Adams Bidco Pty Ltd v Chief Commissioner of State Revenue

Supreme Court of NSW|2019-05-03|Before: Ward CJ

Solicitors: PricewaterhouseCoopers (Plaintiff) NSW Crown Solicitor's Office (Defendant) File Number(s): 2017/00213403 Publication restriction: Nil

Judgment

HER HONOUR: In these proceedings, the plaintiff (Adams Bidco Pty Ltd) by summons filed 13 July 2017, applied for a review of the whole of an assessment notified to it by the defendant (the Chief Commissioner of State Revenue (NSW)) (the Chief Commissioner) by a Duties Notice of Assessment dated 16 September 2016 (the Assessment).
By the Assessment, the Chief Commissioner assessed the plaintiff to landholder duty in the amount of $7,976,073.60 in respect of the acquisition by the plaintiff on 27 June 2013 (the Relevant Date) of all the issued shares in Ingham Enterprises Pty Ltd (Ingham) (the Acquisition). Duty was payable under ss 140 and 148 of the Duties Act 1997 (NSW) (Duties Act) within three months of the Relevant Date (i.e., by 27 September 2013). As the duty had not been paid by that date, a "tax default", within the meaning of s 3(1) of the Taxation Administration Act 1996 (NSW) (Administration Act), occurred on 27 September 2013 and the plaintiff then became liable (subject to the operation of ss 25, 27, 28 and 33 of the Administration Act) to pay interest and penalty tax under ss 21(1) and 26(1) of the Administration Act, respectively. The Assessment included the imposition of penalty tax in the sum of $1,091,648.41 (after a partial remission by the Chief Commissioner of the 25% penalty tax for which the plaintiff would otherwise have been liable pursuant to s 27(1) of the Administration Act) and interest in the sum of $1,390,107.19 (comprising both a component of market interest and, with a partial remission of this second component, a component of interest at the premium rate).

Background

At all relevant times, Ingham acted as the holding company for the similarly named Inghams Enterprises Pty Ltd (Inghams) which operated a poultry production business in both Australia and New Zealand, including poultry production (both chickens and turkeys), poultry processing, wet pet food ingredients and stockfeed production. As part of this business, Inghams owned and operated more than 30 breeder farms, 12 hatcheries and 10 primary production plants, and owned around 22 million birds (comprising 1.6 million breeder birds and 20.4 million broiler birds) (see the affidavit affirmed 25 October 2017 of John Richard Hexton, the Chief Financial Officer, Company Secretary and Director Group Services of Inghams at the relevant times up to his retirement on 29 October 2013, and an alternative director of the plaintiff from 27 June 2013 to 29 October 2013, at [7] - [13], [18], [28], [30] and [35]).
On 9 March 2013, the plaintiff (then a newly formed company owned by funds managed by TPG Capital LP (TPG)) entered into a Share Sale and Purchase Agreement (Share Sale Agreement) to purchase all of the issued shares in Ingham from Robert Walter Ingham (the Seller). The Share Sale Agreement was completed, as noted above, on 27 June 2013.
On 30 September 2014 (some 12 months after the due date for payment of the duty) the plaintiff made a part payment of $3,609,479.94 towards the primary duty. The circumstances leading up to that part payment will be considered in due course. Suffice it for present purposes to note that it represented approximately half of the amount that the plaintiff's advisers had contended (in submissions to the Chief Commissioner) was the amount of landholder duty payable if the primary producer exception did not apply; but less than half of what the Chief Commissioner had requested be paid at that stage (which itself was less than the amount that the Chief Commissioner had advised the plaintiff that he considered to be payable). The Assessment was issued on 16 September 2016. On 29 November 2016, the balance of the primary duty was paid, but without payment of interest or penalty tax referred to in the Assessment.
While the plaintiff accepted that, if the concession in s 163D of the Duties Act did not apply, it was liable to pay landholder duty in the amount assessed, it nevertheless contended that it was not liable to pay penalty tax (on the basis that it had exercised reasonable care within the meaning of s 27 of the Administration Act) or otherwise that the penalty tax should be reduced and it sought remission of the interest assessed (plaintiff's submissions at [5]).
Following the determination by the Chief Commissioner (adverse to the plaintiff) of the plaintiff's objection to the Assessment, these proceedings were commenced on 13 July 2017. Both parties agreed that the Acquisition was an "acquisition" of a 100% "interest" in a "landholder" within the meaning of Ch 4 of the Duties Act; that it was a "relevant acquisition" within the meaning of s 149 of the Duties Act; and that, subject to the application of the concession in s 163D(1), on the Relevant Date the plaintiff became liable to pay landholder duty under s 148 of the Duties Act but that no tax default would occur if the duty was paid within three months after that date (i.e., on or before 27 September 2013). Conversely, it was also accepted by both parties that if the concession in s 163D(1) did apply to the plaintiff then no landholder duty, penalty tax or interest was payable. Both parties also ultimately agreed on the quantum of any landholder duty payable if the Chief Commissioner's contention that duty was payable was correct (though there was some dispute as to quantum during the period prior to about June 2016).
The matter initially came before Pembroke J for hearing on 21 May 2018. His Honour held that, at the relevant date, Ingham was a primary producer within the meaning of s 163D(3) of the Duties Act and that the plaintiff was entitled to rely on the primary producer exemption, ordering that the Assessment be revoked and that the Chief Commissioner pay the plaintiff's costs (see Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 735). His Honour did not consider it necessary to deal with the remainder of the issues that were raised in the parties' respective Appeal Statements (i.e., the challenges by the plaintiff to the imposition of penalty tax and interest if landholder duty were payable); and, indeed, did not hear any evidence addressed to those issues though the matter had been fixed for a two day hearing for that purpose.
The Court of Appeal (see Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34) subsequently allowed the Chief Commissioner's appeal from the primary judgment, set aside the orders made by Pembroke J, and remitted the proceeding to the Equity Division for hearing and determination of the remaining issues raised in the proceeding, with the costs incurred to date at first instance to be within the discretion of the judge to whom the hearing of the remaining issues in the case was remitted. On remittal to the Equity Division, the matter was listed before me and, accordingly, I heard the remaining issues in the proceeding on 3 May 2019 (regrettably, just shy of a year from the date on which the proceeding had initially been listed for hearing).

Issues

Since the Court of Appeal has now determined the first issue in the proceeding, concluding that Ingham was not a primary producer within the meaning of s 163D(2) (since its landholding in all places did not wholly or predominantly comprise land used for primary production - see at [31], [54], [65], [201]), and there is no dispute between the parties as to the amount of landholder duty assessed, the issues remaining to be dealt with (Issues 2-5 as enumerated in the parties' original submissions for hearing and as set out below) concern penalty tax and interest; together with the question of costs of the first instance hearing (which I will treat as Issue 6).
Although, in the plaintiff's description of Issues 2-5 (with which the Chief Commissioner agrees), it is said that if Issue 2 is determined in favour of the plaintiff then Issues 3, 4 and 5 do not arise, having regard to the history of this matter (and even apart from the criticism made by the Court of Appeal as to the course adopted at the first hearing of the proceedings), I indicated to the parties at the hearing before me that I would be addressing Issues 3-5 whatever my conclusion as to Issue 2 might be.
The Issues, thus, to be determined (retaining the original numbering and adding the further issue) are as follows: 2. Did the plaintiff or a person acting on its behalf take reasonable care to comply with the Duties Act and the Administration Act? If yes, then by reason of s 27(3)(a) of the Administration Act no penalty tax is payable and it is said that Issues 3, 4 and 5 do not arise. 3. If no to 2, did the plaintiff, before being informed by the defendant that an investigation relating to the taxpayer was to be carried out, disclose to the defendant, in writing, sufficient information to enable the nature and extent of the plaintiff's tax default to be determined? If yes, then by reason of s 28(1) of the Administration Act the original amount of the penalty tax payable by the plaintiff under s 26(1) of the Administration Act is reduced by 80%. 4. If no to 2, in the circumstances should any penalty tax payable (after any reduction in accordance with s 28(1) of the Administration Act) by the plaintiff be remitted in full, or in part pursuant to s 33 of the Administration Act? 5. In the circumstances should the interest and/or premium interest assessed by the defendant be remitted under s 25 of the Administration Act, either in full or in part to a greater degree than provided for in the Assessment? 6. What order should be made as to the costs of the first hearing of the matter?

Position of the Seller

Before setting out in more detail the factual background relevant to the determination of the above issues, I note a feature of the matter to which attention was drawn by the Chief Commissioner (and which it is said by the Chief Commissioner is of relevance to the assessment of whether the plaintiff had taken reasonable care for the purposes of s 27(3)(a) of the Administration Act), that being that, as part of the arrangements reached in relation to the Acquisition, it was the Seller (with his advisers), and not the plaintiff, who had the conduct of dealings with the Office of State Revenue (OSR) (i.e., the making of submissions to the Chief Commissioner and the conduct of all of the relevant discussions and negotiations), even though the liability to pay landholder duty is a liability of the plaintiff.
This is because as part of the arrangements reached in relation to the Acquisition (and as provided for in the Share Sale Agreement - see cl 18), the plaintiff has the benefit of a contractual indemnity in relation to duty payable in respect of the Acquisition. Mr Hexton has deposed (Mr Hexton's affidavit at [44]) that during the sale process "it became obvious that stamp duty would be an important cost consideration for the sale process"; and (at [55]) that the plaintiff wanted to be indemnified for the stamp duty that might be payable and a clause was negotiated in the sale agreement to the effect that the Seller would be liable to pay landholder duty over a certain threshold but, if the duty payable was less than the threshold, the Seller would be entitled to a refund.
The Chief Commissioner argues that the effect of that arrangement is that the plaintiff has effectively insured itself against any adverse taxation consequences but that any "upside" in successfully disputing the Assessment inures for the financial benefit of the Seller (Chief Commissioner's submissions at 82). The Chief Commissioner argues that, in effect, the plaintiff has not put itself in a position to take reasonable care because in substance it has delegated the entire process to the Seller who has a specific commercial interest in landholder duty not being payable, "being an interest over and above the dollar value of the duty" (Chief Commissioner's submissions at 82). This is because it is perceived that the purchase price for the shares was greater than it would otherwise have been by reason of the indemnity arrangement (a not unreasonable assumption having regard to Mr Hexton's evidence referred to above). In other words, the Chief Commissioner says that, in substance, the Seller is acting on his own behalf in his own commercial interest, having contracted to have the power to deal with the Chief Commissioner for his financial benefit; and that the question of reasonable care should not be approached having regard to what was reasonable from the perspective of the Seller and the Seller's financial interests.
Pausing here, I did not understand the plaintiff by its submissions to be advocating that reasonable care was taken by it to comply with the taxation law by reference to what might be considered to have been reasonable on the part of the Seller; nor that the plaintiff should be taken to have exercised reasonable care by reference to the indemnity arrangement with the Seller. Nor, however, do I consider that such an indemnity arrangement of itself necessarily involved an abdication by the plaintiff of the exercise of reasonable care to comply with its taxation obligations; and in this regard it appears that the plaintiff itself sought advice as to the prospect of landholder duty arising as a result of the Acquisition and was later involved (at least to some extent) in the making of decisions as to the course to be taken in respect of any such duty.
Ultimately, I consider that whether the plaintiff took reasonable care in that regard will be determined by reference to the plaintiff's conduct (not to the fact that arrangements have been put in place whereby the financial benefit of a favourable decision on the issue of landholder duty, or conversely the downside of an unfavourable decision, would be enjoyed or borne, as the case may be, by the Seller) and I accept the plaintiff's submission that the indemnity arrangement is not relevant to the application of the objective test as to whether reasonable care was taken.

Further factual background relevant to the penalty tax/interest issues

It is convenient at this point to set out some further factual background which is of relevance to the determination of the penalty tax/interest issues presently for consideration. Where there is dispute as to these matters I have indicated the nature of that dispute. Otherwise, the following is drawn from the parties' respective submissions and material referred to in the Court Book on this hearing.
In around May 2012, the Seller commenced a public sale process for the shares in Ingham (Mr Hexton's affidavit at [42]). Negotiations concerning the proposed sale began in around July 2012 and continued in the following months (Mr Hexton's affidavit at [42]-[43]). Mr Hexton had principal responsibility at Inghams for the day to day negotiations concerning the proposed sale and acted as the Seller's representative in those negotiations (Mr Hexton's affidavit at [43]).
As noted above, and not surprisingly, the tax consequences of the proposed acquisition were the subject of consideration during the sale process, including whether Ingham would qualify for the "primary producer" concession under s 163D(1) of the Duties Act. In around late November 2012, Mr Hexton sought advice from PricewaterhouseCoopers (PwC) in relation to the stamp duty consequences of the proposed sale (Mr Hexton's affidavit at [44]). (An engagement letter was signed with PwC in February 2012.)
By email dated 27 November 2012, PwC sent to Mr George Wosinski, formerly Group Taxation Manager at Inghams, a draft memorandum dated 27 November 2012, in which it was said that "it may be difficult to support the argument that Ingham's landholdings predominantly comprise land used for primary production because any manufacturing/processing and distribution centres are unlikely to qualify as primary production land".
During December 2012, Mr Hexton had a number of discussions with PwC concerning stamp duty issues, including the possible application of the primary producer concession (Mr Hexton's affidavit at [45]). Mr Hexton has deposed in his affidavit that he does not recall the precise content of those discussions (though he did give some evidence during cross-examination of some oral advice he recalled having been given - see [26] below) but clearly recalls agreeing to PwC's recommendation to make an informal approach to the OSR, and seeking a private ruling to confirm the position (Mr Hexton's affidavit at [45]). In an email dated 11 December 2012 from Mr Jamie Ward (a Senior Manager at PwC) to Mr Adrian Green (of PwC) there was reference to discussions in early December 2012 between PwC and the OSR concerning the possibility of making a private ruling.
On 22 January 2013, Mr Hexton received an email which attached a memorandum of advice (dated 21 January 2013 from PwC to Mr Wosinski), containing the statement (similar to that contained in the 27 November 2012 email referred to above) that "[i]t may be difficult to satisfy the argument that Ingham's landholdings predominantly comprise land used for primary production due to the manufacturing, processing and distribution activities undertaken on many of the sites". The memorandum indicated that there was "minimal guidance" in relation to the interpretation of the provision and that the cases on similar provisions in other contexts "tend to support using land area to determine the extent of the use in a particular application (as opposed to land value)". It was at least implicitly conveyed by that memorandum of advice that, if land area were to be used, the concession would likely be available but that the concession would not be available if land value were to be used. The conclusion set out in that memorandum was that: Based on the work undertaken, a land area test provides a primary production use of over 90%. However, based on land values, the primary production percentage is less than 50%. As discussed, certainty is to be obtained by seeking a private ruling to confirm the position. (my emphasis)
On 23 January 2013, Mr Hexton confirmed that a private ruling should be sought (Mr Hexton's affidavit at [49]).
Pausing here, in cross-examination, in the context of his repeated evidence that he had a strong view or belief at the time that the primary producer concession would be allowed, Mr Hexton referred to oral advice from PwC to the effect that there was a very good chance of that. As already adverted to, Mr Hexton did not depose to any such conversation to that effect in his affidavit. What he said in cross-examination, relevantly, was (from T 12.31): Q. Yes, but you understood, didn't you, that whether or not the Commissioner ultimately granted that exemption, that there was an amount of duty, at least on the Commissioner's view on how the legislation worked, that was due and payable in late September 2013? A. My view was that we didn't ‑ that we would get that concession, it was very strongly, from the advice that I had been given, in my 35 years in the industry, my knowledge that I had been given that our land was predominantly used for primary production, with all our breeder birds and broader birds and that covering 80% of the land met that assessment. My advice had been given that land was predominantly the ‑ the criteria. The fact that the Commissioner, I understood, had given some verbal indication that integrated business were not excluded and, putting that together, my view was that we should be waiting for a decision on whether or not we were going to get the concession. Q. But you had been told that it might in fact be very difficult to demonstrate an entitlement to this concession? A. No. I had been told it was difficult, not necessarily very difficult. It was certainly unclear. … A. My view was that we would ‑ we had a very good chance of not having to ‑ of getting that concession. Q. I see, and that was your‑‑ A. And that was my view, it was the view of the advisers that were advising us. Q. Your advisers gave advice about that? A. Yes. Q. Written advice? A. No, verbal advice. Q. Which advisers? A. And strong advice, that - Q. Which advisers, Mr Hexton? A. Well, by Pricewaterhouse, in terms of whether or not we were ‑ had strong position, in terms of getting the primary concession. Q. And‑‑ A. And I believe we did, from the information that I was given and from the assessment of the information before me. Q. And you say that the advice was given by someone at Pricewaterhouse? A. In terms of what the odds were, if you like, and whether we had a strong case for achieving that concession. Q. Who gave you that advice? A. Pricewaterhouse. Q. Who? Who though, Mr Hexton? A. Well, the advisers in Pricewaterhouse. Q. Did someone in particular refer you to that? You don't refer to that in your affidavit, Mr Hexton. Can you tell us now, who told you that you? A. Probably Adrian Green but, you know, various partners and people in Pricewaterhouse. … Q. And you say that advice was given as to the strength of the argument? A. Well, the advice was given, in terms of what ‑ to get that primary concession business, land had to be wholly or, as I understood it, predominantly used for primary production. 80% of our land was primary ‑ used for, in my view, primary production. It was for the raising and ‑ breeding and raising of chickens, turkeys and ducks and that's what we did. We were a primary producer for income tax. Our stock was valued. All that information together gave me a strong view that we would have a very good chance of being entitled to that concession.
There is no documentary evidence to confirm (and the Chief Commissioner disputes) that any such verbal indication was given by the OSR on the issue of the availability of the concession; and it is difficult in the circumstances to place any weight on Mr Hexton's somewhat belated recollection of such a conversation, particularly in the absence of a full account of the relevant communication.
By letter dated 24 January 2013, PwC made a request to the OSR for a private ruling to the effect that Ingham was a primary producer for the purposes of s 163D of the Duties Act. The private ruling application was said to be made on behalf of the proposed purchaser of Ingham (referred to in the application as "Bidco", there being two main "remaining" bidders at that time - namely, Blackstone Group and TPG (Mr Hexton's affidavit at [49]; [51])).
PwC's 24 January 2013 letter contained factual and legal submissions in support of the requested ruling. The position there adopted was that, on an area basis, the land was predominantly land which would be exempt pursuant to s 10AA of the Land Tax Management Act 1956 (NSW). The letter also contained a table (Appendix A) headed "Land holdings held directly and indirectly by Ingham", listing properties identified by street address and suburb in each state of Australia as well as in New Zealand; noting the size in hectares of each property, a short description of the "use" (such as "farm"), and a value for the "land", as well as values for improvements and buildings. The table contained a "total" value for the land (for New South Wales this being $155,365,000). The Chief Commissioner in his submissions (at [146]) asserts that the application for a private ruling was not accompanied by OSR 'Application for a Private Ruling' form (Form 26). The plaintiff says this is incorrect (and inconsistent with the admission at [52] of the Defendant's Appeal Statement and the Private Ruling Application) (see the plaintiff's reply submissions at 33).
I interpose here to note that the Chief Commissioner believes that the values for land in New South Wales appearing in the document referred to above were taken from valuations "purporting to be as at 30 June 2012" (referring to a letter dated 12 September 2013 from WK Wotton & Partners - which it is said suggests that those reports were prepared by that firm at some earlier point). The Chief Commissioner says that these valuations were only provided to him subsequent to a PwC email dated 19 June 2015; and were not provided at the time of the request for a private ruling. The Chief Commissioner further says that the information contained in Appendix A was not supported by evidence and that the information was not verifiable by him. The plaintiff cavils with those propositions. The plaintiff says that the results of land valuations conducted as at July 2012 were provided to the Chief Commissioner on 24 January 2013 as part of the private ruling application (in Appendix A) and that the actual valuations were on a disc provided to the Chief Commissioner on 13 September 2013 (referring to a letter dated 13 September 2013 from Inghams to a delegate of the Chief Commissioner that makes reference to a "CD of the documents" being attached - see the Court Book at Tab 43, Part B). Further, it is said that a valuation of the New South Wales land and goods as at 27 June 2013 was provided to the Chief Commissioner on 30 September 2014 (referring to a letter dated 30 September 2014 from PwC to the OSR which encloses the Inghams valuation from WK Wotton & Partners and PwC's valuation of dutiable assets in New South Wales for stamp duty reporting purposes for Ingham - see the Court Book at Tab 76, Part B).
On 25 January 2013, KPMG (which was advising TPG) commenced due diligence work in relation to the proposed acquisition of Ingham (see the letter dated 30 January 2013 from KPMG at Tab 8, Part B, of the Court Book). An electronic data room was established to allow KPMG access to information about Ingham (see Mr Hexton's affidavit at [51]). A copy of PwC's advice was, it seems, included in the electronic data room (see the reference to a Vendor Due Diligence Report, or VDD report, in the KPMG draft due diligence report referred to below).
On 14 February 2013, KPMG issued a draft Phase 1 due diligence report which included the following advice: Primary production concessions may be available where landholdings consist wholly or predominantly of land held for primary production. NSW offers a concession on landholder duty on the acquisition of an interest in a primary producer. If the Target is a primary producer, landholder duty is only payable if the landholdings are 80% or greater of total property. A primary producer is a landholder whose landholdings in all places (within or outside Australia) wholly or predominantly comprise land used for primary production. We have considered whether the primary production concession would apply to Inghams. The information available to us in the VDD Report and the dataroom indicates that the prospects for claiming the primary production exemption in NSW are low (as Inghams holds non-land property of significant value), however this is subject to further investigation.
The plaintiff submits that it is apparent that the reason given for the above advice involved a misunderstanding of the test in s 163D of the Duties Act, on the basis that the only reason given for the view as to prospects was that "Inghams holds non-land property of significant value" (see plaintiff's reply submissions at 34).
In early March 2013, an updated version of the PwC advice was placed in the dataroom and was emailed to KPMG (Mr Hexton's affidavit at [52]-[54]).
On 6 March 2013, the plaintiff was incorporated.
On the same day, KPMG issued its final Phase 1 and Phase 2 due diligence reports, which included the following statements: NSW offers a concession on landholder duty on the acquisition of an interest in a primary producer. If the Target is a primary producer, NSW landholder duty would be payable only if the landholdings are 80% or greater of total property. A primary producer is a landholder whose landholdings in all places (within or outside Australia) wholly or predominantly comprise land used for primary production. We have considered whether the primary production concession would apply to the Target. The information available to us in the VDD report and the data room indicates that the prospects for claiming the primary production exemption in NSW are low (as the land holdings may not consist wholly or predominantly of land used for primary production). However, based on discussion with PwC, we understand that PwC have applied for a ruling from the [OSR] to confirm that the concession is available for [Ingham]. PwC have indicated that discussions with the OSR have appeared to be favourable. [Note that the last sentence was admitted at the hearing before me subject to a limitation order]
I interpose here to note that the Chief Commissioner again disputes that a favourable indication of the kind referred to in the KPMG due diligence reports was provided by the OSR and says that there is no evidence supplied by the plaintiff to support it. The Chief Commissioner submits that, on the evidence filed by the plaintiff, it does not appear that there was any ground for the assertion that discussions with the OSR "appeared to be favourable" at any time before the report was prepared. The Chief Commissioner points to the email dated 11 December 2012 from Mr Green (of PwC) to Mr Ward (of PwC) (see the Court Book, Tab 5, Part B) recording what appears to be the first communication with the Chief Commissioner on the subject of whether the primary producer concession might apply and says that there is nothing in this record which could be construed as a "favourable" view on the application of the concession; nor is there anything in the records of telephone conversations with officers of the Chief Commissioner that could be construed as conveying a "favourable" view on the concession. The Chief Commissioner also points in this regard to the fact that both KPMG reports to the plaintiff (or TPG) indicated that the prospects for claiming the primary production exemption were "low". (As adverted to above, the plaintiff cavils with the Chief Commissioner's characterisation of the KPMG advice - see plaintiff's reply submissions at 34.)
On 9 March 2013, the parties entered into the Share Sale Agreement, which relevantly contained cl 18, making provision for the indemnity in respect of landholder duty to which I have already referred. The plaintiff accepts that, pursuant to the Share Sale Agreement, it is contractually liable to pay any landholder duty but notes that the Seller provides an indemnity to the plaintiff for landholder duty in excess of $25,735,000. The plaintiff points out that, under cl 18, the Seller is also contractually responsible for making lodgements in respect of landholder duty, and has the exclusive contractual right to object and appeal any assessment of landholder duty; and that the Seller is contractually obliged to consult with the plaintiff in good faith and obtain the plaintiff's consent in relation to any action the Seller may wish to undertake in relation to landholder duty.
By letter dated 13 March 2013, the Chief Commissioner responded to the 24 January 2013 request made by the Seller for a private ruling, noting that newspapers had reported that the Share Sale Agreement had been entered into and stating that "in these circumstances we will not be issuing any private ruling in this matter". The letter also noted that the application for the ruling was not made by the taxpayer (i.e. "the purchaser of the shares in the company").
By letter dated 4 April 2013, PwC wrote to the Chief Commissioner: referring to the 13 March 2013 letter; stating that completion of the Share Sale Agreement was yet to occur and that there had been no changes to the facts contained in the 24 January 2013 letter; and asking for confirmation that s 163D applied to Ingham so that no landholder was payable on the acquisition. The Chief Commissioner responded to this letter by letter dated 30 May 2013 (see below at [43]). Meanwhile, it appears that officers of the OSR had indicated that the matter was "not a straightforward matter"- see the email dated 22 April 2013 from Ms Sara Hee Song (of PwC).
By letter dated 24 May 2013, KPMG, on behalf of the plaintiff, wrote to the Chief Commissioner, stating inter alia that: We understand that the landholder duty aspects of this transaction will be the subject of separate correspondence with your office on behalf of the Seller. By the agreement of the parties, the Seller is responsible for making all lodgements with respect to landholder duty (refer to clause 18.1(c) of the [Share Sale Agreement]). Accordingly, we do not enclose an Acquisition Statement nor make any representation with respect to landholder duty.
The plaintiff says that, between 19 April 2013 and 30 May 2013, PwC made numerous requests to the Chief Commissioner to determine the status of the matter (and continued to do so until an assessment was issued more than three and a half years after the initial private ruling request) (referring to the documents in the Court Book, Part B, at Tabs 28-30, 32-34, 49-50, 54-63, 65, 71-73, 76-81, 83-88, 94, 96 and 100).
As adverted to above, by letter dated 30 May 2013, the Chief Commissioner wrote to PwC, referring to the letters dated 24 January 2013 and 4 April 2013 (in which PwC had asserted that the exemption under s 163D applied) and stating: We are seeking legal advice from the Crown Solicitor on this matter. We will let you know if we need any (and if so, what) further information in order to determine whether the exemption in sec.163D applies in this case. We note that any liability to pay landholder duty under Chapter 4 of the Duties Act 1997 will arise if and when the Ingham Share Sale and Purchase Agreement of 9 March 2013 is completed (Duties Act 1997, secs.148, 161). (We understand that completion is likely to occur on 24 June 2013 or 1 July 2013.) If the exemption in sec.163D does not apply, then the purchaser will have 3 months from this date to pay the landholder duty without committing a tax default for the purposes of the Taxation Administration Act 1996 (NSW) (Duties Act 1997, sec. 153).
As noted above, completion of the Share Sale Agreement took place on 27 June 2013. (The Chief Commissioner notes that no other correspondence was received at this stage from, or on behalf of, the plaintiff or the Seller in relation to landholder duty, notwithstanding completion of the Share Sale Agreement; and that no acquisition statement or exempt acquisition statement was lodged until 30 September 2014.)
After the completion date of the Share Sale Agreement, the Chief Commissioner commenced an investigation.
By letters dated 26 August 2013, the Chief Commissioner issued notices pursuant to s 72 of the Administration Act to each of the plaintiff, Ingham and an advisor (Investec) (collectively, the s 72 notices). The introduction to the notice to the plaintiff was substantially similar to that of the other notices and stated as follows: Adams Bidco Pty Ltd - Acquisition of Ingham Enterprises Pty Ltd Notice under s.72 of the Taxation Administration Act 1996 Pursuant to section 72 of the Taxation Administration Act 1996 (TAA), please provide to me, within four (4) weeks of the date of this notice, the information, instruments and records requested below. This request is made for the purposes of determining the tax liability or potential tax liability of Adams Bidco Pty Ltd. [my emphasis]
The following items were requested from the plaintiff: 1. All expressions of interest, offers, offered terms, memoranda of understanding, term sheets and heads of agreement submitted by Adams Bidco Pty Limited or on its behalf in connection with its purchase of all the shares In Ingham Enterprises Pty Ltd. 2. Copies of any independent valuations (whether of the business or your landholdings) obtained by or on behalf of Adams Bidco Pty Limited or its financier(s).
The following items were requested from Ingham: 1. Information as to how all the real property held by the Inghams Group (being the freehold property and leasehold property set out In Schedule 7 to the Inghams Share Sale and Purchase SSA ("the Agreement")) is being used both in Australia and New Zealand. 2. A detailed breakdown of all of the sources of the revenues of the Inghams Group's business ("the Business"). 3. A detailed breakdown of how the Inghams Group's workforce is employed in the various facets of its overall business enterprise. 4. A breakdown of the salaries and wages paid to the Inghams Group's workforce in the last 3 financial years set out on a separate business division by separate business division basis. 5. The most recent independent valuations of all real property owned or leased by the Inghams Group as identified in Schedule 7 to the Agreement. 6. The internal management accounts of the Group (as referred to in clause 2.3 of Schedule 3 to the Agreement). 7. The completion accounts (as referred to in clause 8 and Schedule 5 to the Agreement). 8. All land tax records and information on the land tax status of all real property owned or leased by the Inghams Group as identified in Schedule 7 to the Agreement. 9. The documents marked with an asterisk in the enclosed copy of the Data Room Index annexed as Annexure B to the Agreement (to the extent that the documents, for example, valuation reports, have not already been requested in paragraphs 1 to 8 above).
Pausing here, the Chief Commissioner argues, and I would accept, that commencement of an investigation, to determine the tax liability of the plaintiff in relation to the Acquisition, is not consistent with there having been an acceptance at that stage of the plaintiff's (or Seller's) claim that the exemption in s 163D applied; and argues, and again such an inference is readily available given the experience of the plaintiff's advisers, that this was presumably apparent to the plaintiff or its advisers.
By email dated 26 August 2013, Mr David Brooks of TPG forwarded the s 72 notice to Mr Watts, a director of the plaintiff, and Mr Hexton, referring to the fact that the notice was issued "under s. 72 of the Tax Administration Act" and that it was assumed to be "related to the ongoing stamp duty work / assessment".
Responses to the s 72 notices were in due course received by the Chief Commissioner from the Seller and the plaintiff (and documents were provided on 12, 13 and 17 September 2013). The Chief Commissioner notes in this regard that the plaintiff's letter dated 17 September 2013 commenced with the words: We refer to your letter of 26 August 2013 regarding your request for information, instruments and records for the purpose of determining the tax liability or potential tax liability of Adams Bidco Pty Ltd submitting that this indicates that the plaintiff was aware at this stage that the information was sought for the purpose of determining the tax or potential tax liability of the plaintiff.
On 17 September 2013 (and, therefore, shortly before the last day by which payment could be made to avoid a tax default, namely 27 September 2013), an email was sent by PwC to Mr Watts, setting out various courses of action in relation to payment of the duty, including: The alternate course of action is to pay the duty to the OSR on a without prejudice basis, making it clear that we are not conceding our case. Ultimately, the choice as to whether or not to settle the duty will depend upon your cost of funds. I understand TPG have drawn down the funds to finance the duty and that the funds are available for immediate disbursement. If the opportunity cost of the bank interest is higher than the current cost of funds imposed on the later payment of the duty, then you might pay the duty. [my emphasis]
The Chief Commissioner says that it should be inferred, in light of the above advice, that the cost of funds and commercial considerations were at least part of the reasons why no payment was made. Relevantly, in this regard, the email makes no reference to uncertainty as to the amount which would be payable as duty as the reason for not making payment at that stage.
In the morning of 27 September 2013, Mr Hexton emailed Mr Brooks at TPG as follows: I can confirm on behalf of Bob [the Seller] that we have requested and agreed to the position not to pay the NSW stamp duty on the basis of the exemption ruling requested. In the event the OSR charge penalties or interest in the event stamp duty is payable I can confirm that those payments will be included in the calculation of stamp duty paid for the purpose of the adjustment in the agreement and are therefore in effect to Bobs [sic] account. If you need anything further please let me know.
On 28 February 2014, there was a telephone conversation (to which reference was subsequently made in a letter from PwC dated 30 September 2014 - see Tab 76, Part B, of the Court Book) in which a representative of the Chief Commissioner (according to the PwC letter, which version of the conversation the Chief Commissioner accepts - see fn 16 to the Chief Commissioner's submissions) conveyed the following: that the OSR did not believe s 163D applied based on advice from the Crown Solicitor; that the Crown Solicitor's advice was not yet available in writing (and would not be available for a couple of weeks); and that, once the Crown Solicitor's advice was obtained, a letter would be issued together with an assessment explaining the decision.
It took over six months for the foreshadowed letter to be sent. By letter dated 2 September 2014, the Chief Commissioner wrote to PwC in relation to the Acquisition, stating that: the Chief Commissioner did not accept that Ingham was a "primary producer" within the meaning of s 163D(2) of the Duties Act (for the reasons there set out); the plaintiff had to complete and lodge an acquisition statement in accordance with s 152 of the Duties Act within 28 days of the letter; duty would be assessed on 100% of the unencumbered value of the landholdings and (non-exempt) goods in New South Wales of Ingham (s 155(1) of the Duties Act) and an allowance would be made in respect of the share transfer duty payable under Ch 2 (s 155(5) of the Duties Act). Updated valuations were requested of New South Wales land holdings and non-exempt goods. The letter noted that a tax default had occurred, and that this meant the plaintiff became liable to pay interest and penalty tax. Representations regarding possible remission of interest and penalty tax were invited. The letter also stated that the total value of Ingham land holdings, on the basis of the sum of the 2012 values of the individual New South Wales landholdings was $139,423,000, and that duty calculated on this value would be about $7,653,000. (It is noted in the Chief Commissioner's submissions that the figure of $139,423,000 inadvertently omitted the Leppington and Liverpool Head Office properties which are said to have a combined value of $18,871,000 and which were listed separately in the PwC table.) The letter stated the plaintiff should make payment of this amount (noting that this amount of duty was to be subject to receiving updated valuations which had been requested).
The plaintiff notes that the September 2014 letter was sent more than 18 months after the application for the private ruling, and that the reasoning in that letter was later rejected by the Chief Commissioner in his Assessment Paper dated 24 August 2016 (see [61] below). The Chief Commissioner, however, points to this letter as putting the plaintiff squarely on notice of the requirement to pay the duty.
On 18 September 2014, PwC sent Mr Hexton an email, stating, among other things: In NSW, we would calculate the duty on the same basis as has been submitted in the other states (ie adjusting for portfolio size and economic obsolescence). Based on the current draft PwC valuation report the NSW duty estimate (if imposed) is approximately $7.54m [I interpose to note, less than the Chief Commissioner's calculation]. 50% of this duty would be $3.77m. The valuation report is currently being finalised and we will be able to provide an exact estimate based on the final report shortly but it is not expected to be materially different. We suggest that only 50% of our estimate of the duty be paid at first instance (ie not 50% of what is actually assessed). We will be asking for no penalties and interest up until an assessment has been issued [it has not been issued yet] and then only market rate based interest for period after this. The current market interest rate is 2.69%. [my emphasis] While 50% does not provide complete protection against accruing interest, in our discussions with Brendan [a reference to Counsel advising in relation to this issue - see T 19.22] we talked about recent experiences where the OSR seemed to be more incentivised (particularly in settlement discussions) to resolve a dispute where only partial payments had been made (rather than having to deal with a refund). You would also have the opportunity to revisit the payment amount and we would do so (at least amongst this group) in light of the Commissioner's decision on penalties and interest, the actual amount assessed and the likely time period to resolve the matter. [my emphasis] Can you let me know if you are okay to proceed on a 50% payment basis (ie ~ $3.77mil). [my emphasis]
PwC then responded to the Chief Commissioner by letter dated 30 September 2014: lodging an exempt acquisition statement; making a series of contentions about value (which the Chief Commissioner says were inconsistent with, and lower than, the position taken by the Chief Commissioner); and making payment "without admission and under protest" of 50% of the amount that PwC contended was the value.
The Chief Commissioner places weight on the fact that the plaintiff chose to pay under protest only the amount of $3,609,479.94 (being only half of the lesser figure that PwC had calculated) rather than the amount that the Chief Commissioner had requested (namely, payment of $7,653,000 pending further valuation information), commenting in this regard that the Chief Commissioner had requested payment of a figure less than he thought the duty would be. The Chief Commissioner also argues that the plaintiff's internal documents reveal that the plaintiff was on notice that "some or all" of the "valuation assumptions" contended for by the plaintiff "may be viewed as optimistic". It is submitted by the Chief Commissioner that at this point it was abundantly clear that there was a dispute as to the proper method of valuation (that dispute only being resolved after: several requests for further information by the Chief Commissioner; without prejudice communications over an extended period; and agreement as to value being reached and recorded in a deed of agreement dated 3 June 2016 (see Tab 132, Part B, of the Court Book).
Submissions were made on behalf of the plaintiff in relation to penalty tax and interest. An Assessment Paper dated 24 August 2016 was then issued by the Commissioner; following which, on 16 September 2016, the Assessment was issued.
As noted earlier, the balance of the primary duty was paid on 29 November 2016 (but the amount of the penalty tax and interest was not paid). The Chief Commissioner in the proceedings before Pembroke J sought an order for the payment of those further amounts plus additional interest. (I was not pressed for similar orders so I assume that since the Court of Appeal decision those amounts have been paid by or on behalf of the plaintiff. If that is incorrect, then no doubt an application will be made for any orders now needed as a result of the findings I make in this judgment.)

Relevant provisions

Failure to pay the tax on the due date is a "tax default" under Pt 5 of the Administration Act giving rise to a liability to pay interest (see s 21(1)), as set by s 22(1), and a liability to pay penalty tax on the tax unpaid (see s 26(1)), subject in each case to the operation of the provisions to remission or reduction of those amounts. Those provisions are as follows.
First, as to interest, s 21 ('Interest in respect of tax defaults') and s 22 ('Interest rate') respectively provide that: 21(1) If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day for payment until the day it is paid at the interest rate from time to time applying under this Division. (2) Interest is payable under this section in respect of a tax default that consists of a failure to pay penalty tax under Division 2 but is not payable in respect of any failure to pay interest under this Division. 22(1) The interest rate is the sum of: (a) the market rate component, and (b) the premium component. (2) The market rate component is: (a) unless an order is in force under paragraph (b), the Bank Accepted Bill rate rounded to the second decimal place (rounding 0.005 upwards), or (b) the rate specified for the time being by order of the Minister published in the Gazette. (3) The premium component is 8% per annum. (4) In this section, the Bank Accepted Bill rate in respect of any day within a period specified in Column 1 of the Table to this subsection is the monthly average yield of 90-day Bank Accepted Bills published by the Reserve Bank for the month specified in Column 2 of that Table opposite that period. Table Column 1 Column 2 Period Monthly average yield 1 January to 31 March the preceding November 1 April to 30 June the preceding February 1 July to 30 September the preceding May 1 October to 31 December the preceding August (5) If the monthly average yield of 90-day Bank Accepted Bills for a particular month is not published by the Reserve Bank before the beginning of the relevant period, it is taken to be the same as the last monthly average yield of 90-day Bank Accepted Bills published by the Reserve Bank before that month.
Both the market rate component and the premium component of interest may be remitted (in part or in whole) pursuant to s 25 ('Remission of interest') of the Administration Act, which provides that: The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.
As to penalty tax, s 26 ('Penalty tax in respect of certain tax defaults') provides that: (1) If a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid. (2) Penalty tax imposed under this Division is in addition to interest. (3) Penalty tax is not payable in respect of a tax default that consists of a failure to pay: (a) interest under Division 1, or (b) penalty tax previously imposed under this Division.
Pursuant to s 27, the amount of penalty tax is set (subject to the operation of the Div) at 25% of the amount of tax unpaid. Thus, where there is a tax default the taxpayer is prima facie liable to pay both interest and penalty tax at the rates set by the Administration Act, which is the starting point for consideration of the tax liability. Penalty tax does not carry interest unless there is a default in payment once assessed.
The Chief Commissioner submits that the policy underlying these provisions reflects the fact that the Administration Act treats taxpayers who pay all their tax on time differently to taxpayers who, for whatever reason, do not pay their tax on time; the difference being that interest and penalty tax are prima facie applicable subject to potential reduction by other provisions.
Section 27 ('Amount of penalty tax') of the Administration Act provides that: (1) The amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid, subject to this Division. (2) The Chief Commissioner may increase the amount of penalty tax payable in respect of a tax default to 75% of the amount of tax unpaid if the Chief Commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a taxation law. (3) The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that: (a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or (b) the tax default occurred solely because of circumstances beyond the taxpayer's control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity.
The following provisions (ss 28-29) set out circumstances in which the amount of penalty tax is to be reduced. There is then a general discretion to remit under s 33. 28 Reduction in penalty tax for disclosure before investigation (1) The amount of penalty tax determined under section 27 is to be reduced by 80% if, before the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined. (2) This section does not apply in respect of information disclosed by a taxpayer if the taxpayer is registered under a taxation law and: (a) the tax default involved a failure to lodge a return as required under that taxation law, or (b) the tax default involved a failure to pay tax by the date required under that taxation law. 29 Reduction in penalty tax for disclosure during investigation (1) The amount of penalty tax determined under section 27 is to be reduced by 20% if, after the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined. (2) This section does not apply in respect of information disclosed by a taxpayer if the taxpayer is registered under a taxation law and: (a) the tax default involved a failure to lodge a return as required under that taxation law, or (b) the tax default involved a failure to pay tax by the date required under that taxation law. … 33 Remission of penalty tax The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

Plaintiff's submissions

The plaintiff submits that it took reasonable care to comply with the Duties Act and, accordingly, no penalty tax was payable.
In particular, the plaintiff places emphasis on the decision of the Victorian Court of Appeal in Commissioner of State Revenue v Snowy Hydro Ltd (2012) 43 VR 109; [2012] VSCA 145 (Snowy Hydro) where the Court considered the meaning of "reasonable care" for the purposes of s 30 of the Taxation Administration Act 1997 (Vic) (a provision in relevantly identical terms to s 27 of the Administration Act).
There, the taxpayer had sought legal advice as to whether landholder duty was payable but did not disclose the content of the advice to the revenue authorities (see the decision at [171]). Five months after the relevant transaction occurred, and two months after the duty became payable, the taxpayer requested a private ruling in relation to the transaction (see at [167]; [172]).
The Victorian Court of Appeal unanimously concluded that, in the circumstances, the taxpayer had taken reasonable care within the meaning of s 30(3)(a) (the equivalent of s 27(3)(a)), saying (at [171]) that: First, the seeking of legal advice shows, unambiguously, that the taxpayer wished to know whether it had any obligations under the Act and, if so, what they were. Seeking legal advice was both necessary and sufficient for that purpose.
The Court of Appeal considered (at [171]) that, in the circumstances of that case, the fact that the advice was not disclosed did not "justify any inference that the taxpayer was acting otherwise than in good faith in applying the advice. Nor did the non-payment of the tax"; noting that the question of liability there raised issues of considerable complexity (as, I interpose to note, it clearly did here). The plaintiff here submits that it is implicit in this reasoning that even if the advice had disclosed a real risk that duty was payable that would not (in circumstances where the liability issue was contestable and complex) negate the conclusion that the taking of advice demonstrated the taking of reasonable care (though the plaintiff appears to accept that if the advice were to be definitive that a tax liability existed the position would be different). I read the words "necessary and sufficient for that purpose" at [171] as referring to the purpose of demonstrating the taking of reasonable care. That is relevant, here, insofar as the advice received as to tax liability was qualified and gave rise to the very real possibility (whatever the Seller's or Mr Heston's personal view on this issue may have been) that landholder duty would be payable.
As to the seeking of a private ruling, in Snowy Hydro the Victorian Court of Appeal said (at [172]) that: Secondly, the seeking of a private ruling was a step taken by the taxpayer on its own initiative. It was under no obligation to do so. To do so was, as the Commissioner conceded in his submissions at trial, a prudent step for the taxpayer to take. We accept, of course, that the seeking of a ruling does not postpone the time for payment of duty, but it does further signify, in our view, the taking of care to ensure compliance.
The plaintiff submits that the reasoning of the Victorian Court of Appeal is applicable in the present case. The plaintiff further notes that, in Federal Commissioner of Taxation v Traviati (2012) 205 FCR 136; [2012] FCA 546 (at [36]), it has been said that "reasonable care" requires the taxpayer to take the level of care "a reasonable person would be likely to have exercised in the circumstances of the taxpayer". The plaintiff argues that "reasonable care" does not require a taxpayer to concede all contestable points to the revenue.
The plaintiff argues that it is apparent (from the chronology of events set out earlier) that, prior to the plaintiff's incorporation, both the Seller and TPG had sought and obtained legal advice as to the potential application of the s 163D "primary producer" concession. The plaintiff accepts that the KPMG advice may be considered "superficial" (though arguing that the Chief Commissioner's characterisation of it should not be accepted) but says that the PwC advice was "more detailed"; and that the PwC advice both identified the critical issue (i.e., area or value) and indicated that the issue was uncertain. It is submitted that the fact that the operation of s 163D was uncertain is confirmed by: the OSR communications, the length of time the OSR took to arrive at a position, and the fact that the OSR's initial reasoning was later rejected by it in the August 2013 Assessment Paper. Emphasis is placed on the fact that, to deal with the uncertainty, the Seller applied for a private ruling (on behalf of the plaintiff) before entry into the transaction.
The plaintiff notes that: at the time of its incorporation, the plaintiff or its advisers had been provided with the PwC and KPMG advices, and knew that a private ruling had been sought to obtain certainty on the issue; after the indication on 13 March 2013 that the Chief Commissioner would not issue a private ruling, PwC requested the OSR to confirm the application of the concession; and it was not until 2 September 2014 that the OSR finally confirmed its position. In those circumstances, the plaintiff submits that it took reasonable care to comply with the Duties Act.
In reply submissions, the plaintiff contends that nothing in any of the three South Australian cases referred to by the Chief Commissioner in his submissions (see below at [86]) is inconsistent with the reasoning in Snowy Hydro (see at [25]ff of the plaintiff's reply submissions). It is said that the only point of difference in Pharmos Nominees Pty Ltd v Commissioner of State Taxation (SA) [2012] SASC 24; (2012) 87 ATR 744 (Pharmos Nominees) and Pharmos Nominees Pty Ltd v Commissioner of Taxation (SA) (2012) 113 SASR 487; [2012] SASCFC 89 (Pharmos Nominees Appeal) (decided before the Victorian Court of Appeal's decision in Snowy Hydro) is as to the extent which it is necessary for the taxpayer to disclose the content of its legal advice on the question of reasonable care. The plaintiff accepts that in Snowy Hydro the Victorian Court of Appeal did not say that a taxpayer could in all cases rely on the fact of taking advice without disclosing it; rather, the conclusion there was that on the particular facts of that case, disclosure was not required. The plaintiff notes that this point of factual distinction was observed in the third of the cases referred to by the Chief Commissioner (Dyda Pty Ltd v Commissioner of State Taxation (SA) [2013] SASC 156; (2013) 97 ATR 316 (Dyda)), where the relevant legal advice was not disclosed. The plaintiff submits that, in the present case, where the relevant advice has been disclosed, the South Australian cases provide no basis for distinguishing or refusing to follow the Victorian Court of Appeal's reasoning in Snowy Hydro; and that this Court should follow the reasoning in Snowy Hydro unless convinced it is plainly wrong.
Insofar as there is a suggestion (at [143] of the Chief Commissioner's submissions) that, if duty is not paid, this indicates that reasonable care is not taken, the plaintiff says this is incorrect (see at [31] of the plaintiff's reply submissions). The plaintiff notes that the issue of reasonable care only arises if there is a tax default and hence, it is said, the mere failure to pay is a "given", not a matter relevant to assessing whether reasonable care was taken.
The plaintiff cavils with the proposition (at [144] of the Chief Commissioner's submissions) that the plaintiff should have paid on 27 September 2013 an amount of the duty which it says could not then have been known (and was not known until June 2016) in the following circumstances. First, the PwC advice identified that the existing case law tended to support the area approach; the first KPMG advice was unsupported by any reasoning, and the reasoning in the second KPMG advice merely identified that Ingham's land holdings "may not consist wholly or predominantly of land used for primary production" but gave no reasoning as to why; hence, it is said, the totality of the legal advice indicated a "reasonable, albeit not certain", argument that the concession was available. Second, the Chief Commissioner accepted that the issue was unclear. Third, a private ruling had been requested to resolve the position. Fourth, that after being told by the Chief Commissioner that a private ruling would not be issued, a request was made to the Chief Commissioner to confirm whether the concession was available, and the request was still outstanding as at 27 September 2013 (see at [38] of the plaintiff's reply submissions).

Chief Commissioner's submissions

The Chief Commissioner points to par 25 of the OSR Guidelines on the interest and penalty provisions under the Administration Act (dated February 2014) (the OSR Guidelines) which refers to reasonable care and states: 25 In determining whether reasonable care was taken, all of the relevant facts and circumstances of a particular case are taken into account. The appropriate standard in the circumstances of a particular case is the care that a person in similar circumstances to the taxpayer (including personal circumstances), with the same level of knowledge and expertise would have been expected to take. and also refers to par 26 of the OSR Guidelines, which provides examples of matters that may be taken into account by the Chief Commissioner in deciding whether reasonable care has been taken by a taxpayer in a particular case.
The Chief Commissioner argues that, when considering the question of reasonable care, "it is necessary to recognise that the circumstance which attracted the imposition of the interest and penalty tax was that, for whatever reason, there has been a tax default" (see at [131] of the Chief Commissioner's submissions). It is said that, necessarily, the taxpayer will have failed to comply with the taxation law and, for that reason, it is necessary that the taxpayer should attempt to explain how it came to be that the tax was not paid; "in other words how, despite reasonable care having been taken, the tax default occurred". It is said that, without such an explanation, it is difficult to see how the Chief Commissioner could be satisfied that a taxpayer had taken reasonable care.
Paragraph 27 of the OSR Guidelines deals with situations where external advice is said by a taxpayer to be relevant and states: 27 Where a taxpayer claims to have relied upon incorrect external advice which resulted in a tax default being committed, the taxpayer should provide copies of the correspondence regarding the advice relied upon, or in the case of oral advice, other evidence which proves that the advice was obtained and that the taxpayer took reasonable care in following the advice.
The Chief Commissioner says that par 27 of the OSR Guidelines reflects the fact that he does not accept that the reasoning of the Victorian Court of Appeal in Snowy Hydro (at [171]) should be applied in New South Wales (see at [133] of the Chief Commissioner's submissions). It is submitted that the position taken by the Chief Commissioner in this regard is consistent with: the first instance decision in Snowy Hydro not being applied by Gray J in Pharmos Nominees at [135]; the observations by the Full Court of the Supreme Court of South Australia in Pharmos Nominees Appeal at [80] (the Full Court having been referred to the subsequent Victorian Court of Appeal decision in Snowy Hydro) that: On appeal, Pharmos agitate the same arguments put to the trial Judge [Gray J]. I [Blue J] reject those arguments for the reasons articulated by the trial Judge. While Pharmos was not obliged to disclose the content of its legal advice, it could not rely on the fact that it obtained legal advice on the issue of reasonable care unless it elected to disclose the content of that advice and the fact that, in Dyda, Stanley J (who was a member of the Full Court in Pharmos Nominees Appeal) applied the approach in Pharmos Nominees Appeal in preference to Snowy Hydro (see at [185]-[188]).
The Chief Commissioner submits that the chronology of events set out earlier does not permit a finding in favour of the plaintiff on the issue of reasonable care.
The Chief Commissioner notes that, although the plaintiff initially requested a private ruling, the Chief Commissioner informed the plaintiff that no private ruling would be issued (see the Chief Commissioner's letter dated 13 March 2013) and says that therefore, immediately prior to the date of default on 27 September 2013, the plaintiff understood that the Chief Commissioner would not be issuing a private ruling. The Chief Commissioner points to the correspondence in which the plaintiff was reminded that duty would be payable at the expiry of the three month period after the Acquisition if s 163D did not apply and that, if duty was not paid, a tax default would be committed (see the letter dated 30 May 2013); and says that the plaintiff was also aware (by reference to the issue of the s 72 notices) that an investigation had been commenced.
It is noted that the final date for payment of tax before a tax default occurred was 27 September 2013; that that date passed without an acquisition statement being lodged and without duty being paid; that in February 2014 the plaintiff was aware that the position of the Chief Commissioner was that the exemption did not apply; and that on 2 September 2014, the Chief Commissioner wrote to PwC and requested that duty be paid.
The Chief Commissioner places significance on the fact that, when the plaintiff responded on 30 September 2014, it chose to pay only the amount of $3,609,479.94 rather than what the Chief Commissioner had requested (namely, payment of $7,653,000 pending further valuation information). The Chief Commissioner emphasises that in that regard that he had requested a figure less than he thought the duty would be and that, notwithstanding that request, the plaintiff chose to determine value on a different and lower basis and then paid only half of the duty that it had calculated. The payment was not sufficient to remedy the tax default even on the plaintiff's own calculation of the total amount of duty that would be payable.
The Chief Commissioner argues that the documents point to a "deliberate strategy" outlined by PwC for the plaintiff to "short pay" the amount of duty claimed by the Chief Commissioner so that the plaintiff would been in a better bargaining position later on (referring to the 18 September 2014 email advice).
Insofar as the plaintiff relies upon the lapse of time between the 30 May 2013 letter and 2 September 2014 letters, the Chief Commissioner points out that no request had been made for an extension of time to pay the landholder duty; nor had the Chief Commissioner indicated that the time for payment would be extended. Further, it is submitted by the Chief Commissioner that that gap in time must be understood in the context that the issues raised by the plaintiff by which it sought to justify the primary producer concession were complicated (an acknowledgment to which the plaintiff points in favour of its argument that in all the circumstances reasonable care was taken having regard to that very complexity).
The Chief Commissioner says that the facts relevant to the plaintiff's contention as to the primary producer concession required the Chief Commissioner to carry out an investigation which itself took time; that ultimately the Chief Commissioner ascertained that certain concessions which had been obtained in relation to some of the properties in relation to land tax were not well founded (referring to the Assessment Paper dated 24 August 2016 at [87]-[88] (exhibited to the affidavit sworn 24 August 2017 of Betty Sarkissian, the solicitor with the conduct of this matter for the Chief Commissioner)); and that, once all the facts relevant to the claim for the concession were ascertained, the Chief Commissioner was able to determine that the claim for the exemption was not well founded and that the claim proceeded upon what he considered to be an erroneous approach (being the area approach). (I refer in due course to the decision of the Court of Appeal in this regard.)
It is submitted that the plaintiff had not provided sufficient information to enable the Chief Commissioner to determine the quantum of the duty, in that: valuations to support the land values listed in Appendix A to PwC's 24 January 2013 letter were not supplied until the PwC email dated 19 June 2015 (and the information contained in Appendix A was not supported by evidence nor was it verifiable by the Chief Commissioner until those valuations had been provided); an acquisition statement had not been lodged under s 152(1) of the Duties Act containing the information in s 152(3) (and it was not possible for the Chief Commissioner properly to assess duty until this information had been provided; noting that the obligation was upon the plaintiff to self-assess its liability accurately and pay in order to avoid a tax default). (As previously noted, the plaintiff takes issue with the factual correctness of these propositions.)
The Chief Commissioner further says: that no information relating to the nature and value of New South Wales goods was provided by the plaintiff to the Chief Commissioner despite the plaintiff being under an obligation to do so being imposed by s 152(3) of the Duties Act (which information was specifically identified and requested in the 2 September 2014 letter from the Chief Commissioner); that the plaintiff asserted that this information was not relevant in the PwC letter dated 30 September 2014 on the basis that all the goods were exempt and refused to supply the information at that time; and that the Chief Commissioner had to press for this material, which was said to be a relevant factor going to valuation, in further correspondence over an extended period of time (referring to letters/emails of 4 September 2015, 19 November 2015, 22 December 2015 and 6 January 2016).
The Chief Commissioner gives the overall land value issue as an example "of the lack of complete cooperation" by the plaintiff (see at [140] of the Chief Commissioner's submissions). It is said that the Chief Commissioner needed to consider numerous valuations and valuation material and ultimately determine that several of the properties claimed by the plaintiff to be exempt on the basis that they were primary production land were not in fact primary production land; and that, once that was done, the Chief Commissioner explained his position and sought an agreement from the plaintiff by letter dated 4 September 2015 (at [12]) in order to narrow the outstanding issues that it accepted that the value of Ingham's non-primary production land exceeded the value of its primary production land at the relevant time. The Chief Commissioner submits that it is apparent from material subsequently obtained that the plaintiff was well aware of this fact (and had been since at least 21 January 2013) (pointing to p 4 of the memorandum on landholder duty dated 21 January 2013 from Adrian Green and Costa Koutsis to Mr Wosinski and Ingham) but had failed to provide the confirmation notwithstanding several requests to do so.
Pausing here, the assertion (at [140] of the Chief Commissioner's submissions) that there was a lack of cooperation between the parties is challenged by the plaintiff. The plaintiff says that it was cooperative and had engaged with the Chief Commissioner from late 2012, referring, by way of example, to the following: that the plaintiff engaged with the OSR (including the Chief Commissioner) on multiple occasions (referring to various documents, including email correspondence between the parties and PwC and the plaintiff in the Court Book), "including, it is said, when there was a lack of progress and limited communication" from the OSR; that the plaintiff provided information to the OSR on numerous occasions, "even when that information had already been provided previously" (referring to an email from PwC dated 12 June 2015 sending to Steve Townsend at the OSR a copy of the ruling request lodged; and another email of 14 July 2015 to Mr Townsend providing information requested by the OSR) ; and that it was arranged for the valuer who conducted and coordinated the valuation to fly interstate to meet the Chief Commissioner's officers and legal representative in order to explain the valuation process and answer any questions they had (referring to emails dated 27 May 2015, 4 June 2015 and 5 June 2015, at Part B, Tabs 96, 98 and 100 of the Court Book, respectively).
Similarly, it is submitted by the plaintiff that the submission by the Chief Commissioner (at [142]) that there was insufficient information to determine the quantum of the duty is incorrect. The plaintiff says that, by 30 September 2014 at the latest, when valuations inclusive of values of land holdings and goods were provided, the Chief Commissioner had the necessary information (referring to the documents contained in the Court Book, Part B, Tab 76); noting that the plaintiff lodged an accurate exempt acquisition statement on 30 September 2014 and that the plaintiff had sought advice from Senior Counsel in relation to which form of statement to use and its content. As to the submission (at [150] of the Chief Commissioner's submissions) that the plaintiff failed to provide information for over 15 months, this is said to be overstated. It is said that, in response to the Chief Commissioner's letter of 2 September 2014, the plaintiff's submissions of 30 September 2014 included a valuation of dutiable and non-dutiable property, plant and equipment as well as a valuation of inventory in New South Wales (reference here again being made to the Court Book, Part B, Tab 76).
The Chief Commissioner, nevertheless, maintains that, notwithstanding the written statement of position by the Chief Commissioner in the letter dated 2 September 2014, the plaintiff did not then provide all the relevant information to be able to determine the quantum of the duty, nor did the taxpayer then lodge an accurate acquisition statement and pay the full duty (only 45% of the primary duty now agreed having been paid); that requests for information continued from September 2014 through to January 2016 and only on 12 January 2016 was the specific requested information relating to the goods provided, and says that the conduct of the plaintiff must be considered in that context.
The Chief Commissioner accepts that the plaintiff has pointed to the fact that advice was taken and that a request for a private ruling was made but says that those matters alone are not sufficient to establish reasonable care in the present case. The Chief Commissioner says that the high point of the advice obtained was that there was no certainty and that a private ruling should be sought; that no private ruling was given; and that, by the time the Chief Commissioner made his position clear in writing, whatever uncertainty there might have been as to the position which the Chief Commissioner would adopt had been dispelled yet the plaintiff chose not to make full payment of the duty (and that there was then no reasonable basis not to make payment of the duty and then seek review in due course). In other words, the Chief Commissioner argues that, even if there had been justification for not making payment on the last day for tax default (which he does not accept), that justification had gone by September 2014, the effect of the advice (which has here been disclosed) and the request for a private ruling having by then been spent.
Furthermore, as adverted to earlier, the Chief Commissioner points to the contractual indemnity "and the commercial considerations which that brought to bear" as arguably negating a conclusion in favour of the plaintiff on the issue of reasonable care.
The Chief Commissioner argues that Snowy Hydro does not stand for the proposition that an application for a private ruling is sufficient to establish "reasonable care" and submits that while a request for a private ruling coupled with payment of duty on learning of the outcome of the ruling (subject to objection rights) may go towards establishing reasonable care; that is not what here occurred (as evident from the chronology set out above). Rather, it is said that, here, the plaintiff was aware that the Chief Commissioner would not issue a private ruling.
It is also submitted by the Chief Commissioner that the request made by letter dated 24 January 2013 did not comply with the requirements for private ruling applications set out in 'Revenue Ruling G006' in that it: did not contain the "draft, unexecuted copies of the documents/instruments representing the proposed transaction"; did not contain Form 26; and contained no declaration that disclosure had been made of all material facts and information relating to the private ruling application (it is also submitted, as noted earlier, that not all of the material necessary to assess duty was provided by the taxpayer; and that even when informed in writing by the Chief Commissioner's letter dated 2 September 2014 that the Chief Commissioner did not accept the primary producer exemption applied, the plaintiff still did not remedy the tax default; only the partial payment of 45% of the primary duty was made and still "no proper disclosure of material necessary to quantify the amount of duty" was provided.
Thus, the Chief Commissioner submits that the conduct of the plaintiff does not demonstrate reasonable care to comply with the taxation law even at the time (in September 2014) that there was written confirmation of the position of the Chief Commissioner, and says that, in the period after the part payment on 30 September 2014 the plaintiff "sought to re-agitate the question of the primary production exemption, mounted a valuation argument that PwC acknowledged might be viewed as optimistic and delayed in providing valuation materials requested by [the Chief Commissioner]". The Chief Commissioner takes issue with the proposition that the plaintiff voluntarily provided full disclosure.
The Chief Commissioner's position, ultimately, is that the approach taken (for the partial remission of penalty tax) was to treat the date of tax default not as 27 September 2013 but notionally as the day on which the plaintiff made partial (but not full) payment of the duty (i.e., 30 September 2014). It is said that this had the effect of putting the plaintiff in a better position that it would have been had it received a response to the ruling request and that, insofar as the argument made by the plaintiff is that there was uncertainty as to the approach that would be taken by the Chief Commissioner in relation to the primary producer exemption and, therefore, it was justified in not making payment on the last day to avoid default, the Chief Commissioner's approach to the remission of part of the penalty tax fully accommodates that uncertainty argument.

Determination as to Issue 2 - reasonable care

At the outset, I note that an issue that was debated in oral submissions (having been adverted to in the Chief Commissioner's written submissions) was as to the time at which the taking of reasonable care is to be established for the purposes of s 27 of the Administration Act. The relevance of this goes to the weight (if any) that can be placed (when assessing whether, objectively, reasonable care was taken) on events that occurred after the due date for payment of the duty (including the fact that a deliberate decision was made not to pay the duty after the Chief Commissioner had indicated that a private ruling would not be given and after the receipt of advice that raised the question whether the cost of funds might be a relevant factor to be balanced against the possibility of the later imposition of interest and penalty tax; and the suggestion that an amount was withheld in order to provide some leverage in negotiations with the Chief Commissioner to settle the dispute). That issue arose in the following context.
The plaintiff submitted, as noted above, that it had exercised reasonable care to comply with the taxation law in circumstances where: there was uncertainty as to the liability for landholder duty; the issue was complex (as, I note, is indicated by the fact that in the Court of Appeal the reasoning of the respective members of the Court differed for the conclusion that the primary producer concession did not apply); there was also uncertainty as to the quantum of duty if in fact a liability to landholder duty were to have arisen; legal advice had been sought (which, I interpose to note, was not conclusive); the Chief Commissioner had indicated that he would not make a ruling (first, because the person applying for the ruling was not the taxpayer and, second, because the Share Sale Agreement had by then been entered into); the Chief Commissioner had not made a formal decision at that stage as to whether the primary producer concession applied, and had indicated that the matter would proceed to assessment of duty (in which context an application for exemption could be made); and PwC did apply for the exemption (see the letter dated 4 April 2013 from PwC to the OSR (attention of Mr Malcolm Druery and Mr Barrie Browning) at Tab 27, Part B, of the Court Book) by asking the Chief Commissioner to confirm that s 163D applied to Ingham (i.e., it is said, restating the ruling request as the form of exemption request).
The plaintiff submitted that the proposal to seek a ruling/exemption was a genuine attempt to resolve the uncertainty upon which PwC had advised prior to the transaction being entered into and that, as this issue was not something upon which advice could be given firmly one way or the other, the plaintiff was in the difficult position of not having firm advice as to what its obligations were but, having been told that the way to resolve the uncertainly was to seek the ruling, had done so. It was submitted that the plaintiff's approach to resolving the issue as to whether duty was payable was reasonable in that the matter was brought to the attention of the Commissioner months in advance of entry into the Share Sale Agreement (and well before the duty arose) and that the combination of taking advice (as long as that advice was not negative) and then approaching and seeking confirmation from the Chief Commissioner as to the duty liability was sufficient to constitute the taking of reasonable care.
In the course of those submissions, Senior Counsel for the plaintiff submitted that the issue as to whether there was reasonable care was to be determined as at the time of the tax default (i.e., failing to lodge an acquisition statement and to pay the duty on 27 September 2013) (see T 39) and said that it should be concluded that "the taxpayer took reasonable care in the decision it made not to pay the duty at that time". (Senior Counsel for the Chief Commissioner took issue with the proposition that the relevant time for determining the question of reasonable care was the time of the tax default, noting (at T 51-52) that what is required is reasonable care to comply with the taxation law and submitting that, on and from 27 September 2013 (until payment of the duty) there was a continuing default. Thus, it was submitted that account could be taken (in determining the issue of reasonable care) of the evidence that suggested that the plaintiff had made a calculated decision (at least by September 2014, if not earlier in February 2014, when it knew the Chief Commissioner would not grant the exemption) not to pay the duty (T 57) (see above at [54]).)
The plaintiff argued that the continuing default proposition (which the plaintiff maintains is a "novel proposition" (T 67.25)) cannot be correct in that the penalty tax provisions operate if there is a "tax default" and that, if the Chief Commissioner's argument were correct, then every day after the taxpayer failed to pay the duty there would be a further penalty of 75% while it was continuing (i.e., the penalty for intentional disregard would be recurring every day that the taxpayer failed to pay the duty). It was submitted that s 26(1) of the Administration Act indicates when the liability arises (on the happening of tax default, i.e., here non-payment on the due date and failure to lodge an acquisition statement), and that this is when the 25% penalty tax liability also arises (noting that non-payment after the due date is dealt with by interest and the penalty applied to interest).
I accept the plaintiff's submissions in this regard. I consider that this follows from the opening words of s 26(1) of the Administration Act ("[i]f a tax default occurs"). What s 27(3) of the Administration Act focusses attention on is the tax default in respect of which the 25% penalty would prima facie apply; not a fresh default occurring each day the tax remains unpaid. Ultimately, however, it is not necessary to reach a final view on this issue because I do not accept that reasonable care has been established as at 27 September 2013 in any event.
The chronology of events has been set out in some detail above. Relevantly, if all that is to be considered is what occurred up to and including 27 September 2013 (the date by which duty was to be paid if a tax default were to be avoided, assuming as was later established that the primary producer exemption was not available), then the position is largely as the plaintiff has submitted, namely: that the plaintiff was aware that there was a risk that the primary producer exemption would not be available and that, if it was not, landholder duty would be payable; the plaintiff had taken reasonable steps to clarify the position in that regard (by taking advice from KPMG and PwC and by seeking a ruling on the issue); but the position remained that there was a real possibility that landholder duty was payable.
The plaintiff argues that it was not required to concede all contestable points to the revenue; and I accept that that is so. However, when looking at the question of reasonable care to comply with the taxation law, it seems to me that it is not sufficient simply to take the (eminently reasonable) steps of obtaining advice and seeking a ruling. It is necessary to ask what would be required by way of reasonable care to comply with the taxation law, having regard to the advice that was in fact received. The plaintiff in effect acknowledges this, insofar as the plaintiff accepts that, if the advice had been negative, then it would (or might) have difficulty establishing its argument on reasonable care. But the fact is that, although not wholly negative (in the sense that the advice was not that landholder duty was undoubtedly payable), the advice (at least that given in writing and I am not satisfied that the evidence establishes any oral advice to the contrary) was clearly qualified in its terms. The opinion of Mr Hexton, which I have no doubt was genuinely held by him, does not take matters any further. The plaintiff was certainly not being told that there was no potential liability to landholder duty arising out of the transaction. What had been said, quite clearly, by KPMG (whether for correct reasons or otherwise) was that the prospects for claiming the primary production in New South Wales were low; and, by PwC, that it might be "difficult to support" an argument that the landholdings predominantly comprised land used for primary production (and, hence, that there might be difficulty establishing the primary production exemption).
I do not consider that Snowy Hydro compels a conclusion that reasonable care was taken in the present case (since it addresses a quite different factual scenario). It certainly supports the conclusion that up to a point reasonable steps were taken to ascertain whether there was a liability for landholder duty. However, it does not lead to the conclusion in this case that the course adopted by the plaintiff when those steps failed to produce a conclusive (or even most probable) answer (namely the decision not to pay the duty) amounted to the taking of reasonable care to comply with the taxation law (and to avoid a tax default).
There is no doubt that the issue of applicability of the concession was one as to which there was a high degree of uncertainty. That is reflected in the differing views in the Court of Appeal. Each of the members of the Court of Appeal considered that Ingham's landholdings in all places did not predominantly comprise land used for primary production purposes but Leeming JA and Emmett AJA respectively preferred a qualitative or evaluative approach to the relevant question (Leeming JA considering the question to be informed both by the relative value and relative area of land which is exempt from land tax (at [28]); Emmett AJA considering that an assessment of the activities deemed to be carried on by the landholder and the relative importance of such activities on the various uses of the landholdings must take place (at [194]); whereas White JA preferred a qualitative approach (see [53]-[58])). (The Chief Commissioner had contended for a value of landholdings approach; the plaintiff for an area of landholdings approach.)
There was also uncertainty at the relevant time as to the quantum of duty.
However, insofar as the plaintiff points to the uncertainty not only as to whether the exemption was available at all but also as to what the quantum of duty would have been, the answer to that seems to me to be that the plaintiff chose not to lodge an acquisition statement or exemption statement on the date any landholder duty arising from the completion of the Share Sale Agreement would have arisen and did not seek an extension of time in that regard. Insofar as the question is as to what a reasonable taxpayer in the position of the plaintiff would have done in exercising reasonable care to comply with the taxation law at that point (particularly having regard to the fact that it was in a position financially to meet that liability), I consider that more was required once it was apparent that there would be no ruling by the date on which any duty was payable.
Moreover, the plaintiff had been put squarely on notice by the Chief Commissioner (in his letter of 30 May 2013) that the plaintiff risked committing a tax default if landholder duty was not paid within three months of the date of completion of the Share Sale Agreement. All of this was before the date on which the tax default occurred, as was the request from the Chief Commissioner for the provision of information (on 26 August 2013) from which it must have been perfectly obvious that the Chief Commissioner had not by that stage accepted that the primary producer exemption applied (not least because he was seeking valuations of the landholdings and business of Inghams and the plaintiff correctly assumed this was in the context of assessing the tax or potential tax liability).
Accordingly, I have concluded that the plaintiff has failed to establish the taking by it of reasonable care to comply with the taxation law as at 27 September 2013.
Were the Chief Commissioner's argument (that reasonable care can be tested after the date of the tax default where the tax default is continuing) to be accepted, the position for the plaintiff becomes even more difficult to maintain on the reasonable care issue. That is because it is crystal clear from the communications referred to above that: the plaintiff knew as at February 2014 that the position of the Chief Commissioner, based on the advice that had been received from the Crown Solicitor, was that the primary producer exemption did not apply and that an assessment would be issued; as at September 2014, the Chief Commissioner had confirmed his position in writing to that effect; and PwC had advised that its estimate of the duty was approximately $7.54 million (and had suggested the option of paying only 50% of its estimate of the duty at the first instance, seemingly with a view to incentivising the Chief Commissioner in anticipated future settlement discussions).
It is clear at that point that what was being made was a decision whether or not to pay the duty requested by the Chief Commissioner based on an assessment of a number of matters, including the holding cost of the money available to the plaintiff for the payment of the duty (and that decision was made in the knowledge that interest and penalty tax might ultimately be payable).
Thus, were the position to be approached as at a time after February 2014, the lack of reasonable care would have been by far the clearer. That said, I do not take into account the events after 27 September in reaching my conclusion on Issue 2. (They are, however, in my opinion relevant when one comes to the exercise of a general discretion to remit penalty tax, which I consider in relation to Issue 4 below.)

Issue 3 - disclosure before an investigation

Section 28(1) of the Administration Act provides for an 80% reduction in any penalty payable under s 27 if, before the "Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined". The section does not apply if the taxpayer is registered under a taxation law and the tax default involves a failure to pay tax by the date required under that taxation law (s 28(2)(b)).

Plaintiff's submissions

The plaintiff submits that it is clear that what the taxpayer must be informed of (for the purpose of s 28) is that "an investigation relating to the taxpayer is to be carried out".
The plaintiff submits that it was not informed it was being "investigated" until 24 August 2016, when the OSR issued its Assessment Paper, which stated that the OSR had commenced investigating the plaintiff "after the completion date of the [Share Sale Agreement] had passed" (citing [24] of the Assessment Paper at Tab 134, Part B, of the Court Book), and that, by that time, the plaintiff had already disclosed in writing all the relevant information that enabled the Chief Commissioner to issue the Assessment Paper.
Insofar as the position of the Chief Commissioner is that the plaintiff was informed of the investigation on 26 August 2013, when it was provided with a s 72 notice requiring the provision of information and documents, the plaintiff says that whether a s 72 notice informs a taxpayer that an investigation relating to the taxpayer is being carried out depends on the content of the notice in the particular case (referring to Chief Commissioner of State Revenue v The Ettamogh Mob Australia Pty Ltd [2005] NSWADTAP 53; (2005) 61 ATR 200 at [97]). In the present case it is submitted by the plaintiff that there is nothing in the notice to the plaintiff that informs it that an investigation relating to it was to be carried out. Rather, it is said, the notice merely requests two categories of non-contentious documents in the context of an outstanding request by PwC for the Chief Commissioner "to confirm that section 163D was [sic] applies to Ingham".
It is accepted that an inference that the plaintiff was aware that the Chief Commissioner was undertaking "work" was available, but the plaintiff argues that that it is not the same as an inference that the plaintiff was aware it was under investigation. Further, the plaintiff points out that the statutory question is not whether the plaintiff was aware that it was under investigation, but when the Chief Commissioner informed the plaintiff that an investigation is to be carried out.

Chief Commissioner's submissions

The Chief Commissioner points to the issue of the s 72 notices on 26 April 2013, noting that Div 2 of the Administration Act, containing s 172, is headed "Investigation". It is submitted that the issuing of such notices spoke "eloquently" of the fact that an investigation was being carried out for the reason that the compulsory powers pursuant to the division relating to investigation were being exercised (see Chief Commissioner's submissions at [103] and [149]) (a submission dismissed by the plaintiff as "fanciful" - see plaintiff's reply submissions at [40]). Further, it is said that the notice to the plaintiff in this case made it clear the request was for the purposes of determining the tax liability of the plaintiff. The Chief Commissioner argues that "[i]t does not require much of a leap to infer that, objectively, Ingham and the plaintiff must have been aware by that stage that an investigation or "work" by the defendant was underway"; maintains that it would be sufficient if PwC was so aware; and submits that, as experienced advisers, that is the appropriate inference to be drawn from having received and advised on a notice under s 72 (see Chief Commissioner's submissions at [103]).
The Chief Commissioner argues that the content of the s 72 notices reinforces his position that they operated to inform the taxpayer of the investigation and points to the response from TPG (referred to in the chronology set out earlier) which indicated that TPG (and by extension the plaintiff) "plainly understood" that the request was for "the purpose of determining the tax liability or the potential liability of [the plaintiff]".
The Chief Commissioner says that the failure of the plaintiff to provide disclosure of "sufficient information to enable the nature and extent of the tax default to be determined" prior to the issue of the s 72 notices on 26 August 2013 forecloses any claim that the plaintiff is entitled to any reduction in penalty tax by reason of s 28(1). It is said that the failure of the plaintiff to provide requested information on the nature and value of New South Wales goods for over 15 months, despite repeated requests after an investigation was commenced, is also a relevant factor. (As noted above, the plaintiff cavils with both those propositions.)
The Chief Commissioner says that the Chief Commissioner's investigation into value was overtaken by the execution of the Deed of Agreement as to Value; and that it is likely that further information would have been requested from the taxpayer had the agreement not been reached. It is said that if further information were required to enable the determination of the amount of duty payable, this would have afforded a further ground for rejecting the application of s 28(1).

Determination as to Issue 3 - disclosure before investigation

On this issue, I consider it significant that what is required in order to enliven the reduction in penalty tax provided by s 28 is that there has been disclosure and provision of sufficient information to enable the nature and extent of the tax default to be determined by the Chief Commissioner before the Chief Commissioner "informs the taxpayer that an investigation relating to the taxpayer is to be carried out". I accept that the section imposes no obligation on the Chief Commissioner to inform the taxpayer of any investigation (as the Chief Commissioner has pointed out) but the consequence of not doing so is simply that the guillotine does not fall (so as to speak) in terms of reliance on s 28(1) until the Chief Commissioner does so.
It is not sufficient, in my opinion, that the taxpayer becomes aware by some means (or by necessary implication) that there is an investigation being carried out. The section is drafted in the active voice. What is required, in my opinion, for the section to operate (having regard to the ordinary meaning of the words used therein) is that there be something that expressly (or, I would accept, by necessary implication) "informs" the taxpayer that an investigation relating to the taxpayer "is to be carried out". I note that the section does not confine the investigation of which the taxpayer must be informed beyond the words "relating to the taxpayer". (It might, therefore, be a moot point as to whether informing the taxpayer of an investigation in general is sufficient or whether what is contemplated is the taxpayer being informed of the particular investigation in question. There might also be a question as to whether the prospective terminology used in the section ("is to be carried out") renders the section inapplicable once an investigation is underway - though I was not addressed in submissions on this possible construction of the section.)
In other contexts, where a taxpayer is required to be notified of something (such as the revocation of a tax assessment - see Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd [2019] NSWSC 129 (Armstrong Scalisi)), debate has arisen as to whether the statutory language there being considered makes the written notice indispensable to the validity of the act in question; and as to whether there must be an express statement in the written notice or it is sufficient that the notice indicate or convey to the reasonable reader that which must be notified (see the debate in Power v Federal Commissioner of Taxation [2013] NSWCA 428; (2013) 284 FLR 42, to which reference was made in Armstrong Scalisi). Strict compliance with a particular form of words may not be necessary (see Maritime Union of Australia v Minister for Infrastructure and Regional Development (2015) 238 FCR 464; [2015] FCAFC 187 at [67], [76] and Roads and Maritime Services v Desane Properties Pty Ltd [2018] NSWCA 196, in both of which a failure to comply precisely with the respective legislative requirements did not result in invalidity).
In the present case, there is nothing to indicate that the process by which the taxpayer is informed is to be in writing. It would, therefore, arguably be sufficient for the taxpayer to have been informed orally of an investigation in order to set the time after which disclosure will not have the consequence for which the section provides.
The position is complicated here, in my opinion, by the fact that at the time that the s 72 notices were issued (i.e., August 2013), there was an extant request for an exemption ruling. While the s 72 notices were issued pursuant to a power contained in a part of the Act dealing with "Investigations", it is not implausible that a recipient of the notice in the position of the plaintiff would have understood the request as relating to the request for confirmation as to the application of the primary producer exemption and not to an "investigation relating to the taxpayer" as such. The response to the notice is consistent with an understanding of that kind (though I accept that the question does not turn on the taxpayer's, subjective understanding of what has been conveyed).
I have concluded that the issue of the s 72 notices did not "inform" the plaintiff that "an investigation relating to the [plaintiff]" was to be carried out (or was then being carried out). The Chief Commissioner in oral submissions accepted that, if the s 72 notices did not so inform the plaintiff, then there was no such notification at any time before the Assessment i.e., the only act on which reliance was placed by the Chief Commissioner as relevantly "informing" the plaintiff was the issue of the s 72 notices (see T 62). Nor was it contended that s 28(2) was applicable.
In those circumstances, the conclusion that follows in my opinion is that s 28(1) is applicable since the very fact of the issue of the Assessment must in my view carry with it the necessary conclusion that, by September 2016, the Chief Commissioner had "sufficient information to enable the nature and extent of the tax default to be determined" (notwithstanding the Chief Commissioner's complaint as to delay in or inadequacy of information provided at the time the request for a ruling - a complaint which does not need here to be determined) and that information had been disclosed to the Chief Commissioner by the plaintiff (or the legal advisers acting on its behalf) in writing.
The consequence of that is that I consider that the plaintiff has established that s 28(1) applies and there is to be an 80% reduction in the 25% penalty otherwise payable under s 27 by reason of the operation of s 28(1).
Given the basis on which the Chief Commissioner allowed a partial remission of the 25% penalty tax (to treat the notional default as being on 30 September 2014 not the date of the actual tax default), I consider that such reasoning no longer has force once the penalty tax is to be reduced by 80% (i.e., to only 20% of the 25% penalty tax otherwise applicable).
I therefore consider that the 80% reduction should operate on the pre-remission (25%) penalty tax (i.e., leaving aside the partial remission that the Chief Commissioner was prepared to allow) and I would allow no further remission of penalty tax beyond that.
As I was not expressly addressed on this during the course of oral submissions, I will give the parties an opportunity to be heard on this issue if they wish before making final orders.

Plaintiff's submissions

The further alternative submission by the plaintiff was that, if I were not satisfied that it took reasonable care, then there should nevertheless be an exercise of the discretion in s 33 of the Administration Act to remit the whole, or alternatively some lesser part, of any penalty payable (the plaintiff arguing that this remission should be in addition to the existing partial remission by the Chief Commissioner of the 25% penalty otherwise payable) (see plaintiff's submissions at [70]).
In support of that submission the plaintiff again relies on the chronology of events set out above and its submissions based thereon. It is submitted that, even if the steps taken do not amount to reasonable care, they demonstrate an intention on the part of Ingham and the plaintiff to ascertain as quickly as possible the amount of any landholder duty payable in circumstances where the issue was complex and uncertain.

Chief Commissioner's submissions

As noted earlier, remission of part of the penalty tax was determined by the Chief Commissioner on the footing that the penalty tax not be assessed on the full amount of the tax default as required by s 27(1) but be assessed instead (by way of a partial remission) on the amount of the tax default after allowing for the part payment made the year after the date of the tax default. The Chief Commissioner submits that the fact that the plaintiff did not provide all the relevant information as to value gave rise to a further element of the above remission (which is favourable to the plaintiff); in that it is said that, had the penalty tax been able to be assessed as at 30 September 2014, it would have been paid within 14 days or interest would have run on the penalty tax from that date. The Chief Commissioner argues that the failure of the plaintiff to provide information which permitted an assessment of the correct amount of duty to be paid as at 30 September 2014 has produced that benefit to the plaintiff. The revenue would have had the amount of $1,091,648 in 2014 or would have been entitled to interest had it not been paid (see Chief Commissioner's submissions at [153]).
In these circumstances, it is submitted that the remission already provided by the Chief Commissioner is sufficient (indeed, the Chief Commissioner says it is "arguably generous" - Chief Commissioner's submissions at [154]) and that there should be no further remission (consistent with the policy underlying the provisions of the Administration Act).

Determination as to Issue 4 - remission of penalty

I consider that, having regard to the conduct of the plaintiff particularly in the period after February 2013 (in taking a conscious decision, albeit based on the fact that there was an exemption ruling application before the Chief Commissioner at the time - as Mr Hexton emphasised in cross-examination - not to pay more than 50% of the duty as assessed by PwC), no further remission of the penalty tax beyond the partial remission already made (which addressed adequately the period of uncertainty and delay in the Chief Commissioner reaching a final decision on the issue) would have been warranted. As it is, that conclusion is reinforced by the view I have taken as to the operation of s 28(1) in the present case. I do not see that any further remission is warranted in circumstances where it seems clear that, by the time of the PwC advice as to the alternative options, a calculated decision was being made as to the cost benefit of each course of action in the full knowledge that there was a real risk that tax was payable. See, for example the email dated 27 September 2013 by Mr Hexton to Mr Brooks referred to earlier.

Issue 5 - interest

As noted earlier, under s 21 of the Administration Act, a taxpayer is liable to pay interest from the time of a tax default on the amount of the unpaid debt. The interest rate is specified in s 22 of the Administration Act and is the sum of the "market rate component" (effectively the Bank Bill rate) and the "premium component" (8% per annum). Pursuant to s 25 of the Administration Act, the Chief Commissioner may remit the market rate component or premium component or both.
In assessing the interest payable by the plaintiff, the Chief Commissioner remitted 50% of the premium component in the period between the date of the tax default (27 September 2013) and the date of the part payment of primary duty on 30 September 2014 as a result of the Chief Commissioner's delays during that period.
At [174] of the Assessment Paper, the lapse of time before the Chief Commissioner provided its formal written position in the letter of 2 September 2014 was given as the reason that there was a partial remission of the premium component by 50% in the period from the date of the tax default (i.e., 27 September 2013) to the date of the part payment (i.e., 30 September 2014). This remission of the premium component represents a concession of $322,539.25.

Plaintiff's submissions

The plaintiff submits that there should be further remissions of the interest as follows.
First, it submits that, in relation to the premium component, for the reasons advanced in relation to Issues 2 and 4, it took reasonable care. It is noted that the OSR Guidelines accept that it would be appropriate to remit the premium component where a taxpayer takes reasonable care or where there is a voluntary disclosure before notification of an investigation (see the OSR Guidelines at par 21). The plaintiff, thus, submits that the Court should remit the premium component of interest to nil.
Second, in relation to the market rate component, it is said that there were significant periods of delay and inaction by the Chief Commissioner in the 3 and a half year period between lodgement of the private ruling application on 24 January 2013 and the issue of the Assessment on 16 September 2016. It is submitted that it is not appropriate for the Chief Commissioner to obtain interest on money where a significant part of the reason for the Chief Commissioner not receiving the money is the Chief Commissioner's own delay. Accordingly, the plaintiff submits that the Court should remit the market rate component of interest during the period between 27 September 2013 and 30 September 2014.

Chief Commissioner's submissions

Insofar as the plaintiff seeks a further remission over and above that on the footing that it took reasonable care or that there was voluntary disclosure before notification of the investigation, the Chief Commissioner says that those matters (dealt with in the submissions in relation to Issues 2 and 3) should not be an independent basis for a further remission.
In relation to the market component of interest, the Chief Commissioner notes that one purpose of the market rate component is to compensate the revenue for not having the benefit of the tax payment and correspondingly to not allow a taxpayer who has held the funds constituting the duty which should have been paid to have the benefit of having that interest on those funds during such period.
The Chief Commissioner says that one purpose of the market rate component of interest is to compensate the State Revenue for not having the benefit of tax payment from the time it was due and that it rarely, if ever, should be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time (referring to Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19; (2004) 56 ATR 82 at [60]). The OSR Guidelines state that this component of interest will only be remitted in "exceptional circumstances" (at [20]) (and see Trust Co. of Australia Ltd v Chief Commissioner of State Revenue (NSW) [2002] NSWADT 21 at [27]). Paragraph 19 gives examples of situations in which the market rate component ordinarily would not be remitted. Paragraph 20 gives examples of some situations in which the market rate component might be remitted.
The Chief Commissioner says that the market rate component is set at a very low rate (not a commercial rate of interest) and is applied on a simple not compound basis. It is said that one function of the premium component is that it recognises that taxpayers may receive higher returns on investment than the market rate. It is recognised that taxpayers may "invest the money in schemes and projects that have higher potential earnings; and may be content to carry the late payment surcharge were it only at the market rate" (see Incise at [61]).
In relation to the previous interest component, it is noted that the rate of premium interest is fixed by s 22(3) of the Administration Act; it does not change in accordance with prevailing economic conditions as does the market rate under s 22(2)(a). The Chief Commissioner says that this indicates that a function of the premium component is to provide an incentive to pay duty in a timely fashion and a key disincentive to delaying payments. In relation to the premium component the OSR Guidelines at par 21 indicate that where there is evidence that the taxpayer has taken reasonable care to comply with the taxation law or where a voluntary disclosure was made before the commencement of the investigation the premium component may be remitted.
In the present case, it is said that the email of 17 September 2013 and the further email of 18 September 2014 (see the chronology of events earlier) indicate that the plaintiff took into account the benefit of withholding payment due to the cost of funds and had that as a consideration for not making a payment of duty.
The Chief Commissioner cavils with the plaintiff's proposition (in its submissions at 75) that the period of three and a half years was attributable to the Chief Commissioner, arguing that, for very large parts of that time, the plaintiff was not providing material requested by him (giving as an example that the material in order to value the goods had been requested in 2014 and was not provided by the plaintiff until 2016 despite numerous follow-up requests) (Chief Commissioner's submissions at [159]). In any event, it is said that the plaintiff has had the benefit of holding the amount of money representing the duty and that part of the reason for not paying it was the fact that it took into account its own cost of funds.

Determination as to Issue 5 - Interest

For the reasons put forward in the Chief Commissioner's submissions I consider that no remission of the interest beyond that already granted should be made.
I have already noted my conclusion as to the reasonable care aspect of the matter (on which reliance is placed for the submission that the premium component of interest should be remitted to nil) and I do not consider that the OSR Guidelines as to voluntary disclosure before notification of an investigation squarely address the present situation. Moreover I consider that the delay in determination by the Chief Commissioner of the exemption ruling does not counterbalance the calculated decision made by the plaintiff not to pay the duty in the period between 27 September 2013 and September 2014 such as to warrant a further reduction (from the 50% reduction of the premium component of interest already given for that period).
As to the market rate component, I accept that the purpose of this is to compensate the revenue for the loss of the duty. Moreover I take into account that the plaintiff had the benefit of funds available to pay the duty had it chosen to do so. That said, if any part of the interest component relates to interest on the penalty tax as assessed (and I do not understand this to be the case) that would presumably need to be varied in light of the conclusion I have reached as to the s 28(1) reduction of the penalty tax. I will seek submissions on this issue.

Issue 6 - Costs

Finally, as to the costs of the first instance proceedings, ordinarily they should follow the event (in which, as to landholder duty, the Chief Commissioner ultimately succeeded). However, the plaintiff submitted that, as the precise form of any relief would depend on the analysis of the various issues here being considered, it would be appropriate for the parties to bring in agreed orders (including as to costs) having regard to the Court's reasons. I consider that course to be eminently reasonable.
Again, in the absence of special circumstances, costs of the remittal hearing should follow the event. There has been a partial success for the taxpayer but how that sounds in terms of ultimate quantum I have not calculated. The course proposed above should be followed in this respect also.

Orders

For the above reasons, I have concluded that reasonable care to comply with the taxation law as at the date of the tax default has not been established (Issue 2); that the entitlement to a reduction in penalty tax pursuant to s 28(1) has been enlivened (Issue 3), such reduction to be of the full (pre-remission) 25% penalty - i.e., 80% of the 25% penalty tax otherwise payable; and that in light of that reduction no further remission of penalty is warranted); nor is any further remission of penalty tax (Issue 4) or interest (Issue 5) warranted. Issue 6 is to be determined either on the basis of agreed short minutes of orders or on the basis of brief written submissions, preferably on the papers, following the publication of these reasons, as will be the issue of costs of the remittal hearing itself. I will permit the parties to address orally if they wish, any further submissions they wish to make having regard to the conclusions I have reached in relation to Issue 3.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 June 2019

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Judgment (24 paragraphs)

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