Ground 4
40 Ground 4 was that the notice was misleading, confusing and incomplete.
41 Justice Hill (with whom Burchett J agreed) summarised the legal position in Fieldhouse (above) at 208:
No doubt in part because of the severe sanctions that may become applicable in the case of a failure to comply with a notice under the section, but in part also because a request to supply information, attend and give evidence or produce books and documents etc is a considerable intrusion upon the privacy of the individual to whom a notice is addressed, there is a requirement that a notice identify with sufficient clarity any documents which are required to be produced: Commissioner of Taxation (Cth) v ANZ Banking Group Ltd, (1979) 143 CLR 499 per Gibbs ACJ (at 525). Where information is required by the section to be furnished, the request for information should be so framed as to be sufficiently clear to convey to the addressee what information is sought and a notice which was unintelligible would obviously be bad. However, it does not follow from this that the question of the validity of a notice should be approached carpingly by engaging in a narrow analysis of each word in an attempt to find some latent ambiguity in it. Rather the approach to be adopted is to ask in respect of any particular request whether a reasonable man in the position of the addressee of the notice can fairly comply with it and not be thereby exposed to the possibility of penalty for non-compliance having regard to the manner in which the notice is formulated.
42 In Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 Mason J at 537 observed that the recipient of a notice is required to determine for himself or herself what must be done to comply with the notice. His Honour acknowledged that the task may be difficult and that a wrong decision may expose the recipient to prosecution or penalty. The fact that the task may be difficult does not render the notice invalid for lack of clarity.
43 A question arose before me as to whether it was or was not an answer to the notice for the applicant, an individual who was both the recipient of the notice and the taxpayer, to say, truthfully, "I don't know." Leaving aside the case where the recipient was not capable of complying with the notice, the applicant submitted a notice issued under s 264(1)(a) did not allow the recipient to respond by saying "I don't know." The applicant relied on Smorgon v ANZ Banking Group Ltd (1976) 134 CLR 475 and on the principles summarised by Greenwood J in Hart v Commissioner of Taxation (2005) 148 FCR 198 (Hart) at [100]:
100 The notice to Mr Hart is addressed to him in his capacity, properly construed, as a principal of the firm and sole trustee of the Cleary Hoare Practice Trust which is the proprietor of the business Cleary Hoare, Solicitors. . . . There is nothing in the authorities which limits the power conferred by s 264(1)(a) to information within the knowledge of the specific individual. Mr Hart is in a position to draw together, through the resources available to him, the information concerning implementation arrangements undertaken by the firm. The notice, on that ground, is not beyond power.
44 In the preceding paragraph in Hart, Greenwood J referred to the judgment of Stephen J in Smorgon (above) at 481-482 where Stephen J said:
When, as here, what is in question is not so much the seeking of admissions but rather a process of cross-examination, taking the form of responses to questions posed by the Commissioner or his representative, it seems an improbable legislative intent that some "proper officer", or even the corporation's "public officer" for tax purposes, should, on the corporation's behalf, respond to such questions. Not only might he know nothing at first hand about the matters inquired after but he would seem to be under no obligation to inform himself of them. Even were he to do so his evidence would, at best, be at second hand.
What s. 264 (1) (b) is designed to do is to permit the Commissioner to gain access to the knowledge residing in men's minds. A corporation can possess knowledge only because of its existence in the minds of those who direct its affairs and serve its interests. It is surely to them personally, and at first hand, that the Commissioner must direct his questions when it is about the affairs of a corporation that he wishes to elicit evidence. I would interpret the first part of par. (b) accordingly and confine its operation to natural persons, treating the context as revealing a sufficiently clear intention that "person" in s. 264 (1), when applied to the first part of par. (b), does not refer to other than natural persons.
Such an interpretation gives no unduly narrow operation to the first part of par. (b). The Commissioner remains free to serve notices upon natural persons in any way concerned with the affairs of the corporation. They must attend and may be questioned as to their own knowledge of the corporation's affairs; if it turns out that they do not possess the relevant knowledge they can no doubt be required to identify those who do have that knowledge and those others may then, in turn, be required to appear and give evidence.
45 Thus Stephen J treated the first part of s 264(1)(b) as having no application to corporations.
46 It was submitted that the applicant in this case was not in a position to answer the notice and that could be inferred simply from the ledgers that indicated the loans had been on foot for so many years.
47 The respondent submitted, on this point, that there was nothing in the text of s 264 or the statutory context that would support the submission that a recipient of such a notice could not say, "I don't know. I can't provide that information". Neither Smorgon (above) nor Hart (above) were authority for that proposition. In Smorgon Stephen J was addressing s 264(1)(b) not, as here, s 264(1)(a). More importantly, his Honour was addressing the question of construction whether a company could be required to attend and give evidence pursuant to s 264(1)(b). Here the notice was served on the applicant as an individual and she either knew or she did not know. She either had the documents or she did not have the documents. She could, if she wished, make inquiries and answer the questions, but if the inquiries she made turned to naught, then she should answer accordingly, and there was nothing to stop her from doing so. If she did answer "I don't know" and that was accepted as an honest answer, she could not be prosecuted under s 8C of the TAA because she had answered the notice to the extent that she was capable of doing so.
48 In reply the applicant submitted the reasoning of Greenwood J in Hart (above) was not so limited as to say that it was only necessary to make an inquiry if the s 264 notice was directed to you in a particular capacity. The only defence under a s 264 notice was that the person was not capable of complying with the notice. It would be unlikely that a person could say he or she was not capable of complying with the notice because they did not even make any inquiries.
49 I reject the submission that I should infer that the applicant in this case was not in a position to answer the notice. No evidence was adduced to that effect.
50 Thus the somewhat abstract issue is what is the obligation, if any, on an individual recipient of a notice to gather any information sought or find the documents within her custody or control.
51 In Hart (above), Greenwood J construed the notice as not seeking out information within the knowledge only of the recipient of the notice as an individual but calling upon him to provide information of the firm about those clients of the firm for whom the arrangements in question had been implemented. As I have set out, Greenwood J then asked the question whether, so construed, the notice was within the power granted by s 264(1)(a) and concluded at [100] that it was. Thus the decision in Hart (above) is distinguishable on the basis that the notice in that case was addressed to the recipient in his capacity, properly construed, as a principal of the firm and called on him to provide information of the firm.
52 I would not construe the notice in the present case as requiring the individual recipient to make exhaustive enquiries. In my opinion the better interpretation is that the individual recipient is not required to make those inquiries. The correct construction is to focus on what information an individual recipient can furnish or what documents are in the recipient's custody or control.
53 It is therefore not necessary to decide on the scope of s 264(1)(a) in that respect. I observe however that there is nothing expressly stated in the section to the effect that the individual recipient is required to make enquiries. And I would not readily construe s 264(1)(a) as imposing that requirement by implication, particularly where the obligation is not limited to the recipient's own tax affairs.
54 To the same effect seems to be the statement by Stephen J in Smorgon (above) at 481-482 in relation to s 264(1)(b) that, in relation to a company's affairs, a notice under that section may be given to a natural person and they must attend and may be questioned as to their own knowledge of the corporation's affairs. If it turns out that they do not possess the relevant knowledge they can no doubt be required to identify those who do have that knowledge and those others may then, in turn, be required to appear and give evidence. See also the report at 485 and the reference there to the knowledge of officers of the company. (emphases added)
55 I am not presently persuaded that the difference between giving evidence under s 264(1)(b) and furnishing information under s 264(1)(a) has the consequence that, in contrast to s 264(1)(b), an individual recipient of a notice under s 264(1)(a) may be required to make inquiries to gather any information sought which was not within his or her knowledge. I note that by s 264(2), either the information or the evidence may be required to be given verbally.
56 In Clinch v Inland Revenue Commissioners [1974] QB 76, the statutory provision was s 481 of the Income and Corporation Taxes Act 1970 (UK). It provided, in part:
481(1) The board or, for the purpose of charging tax at the standard rate, an inspector may by notice in writing require any person to furnish them within such time as they may direct (not being less than 28 days) with such particulars as they think necessary for the purposes of this chapter.
Under the heading "Has the plaintiff established that the notice is inordinately burdensome or oppressive?" Ackner J said at 92:
I think an unnecessarily pessimistic view has been taken by the plaintiff of the time it would take to comply with the notice. In making this calculation he has taken into account two matters. (1) That in regard to matters in which he has given advice, but where he is doubtful whether any specified transaction or operation has been carried out as a result of the advice, he would have to make inquiries as to what the position was. In my judgment the notice imposes no such obligation. The notice does not require him to carry out any researches in order to obtain knowledge which he never had. He must examine the records maintained by him or maintained by the London bank and he must seek to refresh his knowledge from any sources which he considers are capable of providing such refreshment. He is not obliged to acquire new knowledge which he has never possessed. (2) He feels that the London bank is under a duty to its customers to inform them of the information that it gives to the commissioners. This may well be a matter of ordinary banking courtesy - I know not - but it is not strictly part of the compliance with the notice.
(original emphasis)
57 For present purposes the most authoritative consideration of the issue is Dunlop Olympic Ltd v Trade Practices Commission (1982) 62 FLR 145 (Dunlop Olympic). The Full Court there considered a submission that a requirement in a notice under s 155 of the Trade Practices Act 1974 (Cth) was objectionable because it extended to require information about meetings which officers, employees or agents of the company might have attended other than in their capacity as such. Such information would not, it was argued, be in the knowledge of the company since it would be in the knowledge of the particular representative other than in his capacity as an officer, employee or agent of the company. To require the company to furnish such information would be to require it to act in the role of "detective" and to ascertain information which it did not possess. That, so it was said, was not a permissible use of s 155 of the Act. The Full Court said at 149-150:
We also find difficulty with the unqualified proposition that a s. 155 notice cannot legitimately require the recipient to act as a "detective". It is true that the recipient of a notice can only be required to furnish information which is in his knowledge or control and cannot be required to undertake a general investigation of matters beyond his control. That is not, however, to say that compliance with the requirements of a s. 155 notice may not well involve a degree of investigation to determine matters which are properly to be seen as being within the information (sic) or control of the recipient of a notice. This is particularly the case where the recipient is a company. Apart from documentary and computerized material which it owns, the knowledge and information of a company will ordinarily be the knowledge and information of its officers. The officer of a company responsible for formulating its response to a s. 155 notice will commonly find it necessary to make inquiries of responsible officers, employees and agents as to relevant information in the same way as is necessary when a company is required to provide particulars, answer interrogatories or discover and produce documents in compliance with court orders in litigation or to provide information in compliance with the requirements of innumerable statutory provisions.
The real answer to the appellants' argument is, however, to be found in the nature of the requirement which the notice imposes. The basis of the notice is, as the notice expressly recites, that Mr. Gilbert has reason to believe that Dunlop "is capable of furnishing information and of producing documents". In using that formulation, the notice follows the express words of s. 155 of the Act. Those words do not mean that the recipient of a notice is able, by acting as a "detective", to ascertain information or obtain possession of documents which are not within its knowledge, possession or control. They mean that the recipient of the notice is capable of furnishing information or producing documents which lie, in the case of information, within its knowledge or control or, in the case of documents, within its possession or control. In other words, Dunlop is required by the notice only to furnish information which is in its knowledge or control including information, however obtained, which is held on its behalf by its officers, employees or agents who are concerned, on its behalf, with the relevant subject matter.
(added emphasis)
The appeal, reported as Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328, did not deal with this issue.
58 In D'Anastasi v Environment, Climate Change and Water NSW (2011) 185 LGERA 358; [2011] NSWCA 374 the New South Wales Court of Appeal recently considered the issue of a notice under s 193 of the Protection of the Environment Operations Act 1997 (NSW) (the POEO Act). It provided, in part:
193(1) An authorised officer may, by notice in writing given to a person, require the person to furnish to the officer such information or records (or both) as the officer requires by the notice in connection with any matter within the responsibilities and functions of the regulatory authority that appointed the officer.
The Court held that the notice was invalid as it failed to indicate to the addressee the matter with which it was concerned. Young JA went on to consider the question whether the notice required the addressee to make enquiries or merely to answer from his, her or its own knowledge. After reviewing the cases, including Clinch (above) and Dunlop Olympic (above) Young JA said:
76 Thus, in my view the notice must be construed as only requiring the addressee to react to it in the manner noted in the Dunlop case and the previous paragraphs. If the notice were otherwise valid, so construed it would not be invalidated because it requires some search for information, but does not require the addressee to make extensive enquiries of others.
77 Insofar as it is objected that the addressee is required to state the purpose of each visitor when attending the premises, if the visitor has told the addressee that purpose or if the addressee has a belief as to the purpose (at least a belief founded on fact) there is no difficulty in complying with the notice. Otherwise the answer that the addressee has no information about the purpose would suffice.
Sackville AJA, with whom Campbell JA agreed, said at [109] that as the notice was invalid, he do not think it necessary to consider the precise extent to which the appellant would have been obliged to make enquiries had the notice been validly issued. It was enough to say that he doubted that s 193 of the POEO Act, on its proper construction, authorised notices that could require the recipient to make enquiries of third parties with whom that recipient had no relevant association, such as an employer-employee relationship.
59 In my view, there are or may be questions of degree involved which it is unsuitable to attempt to answer in the abstract. At the level of compliance, ultimately it would be for the tribunal of fact in an appropriate forum to decide whether the recipient of the notice did or did not furnish the information: the more readily available to the recipient the information was the less likely it may be that the recipient would be believed if he or she said they could not comply. In my opinion this is a preferable approach to that adopted by Ackner J in Clinch (above). While I agree that a notice does not require the recipient to carry out any researches in order to obtain knowledge which he or she never had and the recipient is not obliged to acquire new knowledge which he or she has never possessed, the balance of the observations by Ackner J contains, in my opinion, a philosophical element of unknown knowns. The touchstones of knowledge or control, referred to by the Full Court in Dunlop Olympic (above) in relation to information seems to me, with respect, to provide a more practical approach to the questions of fact and degree to which I have referred. For these reasons I do not accept the submissions, which I have set out above, of either of the parties on this point.
60 I turn now to the particular complaints about the terms of the notice.
61 Although not developed in the applicant's written submissions, the first complaint related to paragraph 1 of Schedule A. The submission was that the Commissioner was now asking for full details concerning the terms and history of each purported loan, including but not limited to the matters that were articulated in subparagraphs a. to h. It was submitted that it was not known what other matters the Commissioner might be seeking. The applicant complained that "full details" was not a term that the applicant would be in a position to understand, in the context that there were subparagraphs a. to h., yet they did not constitute the limit of the details. Given how broad the requests were in subparagraphs a. to h., it was difficult for the applicant to know what else might be required, yet plainly, the notice was asking for more than that, because it was requesting full details.
62 In my opinion this complaint is not made out. It was the applicant, the recipient of the notice, who was contending that the relevant deposits represented loan repayments and I see no vice in the Commissioner requiring full details of the terms and history of each purported loan. In my opinion these subparagraphs indicate the nature of the information the Commissioner required. The word "including" indicates no more than that if there were other details concerning the terms and history of each purported loan then they were to be included. I refer to the observation of Mason J in Commissioner of Taxation v Australia and New Zealand Banking Group Ltd set out above.
63 A further complaint in relation to paragraph 1 related to subparagraph e. It was submitted that "what purpose the entity used the loaned funds for" was not within the applicant's knowledge, which was a matter that ought to have been known to the Commissioner. In my opinion the factual basis for the submission on this application for judicial review has not been established. It was further submitted that in any event this question was not relevant: the purpose for which the loaned funds were used was not something that arose in the applicant's assessment. The business purpose was not part of the investigation of the Commissioner in relation to her assessment. I return to the submission about purpose below in relation to Ground 6A.
64 The third complaint was the use in the notice of the words "explain" and "explain why". I see no force in this proposition. In context, in my opinion, the meaning of these words is clear. Again, it was the applicant, the recipient of the notice, who had asserted that the amounts in the bank account represented loan repayments in respect of loans from the applicant to Erma Nominees and Ligon 158. I reject the submission that, in the present context of the calculation of the amounts of the repayments and the determination of the outstanding balance, to ask for an explanation as to how something is done is not a certain exercise.
65 The fourth complaint centred on the use of the word "analysis". There is no force in this contention. The word "analysis" is merely introductory: the meaning of the paragraph would not be different if the opening three words were omitted. The applicant is not asked any questions about the analysis. It seems to me to be immaterial that the analysis was "insufficiently described" as contended for on behalf of the applicant.
66 The fifth complaint was the use of the expression "significant variances". In context however the subject matter is, on the one hand, the repayment of alleged loans which one might expect to be of more or less constant amounts as against payments from time to time of fees or dividends and the like to a director/shareholder. It is in this context that the applicant is asked to explain at a general level (not by reference to each variation) why there are significant variances in the amounts. The language of paragraph 3 is "explain why there are significant variances in the amounts" of the loan repayments.
67 Further, depending on the facts, it would be open to the applicant to respond by denying the assumption: see Fieldhouse (above) at 212 where Hill J said in relation to an assumption that the addressee of the notice was at liberty when providing information to indicate, if it be the case, that the assumption was false with the consequence that the question was not relevant to any inquiry.
68 A further complaint was the use of the word "why". Again I think the meaning is clear. In context the expression means "what is the reason for significant variances in the amounts".
69 Another complaint related to the use of the words (underlined below) in paragraph 4 of Schedule A: If at any time during the relevant period, Erma Nominees and/or Ligon 158 were unable to meet their obligations under the purported loan arrangement and failed to make repayments or were unable to make repayments to you in full "provide full details of how the purported loan agreement dealt with such default payments".
70 In my view the ambiguities contended for are not made out. The relevant period is the years in issue during which the payments were made and which were the subject of the correspondence between the applicant and the Commissioner. As I have said, this was the bank deposits made into the joint Commonwealth Bank of Australia account in the name of the applicant and her late husband from 1 July 2001 to 30 June 2009, identified in the Commissioner's position paper. The question is then asked, on the assumption that there were such loan arrangements, whether during that period either of the borrowers was in default of their obligations in failing to make repayments at all or in full. If that occurred then the applicant is asked to provide full details of how the purported agreement, to which she said she was a party, provided for such events, whether that provision was enforced and if not why not.
71 I reject the submission that the request for information was ambiguous because the agreement might be oral or evidenced other than in writing. It is the applicant who was propounding the agreement and may be presumed to know its terms. As Greenwood J said in Hart (above) at [91], the clarity of the notice must be considered against the background of the knowledge and circumstances of the respondent to the notice and the contextual facts.
72 I also reject the contention that to answer the question might require communications with all counterparties and their agents and an accurate reporting of the agreements and any variations thereto over a lengthy period. This seems to me to be an attempt to create ambiguity where there is none.
73 In my view, contrary to the contention on behalf the applicant, the request for information was not as to the state of solvency of the two alleged debtors either at all or over a long period or at any particular point or points in time. In this respect I construe the word "unable" not as being directed to the issues familiar to insolvency practitioners but to a much simpler question which is whether the debtors did not meet their obligations under the purported loan agreement or arrangement.
74 I also reject the submission that "To the extent that an agreement is oral or evidenced other than in writing, the question of how an agreement "dealt with" something was a complex question". This proposition is speculative. It was the applicant who was asserting the existence of a loan agreement. In my opinion it does not establish ambiguity for the applicant to say, in effect, the notice is ambiguous or uncertain by reference to facts that may not exist but which, if they did exist it would be her responsibility to put before the Court.
75 The next complaint related to paragraphs 5 to 6 and 8 of Schedule B. It was submitted that the applicant may not be the person who used the documents to calculate the amounts of the purported loan repayments or the balance of the purported loans. It was therefore impossible to comply. It is to be recalled that the documents described are those in the applicant's custody or under her control. In my opinion the factual basis for the submission on a judicial review application has not been established. To say that the applicant may not be the person who used the documents does not establish that she was not that person on the material before the Commissioner or at all. It is also to be recalled that it was the applicant who continued to receive the alleged repayments after the fire to which she had referred in communications with the Commissioner. In my opinion the factual basis for the complaint, that is that these paragraphs were asking for documents used by somebody else which were not within the knowledge of the applicant, has not been established.
76 In respect of each of these complaints it is in my view relevant that there is no evidence from the applicant that she had any difficulty understanding the terms of the notice. This is relevant because the test of ambiguity is by reference to the position of the addressee of the notice, shorn of personal idiosyncrasies: see Fieldhouse (above) at 208 where Hill J referred to "a reasonable man in the position of the addressee of the notice".
77 Although a notice may be severable, depending on its terms, in the view I take it is not necessary to resort to the principles of severance.