Dunn by putting their client's cases to the witnesses; if they want to be as sure as possible of success, they have to damage the testimony of the witnesses by means which are sometimes confrontational and aggressive, namely means of a kind which an inquisitorial tribunal member could not employ without running a risk of bias being inferred. Here, on the other hand, it was for the prosecutrix to advance whatever evidence or argument she wished to advance, and for the tribunal to decide whether her claim had been made out; it was not part of the function of the tribunal to seek to damage the credibility of the prosecutrix's story in the manner a cross-examiner might seek to damage the credibility of a witness being cross-examined in adversarial litigation.' 20 The proceedings in the Tribunal are adversarial; there is a contradictor of the case being advanced by the taxpayer applicant in the form of the Commissioner. The Commissioner does have a 'case' to put against the applicant, even if it is only that the taxpayer applicant has not discharged the onus it carries. 21 I incline to the view of Hill J in Jagelman at 4060 that the application of the rule in Browne v Dunn must dependon the circumstances of the case: see the relevant part of his Honour's judgment extracted in [17(14)] above. Where the Tribunal makes a finding contrary to the evidence of a witness in circumstances where the matter found was not put to the witness, this will generally involve a denial of procedural fairness and would be a denial of natural justice on the part of the Tribunal to do so. But this all depends on the circumstances of the particular case. In the present case, it was put to Mrs Montgomery that she had 'fabricated' or 'fiddled' the figures in the Price Spreadsheets she had reconstructed. The real complaint of 3D is the general or holistic way this was put to Mrs Montgomery, rather than it being put with the particularity of the discrepancies manifest in the Commissioner's submissions which are Annexure A. 22 There may well be circumstances where this might amount to a denial of procedural fairness, but I do not think the circumstances of the present case are one of them. First, both Mrs Montgomery and 3D were on notice from the questions that were put to her that her Price Spreadsheets were under challenge. Second, the particular discrepancies identified in the Annexure A submissions were identified and apparent from the Price Spreadsheets themselves when compared with 3D's Job Balance records. Third, the Price Spreadsheets were Mrs Montgomery's creation and the Job Balance records were 3D's business records. Fourth, while the Price Spreadsheets might have been recognised by the Commissioner as 'the central plank in the Applicants' case', they were not the central plank in the Tribunal's decision. I agree with the Commissioner's submission that once the Tribunal found that Mr Borg did not exist, 'the elaborate arrangements alleged as to how he … was paid may be of limited relevance'; and for that reason, the Tribunal took the view that the submissions made by the Commissioner concerning the Price Spreadsheets was of 'peripheral relevance'. 23 In my view, the denial of procedural fairness ground based on the general or holistic way the Price Spreadsheets were challenged in cross-examination, rather than with the particularity of the discrepancies identified in the submissions which are Annexure A, has not been made good and 3D's appeal must be dismissed. 24 I would add that even if I had come to the contrary view on the denial of procedural fairness ground, with the consequence that the Tribunal's decision was infected with error of law, I would nevertheless have dismissed the appeal because I consider that the Tribunal's decision in respect of 3D's application was clearly correct on the material before it: see Austin v Deputy Secretary, Attorney-General's Department (1986) 12 FCR 22 at 26 - 27; McAuliffe v Secretary, Department of Social Security (1991) 23 ALD 284 at 295 - 296, affirmed at (1992) 28 ALD 609 at 618 - 619; State Rail Authority of New South Wales v Collector of Customs (1991) 33 FCR 211 at 217. Courts do not remit matters for reconsideration where it is futile to do so: Morales v Minister for Immigration and Ethnic Affairs (1995) 60 FCR 550 at 560 - 562 per Sackville J; Tankey v Adams (2000) 104 FCR 152 at 182.

Mr Docherty - the first ground 25 The Commissioner conceded that the Tribunal erred in finding at [9] of its reasons for decision that Mr Docherty was the sole director of 3D at any time other than when he made his statement (Ex. A2). In this respect, Ex. A2 makes clear that Mr Docherty was only referring to the time at which he made that statement. Similar findings at [150], [152] and [153] are equally flawed. In the years of income 1998 - 2000, there was a second director, Robert Docherty, who held that position from 6 November 1996 to 18 October 2002. 26 Mr Docherty submitted that the Tribunal, by making a finding where there was no evidence to support the finding, fell into error by applying Div 7A of the ITAA 36 to the wrong facts. The Tribunal effectively held that Mr Docherty was the controlling mind of the company as its sole director and he treated it as his own, and took the money for his own use. 27 The Commissioner submitted that, while it is true that if the Tribunal finds facts for which there is no evidence, its decision will be subject to error, in the present circumstances, the error could not have affected the outcome. That is, where the Tribunal has made an error of law, but the error is immaterial, its decision will not be set aside for that reason: Kumagai Gumi Co Ltd v Commissioner of Taxation (1999) 90 FCR 274 at [53]. Reliance was placed on what was said by Lockhart and Hill JJ in BTR Plc v Westinghouse Brake and Signal Co (Australia) Ltd (1992) 26 ALD 1 at 7 that: '[I]t will not be enough for an applicant to demonstrate that the Tribunal mis-stated the law in the course of its reasons, if that mis-statement could not have affected its decision. The task of the court on an appeal under s 44(1) is essentially to undertake judicial review of the tribunal's decision. An immaterial error of law will not vitiate the decision of the tribunal …'

Analysis 28 I am unable to accept that the Tribunal's error in finding that Mr Docherty was the sole director of 3D during the years of income 1998 - 2000 was material to its decision. In my view, its findings that Mr Docherty controlled 3D, that '3D did exactly as he directed': [152], and that 'Docherty treated 3D as his own and took its money for his own use': [153], were made independently of and did not depend upon the Tribunal's erroneous finding that Mr Docherty was the sole director of 3D during the relevant years. In other words, the Tribunal's erroneous finding merely fortified the Tribunal's anterior findings as to Mr Docherty's control of 3D's operations. 29 For these reasons, the appeal cannot be sustained on this ground.

Mr Docherty - the second ground 30 Mr Docherty's second ground is that the Tribunal erred in holding that because Mr Docherty was the sole director, he was also the controller of 3D and, accordingly, the payments made by 3D to him were made with the acquiescence of 3D.

Analysis 31 There is an initial difficulty with this ground. As indicated in [7(5)] above, I reject the proposition that the Tribunal held that Mr Docherty was the controller of 3D because he was the sole director of 3D. In my view, the Tribunal found that Mr Docherty was the controller of 3D independently of its finding that he was the sole director of 3D. In other words, its erroneous finding as to Mr Docherty's status as the sole director of 3D during the relevant years did not contribute to its conclusion that Mr Docherty was the controller of 3D; it merely fortified that conclusion (see [28] above). 32 Implicit in Mr Docherty's argument is that the Tribunal was required to take into account the fact that Mr Docherty was not the sole director of 3D during the relevant years in deciding whether 3D had 'paid an amount' for the purposes of s 109C and Div 7A of the ITAA 36. Underlying this argument is the proposition that for there to be a payment there had to be a consensus between 3D and Mr Docherty and in the face of the reality that Mr Docherty was only one of two directors, there could be no such consensus. Reliance was placed on what was said by the Special Commissioners in Stephens v T Pittas Ltd (1983) 56 TC 722 in particular at 733, namely, that in the absence of consensus between the company and Mr Pittas in that case, it was not possible to regard the relevant sums as loans or advances by the company; and what was said by Goulding J on appeal at 736 and 737, namely, that an outright misappropriation of the company's money could not be treated as the act of the company, except possibly if all the corporators of a solvent company consent to it. 33 Section 109C of Div 7A is in the following terms: 'Payments treated as dividends When private company is taken to pay a dividend (1) A private company is taken to pay a dividend to an entity at the end of the private company's year of income if the private company pays an amount to the entity during the year and either: (a) the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or (b) a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time. Note 1: Some payments do not give rise to dividends. See Subdivision D. Note 2: A private company is treated as making a payment to a shareholder or shareholder's associate if an interposed entity makes a payment to the shareholder or associate. See Subdivision E. Amount of dividend (2) The dividend is taken to equal the amount paid, subject to section 109Y. Note: Section 109Y limits the total amount of dividends taken to have been paid by a private company under this Division to the company's distributable surplus.' 34 The Tribunal found (at [154]) that Div 7A of the ITAA 36 should apply. In arriving at that conclusion, the Tribunal found as follows: (1) Mr Docherty was Mr Borg and the payments were made to him [144]; (2) Mr Docherty had made admissions to Ms Hird, the Commissioner's auditor, that it was he who had cashed the cheques [137], [144]; (3) Mr Docherty was the last person holding the cash [147]; (4) Mr Docherty and another brother, Charlie Docherty, were the shareholders during the relevant years [152]; (5) Mr Docherty treated 3D as his own entity. 3D did exactly as he directed and Mr Docherty did not need or seek the consent of Charlie Docherty. 3D was controlled by Mr Docherty who took its money for his own use and plainly considered that he could do what he pleased in relation to 3D [152], [153]; (6) On the evidence it cannot be accepted that Mr Docherty stole the money from 3D or that there was any relevant misfeasance [153]; (7) There was no evidence that Charlie Docherty played a part in running 3D [151]; (8) In any event, a Jones v Dunkel (1959) 101 CLR 298 inference should be drawn as to the failure to call the other shareholder, Charlie Docherty, that is, if he was a shareholder and if he did play a part in running 3D (although there was no evidence of this), he should have been called to give evidence [151]. 35 It is to be noted that subs 109C(1) contains no requirement that the payment be by way of loan or advance. In other words, a bare payment having no legal or commercial character will suffice provided the other requirements of the subsection are satisfied. This stands in contrast to the consensus requirement referred to by the Special Commissioners in T Pittas Ltd. There the Special Commissioners were referring to the need for consensus for it to be possible to regard the relevant amounts 'as loans or advances by the company to Mr Pittas'. Subsection 109C(1) contains no such requirement; any payment will suffice. Moreover, the appeal judge's observation that an outright misappropriation of the company's money cannot be treated as the act of the company is answered by the Tribunal's finding in [34(6)] above. 36 One is reminded of what was said by Beaumont J in the Full Court of this Court in MacFarlane v Commissioner of Taxation (1986) 13 FCR 356 at 373 in relation to a similar argument with respect to s 108 of the ITAA 36, the predecessor to Div 7A: 'The assessments werechallenged by the appellant on a number of grounds. In the first place, the appellant contended that the amounts paid to him were not "payments ... made by the company ... for the individual benefit of [one] of its shareholders" within the meaning of s 108(1). It was contended on behalf of the appellant that the situation should be characterised as an appropriation (perhaps a misappropriation) of the company's property on his part rather than a payment made by the company for his individual benefit, as s 108 requires. A similar question arose in Federal Commissioner of Taxation v Blakely (1951) 82 CLR 388. There, in a "de facto" liquidation, the assets of a company were appropriated by its shareholders. Latham CJ, in dissenting on the point, held that such an appropriation was not a distribution by the company and thus, not a "dividend" as then defined in s 6 of the Act. But Fullagar J (Dixon J agreeing) held that there was a distribution by the company: see also the discussion in Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 59 ALJR 89 per Gibbs CJ at 91. In my opinion, the reasoning of Fullagar J is applicable here. The income in question was the property of the company. That income was applied for the benefit of one of the company's shareholders with the acquiescence of the controllers of the company. The application of funds in this way may well have constituted a breach of the director's fiduciary duties at least so far as the company's creditors were concerned: see Walker v Wimborne (1976) 137 CLR 1 per Mason J at 7. But whether the conduct of the company's directors was liable to be challenged as a misfeasance is a different question. Payments were made by the company out of its funds which were for the individual benefit of one of its shareholders. That is sufficient to satisfy the opening words of s 108(1), whatever significance the conduct of those involved may have in other legal contexts.' 37 I agree with the Commissioner's submission that there was ample evidence to support the conclusion of the Tribunal that Mr Docherty controlled 3D and that, when he caused payments out to himself, they were payments by 3D and not a misappropriation of its moneys. The Tribunal's incorrect finding that Mr Docherty was the sole director was not necessary or relevant to the decision of the Tribunal that there had been payments made by 3D and Div 7A should apply.

38 It follows, in my view, that this appeal should also be dismissed. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 3 October 2008 Counsel for the Applicant: Mr D McGovern SC with Mr AJ O'Brien

Counsel for the Respondent: Mr DJ Fagan SC with Mr RS Quinn

Solicitor for the Respondent: Australian Government Solicitor