Commissioner of Taxation v S.N.A Group Pty Ltd [2026] FCAFC 10

1. The applicable principles of the law of contract were not in dispute. However, due to the importance of these principles to the resolution of the issues in the appeal it is necessary to emphasise key aspects of these principles. Foremost amongst them is the objective theory of contract; namely, the formation of a contract and identification of its terms turns upon what the words and conduct of the putative contracting parties would be reasonably understood to have conveyed to reasonable people in the position of those parties, not upon the actual subjective intention of those parties: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [34] (Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ). Evidence about subjective intentions or understandings is not relevant to determining whether a contract exists: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [24] (Gaudron, McHugh, Hayne and Callinan JJ). Relevantly, their Honours said at [25] (citations omitted):

[25] Because the inquiry about this last aspect may take account of the subject‑matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the "intention to create contractual relations" requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.

1. In most circumstances an orthodox 'offer and acceptance' analysis is a useful tool for determining objectively the existence and terms of a contract. It requires communication of an 'offer to contract' by the offeror to the offeree and communication of 'acceptance' of that offer by the offeree to the offeror. However, as McHugh JA observed in Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 (Hope and Mahoney JJA concurring) it is often difficult to analyse a commercial arrangement using that analysis. Justice of Appeal McHugh stated as follows:

Commercial discussions are often too unrefined to fit easily into the slots of "offer", "acceptance", "consideration" and "intention to create legal relationships" which are the benchmarks of the contract of classical theory.

...

[I]n an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. ... In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only what was said and done when the relationship was first formed.

1. It is accepted that a contract may be inferred from the acts and conduct of the parties as well as or in the absence of their words. The question in cases of that nature is whether the conduct of the parties, viewed in light of the surrounding circumstances, shows a tacit understanding or agreement. However, in such a case, the conduct of the parties must be capable of proving all the essential elements and terms of an express contract: Integrated Computer Services at 11,117; Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32 at 82 (Ormiston J); Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23; 35 WAR 520 at [21]- [26] (Pullin JA, in dissent but not as to the principles), [90]-[91] (Buss JA), [204]-[205] (Le Miere AJA). See, also, Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534-535 (McHugh JA); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at [72]- [81] (Heydon JA). But, it is not sufficient that the conduct be consistent with what is asserted was the existence and terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement: Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111; Aust Contract Reports 90-129 at [142] (Giles JA, Priestley and Meagher JJA agreeing).
2. The circumstances in which a contract will be inferred by conduct are rare. That is not a statement of a legal principle, but a reflection of the difficulty, in the absence of a communication of offer and acceptance, of demonstrating to the satisfaction of a court that reasonable people in the position of the parties would understand from their conduct that there was mutual assent to contract on clear identifiable terms: see, Danbol Pty Ltd v Swiss Re International SE [2020] VSCA 274 at [73]- [86] (McLeish, Niall and Sifris JJA).
3. In the context of inferring a contract from conduct in the light of surrounding circumstances it is important to keep in mind that the ultimate question remains what would be objectively communicated to people in the position of the parties to the putative contract. 'In communication between people, meaning can only be conveyed by expression in words and by implication from conduct and circumstances. There is no communication that is not expressed or implied.': Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; 277 CLR 115 at [82] (Edelman and Steward JJ). Relevantly, their Honours also observed (footnotes omitted).

[83] It is fundamental to the objective theory of contract, which is "in command of the field" of contract law, that a contract cannot exist without communication. The subjective views of the parties are irrelevant: "having it in your own mind is nothing". The terms of a contract - express or implied - therefore arise from the communication between the parties, understood in context, including by drawing inferences to identify the implied content of communication. ...

1. Thus, the objective theory of contract demands an outward manifestation or communication by words and (or) conduct of a mutual assent to contract on particular terms. The private thoughts or intentions of the parties are not relevant and cannot outwardly manifest or communicate to reasonable people in the position of the parties a mutual intention to contract on particular terms.
2. The objective theory of contract applies equally to a natural person and to a legal person such as a body corporate. However, in the case of a body corporate, that legal person can only communicate by words or conduct through an organ of the body or an agent of the body whose words or conduct is attributable to that body: see, e.g., Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506-507 (Lord Hoffmann); Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; 170 CLR 146 at 171-172 (Brennan J), 201-202 (Dawson J). Determining the existence of a contract and its terms remains the same even where the putative contracting parties are companies with common directors or a sole common director; there must be an outward manifestation or communication through words or conduct that would objectively communicate to reasonable people in the position of each company (as a legal person) that there is mutual assent to contract on particular terms. The uncommunicated private thoughts and intentions of the common directors or director are not relevant. Thus, here, the existence and terms of any relevant licence agreements must be inferred from objective acts in the real world attributable to each of the taxpayer companies and the trustee companies that would communicate to reasonable people in the position of each taxpayer and each trustee mutual assent to contract on particular terms.

1. As already mentioned, the primary judge rejected the taxpayers' asserted contract. There is no notice of contention to the effect that the primary judge's decision should be upheld on the ground that he erred in failing to find that those contracts were made. We also observe that the Commissioner has not raised as a ground of appeal that the primary judge was in error for going outside the limits of the taxpayers' objection. Therefore, the only question is whether the primary judge was correct to conclude that in each of the relevant years the taxpayers were subject to an inferred contractual liability to pay the trustees a service fee for use of the trust assets.
2. The primary judge's relevant conclusion was as follows:

[104] ...The inference is inescapable that, in each of the Relevant Years, APTR and SNA were subject to a liability, contractual in nature, to pay a service fee. Yet further, it is a likewise inescapable inference from the circumstances related above, based on the evidence that I have accepted, that terms of that contract were that the precise amount of that service fee would be determined annually by [PAC] Realty or, as the case may be, CLAARS on the basis of advice from Mr Bryant as to what was fair and reasonable but subject to the general guidance that it would not give more than an 8% overall return. It should also be inferred that SNA and APTR were subject to a monthly obligation to make remittances which would be credited against their respective service fee obligations when the accounts were struck for a given year.

[105] The existence of such a contract is entirely consistent with the way in which SNA and APTR, struck their respective financial statements and, in turn, SNA and APTR made service fee claims in their taxation returns. In the circumstances, it would be perverse to conclude that the financial statements did other than record the existence and effect of such a contract. The occasion for so doing is even stronger than it was in Pastoral and Development Pty Ltd v Commissioner of Taxation [1971] HCA 41; (1971) 124 CLR 453, at 459-460 (Walsh J).

1. The facts from which the primary judge concluded that the inference was inescapable were not identified precisely. However, the following facts emerge from his Honour's reasons as the evident foundations for that finding.

(1) The Coronis business had undertaken a restructuring in 2005 by which the operating entities, ATPR and SNA Group, were separated from the asset owning entities, the trustees of the Henry Trust and Emily Trust, for the purposes of protecting the assets: PJ [103].

(2) The trademark 'CORONIS' and related symbols were valuable. The operating entities traded under that name as a matter of deliberate commercial value judgment. The trustee of the Henry Trust held that asset: PJ [104].

(3) The trustee of the Henry Trust also employed Mr Andrew Coronis and Ms Hanlon each of whom was essential to the commercial success of SNA Group and ATPR: PJ [104].

(4) Messrs Theo and Andrew Coronis considered the trustee of the Henry Trust subject to an obligation to pay a return to the unit holders of the Henry Trust: PJ [78], [107], [114].

(5) Messrs Theo and Andrew Coronis were interested in charging a fair and reasonable service fee to the operating entities for assets and expertise which they regarded as valuable and to ensure a related resultant return to unit holders in the Henry Trust: PJ [107].

(6) The rent roll of the trustee of the Emily Trust was a valuable asset that was essential to the operations of SNA Group. The trustee was obliged to pay interest and principal to the Commonwealth Bank to repay the loan it had taken out to acquire the rent roll. As controllers of the trustee Messrs Theo and Andrew Coronis wanted a reasonable return on the rent roll: PJ [103].

(7) Each of SNA Group and ATPR considered itself subject to a liability to pay a service fee and each of the trustees considered itself entitled to the payment of such a fee: PJ [71], [72], [100].

(8) Messrs Theo and Andrew Coronis had a view that there should be a return of no more than 8% of the net assets of the Coronis real estate group: PJ [81].

(9) Mr Bryant prepared and presented to Messrs Theo and Andrew Coronis the accounts and related tax returns for the various entities within the Coronis real estate group, including SNA Group and ATPR, on the basis that the service fees recorded in the accounts were 'reasonable': PJ [83].

(10) Mr Andrew Coronis acted on the advice of Mr Bryant as to 'what was fair and reasonable in the real estate industry as an annual service fee': PJ [71].

(11) The manner in which the service fees were recorded in the taxpayers' financial statements was consistent with the inferred contracts: PJ [84], [105].

(12) The manner in which the service fees were recorded in the taxpayers MYOB management accounts were, at least, consistent with incurring service fees for use of trust assets consistently with the amounts recorded under the applicable 'labels' in the management accounts: PJ [90]-[91].

1. With respect to the primary judge, we disagree that these facts were sufficient to infer the existence and terms of the taxpayers' contractual liability to pay the trustee's service fees of the kind the primary judge records in his Honours reasons: PJ [104].

No objective communication of mutual assent by the taxpayers and trustees

1. It may be accepted that the taxpayers had the use of trust assets and that those assets were used in the course of the taxpayers' businesses to generate assessable income. It may also be accepted that Mr Andrew Coronis, as a director of the trustees and of the taxpayers, subjectively considered that the taxpayers were obliged to pay for the use of those assets and the amount that Mr Bryant identified in the financial statements prepared each year was a fair and reasonable fee for that use. However, there were no facts found of any objective communication of an expectation of the trustees to be paid a fair and reasonable fee for the use of the trust assets or communication of acceptance that a fair and reasonable fee would be paid for that use by the taxpayers.
2. The primary judge expressly found that the sources of any liability for incurring service fees were not the 2005 agreements: PJ [98]. As mentioned, there is no notice of contention or assertion in the appeal that the primary judge ought to have found that the 2005 agreements continued on terms that were amended or varied by the conduct of the parties after 2015. That is, the taxpayers do not maintain in the appeal that it is to be inferred from the taxpayers' conduct and the trustees' conduct after 2015 that the 2005 agreements continued on the same terms except that the service fees payable were 'fair and reasonable' for use of the trust assets. Thus, while there were written agreements in the period between 2005 and 2015 by which the taxpayers and the trustees mutually agreed that the taxpayers had the right to use the relevant trust assets upon payment of agreed fees, those agreements were not operative from 2015.
3. Although the taxpayers made no claim that they were obliged to pay a reasonable sum for use of the trust assets on the basis of quantum meruit, the effect of the primary judge's reasons is that he found that there were inferred contracts with terms that the taxpayers were to pay 'a fair and reasonable fee' for use of the trust assets. The extent to which an obligation to pay a reasonable sum for the provisions of goods or services arises from an inferred or implied term of a contract or from the law of restitution is not always obvious. However, historical authorities that refer to the obligation arising under an 'implied contract' where there was no enforceable contract are better analysed in a modern context as examples of restitution: Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; 162 CLR 221 at 253-259 (Deane J), 227 (Mason and Wilson JJ concurring). Here, relevantly, an obligation to pay a reasonable sum in restitution for unjust enrichment can be excluded from consideration as it was neither a ground the taxpayers advanced nor the basis upon which the primary judge determined that the Commissioner's assessments were excessive.
4. An enforceable contract to pay a reasonable sum may be inferred or implied in circumstances in which one party has requested the other party to provide it with goods or services and, in response to that request, the other party has provided the requested goods or services without any express agreement or communication about the price to be paid for those goods or services: e.g., Hall v Busst [1960] HCA 84; 104 CLR 206 at 234 (Menzies J); Brooks v South Australian Stevedoring Co Ltd [1920] SALawRp 30; [1920] SALR 207 at 215 (Murray CJ, Poole and Buchanan JJ). But, here, the primary judge made no finding to the effect that the taxpayers made an express, implied or inferred request to the trustees to provide the taxpayers with the use of the trust assets.
5. Further, there is no suggestion in the primary judge's reasons that he found that it is to be inferred from the taxpayers' continued use of the trust assets after the end of the term of the 2005 agreements and the trustees' acquiescence in that use that the taxpayers had taken the benefit of the use of the trust assets in circumstances in which that use and benefit was not intended to be provided gratuitously or that the taxpayers had implicitly requested the use of the trust assets and the trustees had implicitly agreed to provide them with that use. In any event, given the relationship between the taxpayers and trustees (the common ownership of substantial interests in the companies and unit trust and common directors) and evidence that the restructure and division of ownership of the income earning assets from the operating entities was undertaken as an asset protection measure, a request for and provision of non-gratuitous use of the trust assets cannot be inferred or implied from the mere fact that the taxpayers were provided with the use of the trust assets or the mere fact that there had been earlier contracts that had required the taxpayers to pay for use of the trust assets and the taxpayers continued using those assets after termination of the earlier contracts. Accordingly, the possibility that the primary judge's conclusion could be justified on the ground that the taxpayers requested the trustees to provide them with use the trust assets and other services can also be ignored for the purposes of the appeal.
6. On an appeal by way of rehearing, the Court is bound to conduct a 'real review' of the evidence given at first instance and of the primary judge's reasons for judgment to determine if the primary judge erred in fact or law. Except as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the primary judge as a result of seeing and hearing them give evidence, an appellate court is in as good a position as the primary judge to decide on the proper inferences to be drawn from facts which are undisputed or are established by the findings of the primary judge: Lee v Lee [2019] HCA 28; 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ). The Commissioner contends that, on the evidence the primary judge accepted, the primary findings of fact and the undisputed facts, it was erroneous to infer there were contracts between the taxpayers and the trustees. Further, the conduct of taxpayers and the trustees was not consistent with the existence of the contractual liability of the taxpayers the primary judge found was to be inferred.
7. After conducting a real review of the evidence before the primary judge, with due respect to the primary judge, we have come to a different conclusion to his Honour and accept the Commissioner's contention. Having regard to the applicable principles to which reference has been made, in our view, reasonable people in the position of the taxpayers and trustees would not understand from the communications and (or) conduct of natural persons attributable to each company that there was mutual assent to contract on identifiable terms.
8. There are essentially four reasons that we consider an agreement between each of the taxpayer companies and trustee companies cannot be inferred from the undisputed facts, the primary facts found and the evidence the primary judge accepted as true and correct.

(1) There was no direct evidence of any communications between the natural persons who were the directors of the taxpayers and trustees of an accepted liability on the part of the taxpayers to pay a fair and reasonable fee for use of the trust assets.

(2) Likewise, there was no direct evidence of any communications of an accepted liability on the part of the taxpayers to pay up to an 8% return. Further, the evidence regarding 'an 8% return' was inconsistent regarding the benchmark for the 'return'.

(3) There was no evidence that the directors of the taxpayers and trustees had communicated to Ms Hanlon, the Coronis real estate group internal bookkeeper, or Mr Bryant, the Coronis real estate group external tax accountant, that the taxpayers were subject to a liability to pay a reasonable fee for use of the trust assets or for other services. None of the entries in the books and records of the taxpayers and trustees was made and none of the financial statements of the taxpayers and trustees was prepared on the basis that the taxpayers were liable to pay the trustees a fair and reasonable fee for use of the trust assets or other services.

(4) The evidence of the conduct of the taxpayers and trustees that was contemporaneous with the transfer of amounts from the taxpayers to the trustees in each relevant year was not consistent with payment of 'service fees' in accordance with a pre-existing agreement or understanding to pay a fair and reasonable fee for the use of the trust assets up to an 8% return. Nor was the evidence of conduct consistent with payment of 'service fees' in the amounts claimed as deductions in each relevant year.

No direct evidence of communications between common directors about payment for use of trust assets

1. Mr Andrew Coronis and Mr Gillies were the only directors of SNA Group and ATPR in the relevant years and were directors of CLAARS and PAC Realty throughout the relevant years. Mr Theo Coronis was a director of CLAARS and PAC Realty for the period from July 2015 to August 2016.
2. Mr Gillies was not called and gave no evidence.
3. Mr Theo Coronis gave evidence at a high level of generality about wanting to obtain a return on the use of the Coronis name (franchise fee) and the rent roll and relying on Mr Bryant's advice about an appropriate fee. But none of that evidence was directed towards identifying an appropriate fee for payment of the use of the intellectual property and the rent roll by the taxpayer companies during the relevant years. He also gave general evidence about the trustee of the Emily Trust requiring payment to discharge its obligations under loan agreements with the Commonwealth Bank associated with it acquiring the rent roll asset. Again, none of that evidence was directed to an appropriate fee for use of the rent roll. He gave evidence to the effect that he was totally reliant on Mr Bryant's advice. He expected to receive advice from year to year on the appropriate amounts to charge for use of assets such as the rent roll or trademarks and he acted on that advice. But, he was not able to say what the fee was for in the 2005 agreements. Otherwise, he gave no evidence of meetings of directors of the taxpayer and trustee companies at which there was any discussion of an obligation to charge and pay a fee for the use of trust assets or the manner in which that fee was to be calculated.
4. Mr Andrew Coronis gave evidence to the effect that ATPR used the assets of the Henry Trust and also the services of Messrs Theo and Andrew Coronis and Ms Hanlon who were employed by the trustee. He said the trustee 'charged accordingly what we felt was appropriate for those assets'. He said the taxpayers were also charged for the rent roll. However, he was not able to explain how the amounts the taxpayers claimed as deductions were calculated. When asked why he could not give that explanation he gave the following evidence.

And are you able to explain how those figures were calculated?---I can't. I'm sorry.

And why is that?---Because a lot of the - the figures and calculation was done by Jim Bryant and passed to us, which we just said, yes, that seems fair and reasonable at the time. I can't go through each one of those and say that it's unreasonable or reasonable now. I presume - I knew at the time, and I will stand by that, that they were fair and reasonable for what we were doing. In fact, I think my personal opinion is too cheap. When I look now after going through the case and looking in hindsight, I think we actually undercharged what should have been charged.

HIS HONOUR: Is it the case, then, that from year to year, Mr Bryant provided advice to you, your father and also perhaps Mr Gillies as to an appropriate amount for that year, appropriate in the sense representing a return on the assets as provided to, in the one case, S.N.A or, in the other case, ATPR; is that it?---Correct, your Honour.

And then you didn't separately make your calculations as opposed to relying on advice from Mr Bryant as to what was an appropriate return?---Correct, your Honour.

And then in doing that you looked at the figure and formed a view which, in hindsight, you regard as modest, but you formed a view that this is an appropriate return for these assets year by year?---Correct, your Honour.

And that was a decision made in conjunction with your father and - tell me if I'm misunderstanding - also with Mr Gillies?---Correct, your Honour.

All right. Yes.

DR SCHULTE: Thank you, your Honour. I will just - just bear with me again. I beg your pardon.

HIS HONOUR: I should have asked this as well: and in doing that, you didn't particularly turn your mind nor to your observation did your father or Mr Gillies, insofar as you spoke with them about it - but you didn't particularly turn your mind to whatever the black and white text of a licence agreement did or didn't say?---That's correct, your Honour. Correct.

Yes?---Yes.

1. In response to further questions from the primary judge regarding the manner in which the fees were calculated he gave the following evidence.

HIS HONOUR: Yes.

Just while Mr Schulte is reflecting on further questions, if any, when it came to the accounts for Emily Trust, Henry Trust or the operating companies, you, your father, Mr Gillies sought advice from and acted on advice from the long-standing accountant, Mr Bryant?---Correct. Mr James Bryant.

And you sought in the accounts to reflect the business decisions as to fees and the like that had been made as between asset owners and operators?---Correct, your Honour. The - - -

From year to year?---From year to year, wearing different hats at different sides - - -

Indeed?--- - - - because, on one side, it was an expense that we had to make sure was - we felt commercial, and the other side was a return for an asset that needed to be commercial as well.

1. Elsewhere, Mr Andrew Coronis gave general evidence to the effect that he, as a director of the taxpayer and trustee companies, considered that the taxpayer companies had an obligation to pay a fair and reasonable amount for the use of the trust assets. The primary judge accepted that evidence and made the following findings:
   1. It was Andrew's oral evidence, which I accept, that, by the Relevant Years, he did not undertake any referencing of the 2005 agreements [or] the 2006 agreements in the annual fixing of service fees. As he put it, "in both cases we had operational companies that had to pay a fee for assets" and "it was a charge that it [APTR and SNA] needed to pay to operate the business because it couldn't operate without it". Instead, during these years, based on these over-arching considerations, Andrew was acting on advice from Mr Bryant as to what was fair and reasonable in the real estate industry as an annual service fee. I thought that this statement made by Andrew had the ring of truth about it (and find accordingly):

[We] had an obligation to charge for assets to those operating companies and those operating companies were charged accordingly what at the end of the year we thought was fair to be charged, and Jim [Mr Bryant] would generally do that work for us and present it to us. And when I say "us", I mean not much - myself, my father, Mr Gillies. And generally at those times we used to call our meetings at the Chinese restaurant - our - our unit holder meetings, and we would say - he would say, "This is what the charge is going to be." We would think it would be fair and reasonable. I don't think we ever said, "No. Don't charge that." I don't - it was not in our scope to challenge somebody who was a - I think I've explained previously, who was such a piece of the business - an integral piece of the business, in our opinion. So we trusted what he [Mr Bryant] said.

72 Andrew identified the "we" as him, Theo and Mr Gillies.

1. The primary judge sought to clarify Mr Andrew Coronis's evidence about the obligation to charge and the nature of the fee as follows:

HIS HONOUR: So am I right in understanding that when you've said, "We have an obligation to charge," the "we" there is a reference by you to you personally and also your fellow directors or the trustees of the Henry Trust or, as the case may be, the Emily Trust?---Correct, your Honour.

And the obligation, wearing that director's hat, as you saw it, was it would be contrary to your responsibilities to allow the operating companies the benefit of assets if that meant that the asset-earning companies would be incurring losses by giving that permission?---Correct, your Honour.

And what you sought to achieve, as best you could, and tell me if I'm wrong in this understanding of what you've just said - - -?---I certainly - thank you, your Honour - - - was that the trustees of the Emily and Henry Trusts would each receive at least enough to make sure that they weren't making losses on the asset - on the expenses needed to have those assets and what you regarded as a reasonable return in addition to that; is that right?---That's correct, your Honour.

That's really it in a nutshell?---That - that's it in a nutshell.

And in so doing, you acted on advice from Mr Bryant?---Correct.

Year after year?---Year after year.

Yes.

1. There was no exploration in his examination of the basis upon which he purported to give evidence about the state of mind of his co-directors. At most it was, perhaps, a conclusionary statement about his understanding of a consensus reached at unidentified meetings. But, there was no evidence of what was said by whom at the meeting or even the gist of the discussion. Nor was there evidence of when each meeting took place and what was said or agreed at each meeting in the relevant years. Other evidence Mr Andrew Coronis gave was to the effect that Mr Bryant presented the financial statements to him and he signed whatever was put in front of him.
2. Further, taken with the evidence of Mr Bryant and Ms Hanlon, who gave evidence to the effect that Mr Bryant prepared the financial statements for the taxpayers after the end of each financial year, the meetings to which Mr Andrew Coronis referred could only have taken place after the end of each relevant tax year. Therefore, it was not open to infer that there was an agreement to pay any particular amount in any particular year as a 'fair and reasonable fee' before or at the time the payments were made. Therefore, not only was there no evidence of any communications between representatives of the taxpayer and trustee companies about any accepted obligation to pay a fair and reasonable fee, but there was no evidence of Mr Andrew Coronis having any thought about what would be a fair and reasonable fee before the taxpayers transferred amounts in each year to the trustees.
3. On this evidence it was not open to infer that there was any communication between the directors of the taxpayers and trustees about any obligation of the taxpayers to pay the trustees a fair and reasonable fee for the use of trust assets or about Mr Bryant giving advice to them regarding the calculation of a fair and reasonable fee for each relevant year. Further, as will be explained later, the evidence of Mr Bryant was not consistent with and did not support an inference that there had been any outward expression by the directors to Mr Bryant to the effect that there were new or continuing agreements to pay a fair and reasonable fee for the use of the trust assets after 30 June 2015.

No consistent evidence or conduct about an 8% return

1. Each of Messrs Theo and Andrew Coronis and Ms Hanlon gave general evidence to the effect that the units in the Henry Trust were made available to employees and the unit holders were promised an 8% return. However, the evidence concerning the benchmark for the 8% return was not consistent.
2. Mr Theo Coronis gave evidence that the 8% return was paid every month and it was intended to cover the interest costs associated with purchasing the units. Further, they had the property management business valued to work out the buy-in prices.
3. Mr Andrew Coronis described the return to unit holders as 'eight percent of the value of the company' which evidently meant 8% of the value of the relevant trust assets the taxpayers used. He said that 'we would work out on what was appropriate fee for S.N.A to pay up to eight percent'. The figure of 8% was struck because the cash rate for borrowing on a housing loan was 7%. He said 8% was regarded as appropriate as between Messrs Theo and Andrew Coronis and Mr Gillies. He gave evidence that he had to sign a statement every month for the Commonwealth Bank to show a certain amount of revenue 'going through the Emily Trust'. There were also valuations of the rent roll obtained for the Commonwealth Bank facility. These were used for three reasons: (1) the bank valuation; (2) 'to set a value for ... current unit holders and new unit holders to buy in for the business; and (3) 'making sure that we were somewhere in the ballpark of return on equity for people because we would tell people who were buying in to the Henry Trust that they would get a return of up to eight percent'. He said 'other parts of the value were done by Jim Bryant and it seemed fair and reasonable'. He said that he generally made sure that the fees were up to 8% of the valuation of the business.
4. In evidence was a valuation of Gil Wright & Associates described as an updated market valuation of the property management department of the business trading as 'Coronis Realty' as at 27 August 2018. PAC Realty as trustee of the Emily Trust was described as the proprietor. The value of the business was $40,641,000. In evidence was also a valuation of the 'Coronis Group', as at 30 June 2018, by Mr Bryant. It described the Gil Wright & Associates valuation of the business as the 'Valuation of Rent Roll' and added values for cash at bank, commission on sales not yet received, valuation of the real estate operations, plant equipment furniture and signs (at replacement value) and wholly owned entities. After deducting liabilities, the net assets of the Coronis Group was $49,574,621. Which, if either, of those documents was a 'valuation of the business' was not addressed in the oral evidence. Nonetheless, those documents were generally consistent with the evidence of Mr Andrew Coronis about obtaining valuations of the 'business'.
5. Taken as a whole, the evidence suggested that unit holders were promised or a representation was made that they would receive an 8% return and Mr Andrew Coronis regarded that to be an 8% return, in effect, on the value of the net assets held on trust for the Henry Trust. The assets of the Henry Trust included all units in the Emily Trust and, therefore, the rent roll asset plus the intellectual property less the outstanding balance of loans was the substantive value of the 'business' to which Mr Andrew Coronis referred in his evidence.
6. However, a notional desire to provide unit holders of the Henry Trust with an 8% return on the net assets of that trust does not explain the payments the taxpayers made to the trustee companies. As will be explained shortly, the payments were not 8% of the value of the net assets. Mr Andrew Coronis said in his evidence that the taxpayers were not charged the full value of the assets that were used because '[w]e wanted to make sure that S.N.A and APTR were growing businesses' and, if that did not happen, it would in the end hamper the Henry Trust because the 'return' was based on a percentage of the value of the business. That evidence was not consistent with delivering unit holders an 8% return as promised or represented or determining an annual fee that would result in no more than an 8% return on the value of the business. Further, and in any event, a communication to unit holders in the form of a promise or representation that the trustee of the Henry Trust would pay an 8% return was not a communication or outward manifestation of an expectation or obligation by any director that the taxpayers had agreed to pay the trustees a service fee of up to 8% return on the value of the business in order for the trustee of the Henry Trust to make good on its promise or representation to the unit holders.

No direct evidence Mr Bryant advised directors about a fair and reasonable fee

1. As companies registered under the Corporations Act 2001 (Cth) the taxpayers and trustees had an obligation to keep written financial records that correctly recorded and explained their transactions and financial position and performance to enable true and fair financial statements to be prepared and audited: s 286(1) of the Corporations Act. The taxpayers and trustees kept these records using MYOB software. At the relevant time, Ms Hanlon was employed as a bookkeeper who had responsibility for maintaining these records. The evidence of Mr Bryant and Ms Hanlon was to the effect that Mr Bryant prepared the financial statements once a year after the end of the relevant financial year. Mr Bryant gave evidence to the effect that he prepared the financial statements based on the MYOB management accounts for the taxpayers and the trustees.
2. In the proceeding before the primary judge the parties had filed a joint statement of agreed and disputed facts and issues for determination. At paras [43] and [45] of that document the parties set out as an agreed fact the amounts in SNA Group's income tax returns it claimed as deductions for payments made to CLAARS as trustee for the Henry Trust and PAC Realty as trustee for the Emily Trust and the amounts APTR claimed as deductions for payments made to CLAARS as trustee for the Henry Trust. Mr Bryant gave evidence to the effect that he had prepared the financial statements and tax returns in which the deductions were claimed and gave the following explanation of the manner in which he had arrived at the amounts set out in paras [43] and [45] of the parties' joint statement (emphasis added).

Thank you. So with that little bit of background, could I just take you back to that question, which is - so for each of the years that are there identified, can I just ask you to explain to his Honour how those figures were arrived at?---Well, they came to me through the client's accounting records that they maintained themselves on a system called MYOB, M-Y-O-B, which was an accounting system for companies of around that size. So once a year after 30 June, I would obtain those reports off their accounting system and review them, reconcile the revenue between the entities as APTR and SNA paid service fees and royalty payments to the Henry Trust and the Emily Trust. So it was important to have - if it's an expense in one entity, it was revenue in the other. So I reconciled those, and then I would enter their MYOB records into my accounting system called Handy - Handy Ledger and then review them again for reasonableness, and then Handy Tax was the system I used, approved by the ATO, that would then produce the tax return for each of the entities, and that would be then signed and duly launched.

And is that the process that you adopted in respect of the amounts - so when we look at those amounts at paragraph 43 and paragraph 45, is that the process that you adopted in - - -?---Yes.

...

DR SCHULTE: So when you say "reviewed for reasonableness", what do you actually mean by that?---Well, there was - there was service agreements and licence agreements between the Henry Trust, the Emily Trust and APTR and S.N.A., and it set out in there the percentages of gross turnover on which the royalties, the licence fees and service fees would be paid. So at the year end, I would look at the gross receipts for APTR and S.N.A., and then see how that compared to the actual service fees and licence fees paid to the Henry Trust and the Emily Trust, to see if they were in agreement with the contracts that were in place since 2005.

...

HIS HONOUR: In relation to the amounts that are set out in paragraph 43, 44 and 45, and also the taxable income disclosure at 48, prior to the - the returns were obviously presented to the client by you. Am I right in thinking that?---Yes, that's correct.

What interchange, or did you have at all with either Mr Coronis - Theo Coronis or Andrew Coronis, or perhaps a Mr Peter - a Mr Craig Gillies, about the - or did you have instructions - standing instructions about what charges were regarded as appropriate or - - -?---Yes.

- - - what the charging policy was between asset and operating entities?---Yes. Yes, I did. There were - it was primarily set out in the agreements prepared - signed in 2005, that set out a percentage. It was virtually - well, at that stage, it was very common in the industry to franchise. So you could inadvertently call this service fee, licence fee, a franchise fee, where the Henry Trust and the Emily Trust owned enormous amount of goodwill. Rent rolls probably at that stage valued $30 million, and these - these agreements said APTR and SNA can carry on business utilising the goodwill, rent rolls, computer - computer listings of customers, clients so that they could carry on their own business and pay - pay a franchise fee to the Henry Trust and the Emily Trust each month, and it would be reconciled annually.

Was there, to your knowledge, a standing policy - well, no, I will withdraw that. It might be said that the written agreements had a life to them which didn't extend automatically into each of these income years, but was there, to your knowledge, a standing policy to which you worked, as you understood it, as formulated by the elder Mr Coronis, his son Andrew and, perhaps, Mr Gillies about what was expected in terms of a return?---Yes. The agreements could be extended mutually - by mutual agreement. So each year, I would check that nothing had changed in that respect so that then I would calculate the service fees, franchise fees, whatever, in accordance with those agreements.

And was there quite a degree of understanding by you of client expectation that was brought to bear with that?---Yes. Yes, it was - yes. Well, the - the original concept was this was a type of franchise arrangement, except it's perhaps not as arm's length as, say, Ray White or some of the other large franchise groups. So there was - there was a two percent of gross turnover fee payable for goodwill, management services, computer facilities and general admin, and there was a six to - well, it varied six to 10 percent or even higher, depending on turnover, and that was the licence fee. So there was a combined service fee, licence fee.

Was it the case that you knew there was an expectation by the elder Mr Coronis, Mr Andrew Coronis, Mr Gillies that you would advise them as to what was the reasonable amount?---No. Once it had been set out in the agreement, I - I complied with that.

You sought to comply with that?---Yes.

All right. Yes. I was just curious there, Mr Schulte. On you go.

DR SCHULTE: Thank you, your Honour. If you could just bear with me a moment. I have no further questions. Thank you, your Honour.

HIS HONOUR: All right. Even though the agreements were there, you nonetheless each year reviewed the amount for reasonableness before putting it to the client for - - -?---Yes.

- - - signature?---Yes.

Is that right?---That's correct. Yes.

So in that sense, you knew there was an expectation that there would be a reality check, as it were - - -?---Yes. I could - - -

- - - by you, about - - -?---Yes.

- - - are these reasonable?---Yes.

Is that it?---That's correct. Yes. Yes.

And that was more or less a standing instruction?---Yes. I could - that would be true.

Without it descending into anything in writing, it was just something that, from your years of association with - - -?---Yes.

- - - the Coronis family, you knew that was an expectation?---That's correct. Yes.

1. In response to another question from the primary judge, Mr Bryant denied that he provided professional services other than as 'tax agent'.
2. Otherwise, there was no evidence that any of Mr Theo Coronis, Mr Andrew Coronis or Mr Gillies communicated to Mr Bryant that there were agreements between the taxpayers and the trustees after 30 June 2015 that had terms to the effect that the taxpayers were obliged to pay the trustees a fair and reasonable fee up to 8% of the value of the business for use of the trust assets. Mr Bryant's evidence was to the effect that he reviewed the amounts recorded in the taxpayers' management accounts against the 2005 agreements. Self-evidently, Mr Bryant would not have done so had he been instructed that there were agreements in place with terms to the effect that the taxpayers were to pay a fair and reasonable fee for the use of trust assets or up to 8% of the value of the business.
3. The primary judge set out the relevant evidence and his findings as follows.
   1. Each of Theo and Andrew were by the Relevant Years very aware that, over a decade beforehand, for reasons they thought good and on Mr Bryant's advice, they had separated out operational from asset owning companies. On their evidence, which I accept, Theo and Andrew each had a view as to what that return should be annually - no more than eight per cent of the net assets of the Coronis Group. By the Relevant Years, their views as to a return of this order were informed by lengthy experience in the real estate industry and an acute sense of obligation to a class of unit holders membership of which was beyond their family interests but which extended to persons whose loyalty and services they had sought to retain by inviting them to take up units in the Henry Trust. It was also informed by financial commitments to the Commonwealth Bank. In turn, their view was always informed by the advice from Mr Bryant as to what was a reasonable service fee in a given year. During the Relevant Years, as they had beforehand, Theo and Andrew acted on the advice tendered by Mr Bryant as to what was a reasonable fee.
   2. None of this is to say that those 2005 and 2006 agreements did not continue to play a role in Mr Bryant's thinking when formulating his advice as to what was a reasonable fee in a given year. Mr Bryant described that process during his oral evidence. Mr Bryant was in retirement and still not in good health when he gave evidence. He was obviously elderly and frail physically. I rather thought this may well have explained why at times during his evidence Mr Bryant appeared to have a somewhat flat, disaffected mood. However, he retained a good recollection of his methodology for formulating his advice and I accept his evidence. ...
4. The primary judge then set out the emphasised part of the passage quoted earlier which his Honour characterised as Mr Bryant's methodology before concluding:
   1. I do not doubt that, in formulating his advice, Mr Bryant did seek in his own way to comply with the 2005 agreements and the 2006 agreements according to his understanding of them but this was always subject to a review of any outcome in his calculations for what in his view was a reasonable service fee. It matters not whether Mr Bryant's understanding of the agreements was or was not correct. Ultimately, he prepared and presented to Theo and Andrew the accounts and related tax returns for the various entities within the Coronis group, including APTR and SNA on the basis that that service fees as recorded were reasonable. He knew that was a standing expectation by Theo and Andrew of him.
   2. Other than in terms of end result in the financial accounts of APTR and SNA and Coronis group entity recipients of service fees, there is no contemporaneous record of the methodology Mr Bryant used in calculating the advice he tendered as to what was a reasonable service fee for a given year. Perhaps by the Relevant Years the evolution and growth of the Coronis group was such that there should have been. Perhaps also this was another manifestation of a habit of small business which remained. But my present role is to determine a taxation appeal by the application of the income tax legislation to the facts as found, not the provision of management consultancy advice.
5. The primary judge considered that there was no inconsistency between Messrs Theo and Andrew Coronis regarding the 2005 and 2006 agreements as expired and not applicable and 'Mr Bryant still looking to them for the purpose of formulating his advice as to the overall service fee which was fair and reasonable'. His Honour observed that what was presented to the directors was the end resultant figure in the financial statements for approval and Messrs Theo and Andrew Coronis were 'just interested in the charging of a fair and reasonable service fee to the operating entities for assets and expertise which, for good reason, they regarded as valuable and to ensure a related, resultant return to unit holders in the Henry Trust': PJ [107].
6. The primary judge's findings about the views of each of Mr Theo Coronis and Mr Andrew Coronis are, of course, not relevant to determining the existence or terms of a contract. These are the subjective views of those directors. Further, we disagree with the primary judge that the quoted passage from Mr Bryant's evidence supports a finding that he was, in fact, calculating a reasonable fee or advising the taxpayers' directors of the amount that would be a reasonable fee for use of the trust assets.
7. The substance of Mr Bryant's evidence was consistent with him performing the ordinary function of a tax accountant which involves the preparation of true and fair financial statements for the directors of a company to approve and sign. The financial statements were prepared based on historical transactions recorded in the taxpayers' MYOB management accounts. The evidence of Mr Bryant was not consistent with him performing the function of expressing an opinion about a reasonable fee for the use of the trust assets and the common directors accepting that opinion. His evidence was the opposite. When it was put to him by the primary judge in that he was performing that function he responded with a flat 'no'. In response to a number of further questions from the primary judge he accepted that he undertook a 'reality check'. But, that evidence was all in a context in which he had said that he reviewed the accounts after the end of the financial year and calculated that the amounts charged and paid for service fees were in accordance with the 2005 agreements.
8. With respect to the primary judge, to observe that it matters not whether Mr Bryant's understanding of the agreements was or was not correct, distracts from the substance of the evidence of Mr Bryant and Mr Andrew Coronis. The evidence of Mr Bryant was to the effect that he was not providing advice about what was a reasonable fee. On his evidence, he was merely preparing financial statements and calculating or checking that the 'service fees', 'franchise fees' and other fees were in accordance with the 2005 agreements. Mr Andrew Coronis's evidence was to the effect that he signed whatever Mr Bryant put in front of him and Mr Bryant said '[t]his is what the charge is going to be'. Mr Andrew Coronis said '[w]e would think it would be fair and reasonable'. There was no evidence of Mr Bryant giving advice to the directors to the effect that in his opinion a fair and reasonable fee for the use of the trust assets in each year was in a particular amount. Mr Bryant reviewed the amounts recorded in the financial statements for reasonableness, but that was by reference to his understanding that the fees were to be charged in accordance with the 2005 agreements not that the fees were to be charged as 'a fair and reasonable amount' for the purposes of other agreements.
9. It follows that the evidence of Mr Bryant does not provide a proper foundation for concluding that the taxpayers and the trustees communicated to each other mutual assent before the end of each relevant year to the effect that the fee payable by the taxpayers would be a fair and reasonable fee for use of trust assets as determined by the trustees after the end of that financial year and, in the meantime, monthly amounts paid to the trustees would be credited against the final liability as determined by the trustees. Nor does Mr Bryant's evidence provide any support for finding that there was an outward manifestation by the common directors of the existence of agreements between the taxpayers and the trustees that included terms that the taxpayers would pay a reasonable fee for use of the trust assets up to 8% of the value of the business. No such agreement in those terms was communicated to Mr Bryant for the purpose of his preparing the taxpayers' financial statements so as to provide an accurate and fair statement of the financial positions of those companies.

Conduct not consistent with liability to pay a fair and reasonable fee up to an 8% return

Books and records and financial statements as prepared

1. Extracts from the general ledgers forming part of the books and records of the taxpayers and trustees were in evidence. A book kept by a body corporate under a requirement of the Corporations Act is prima facie evidence of any matter stated or recorded in the book: s 1305(1) of the Corporations Act. However, the prima facie nature of the evidence does not prevail where it is outweighed by other evidence or by some quality or characteristic of the books even if there is no other evidence: Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; 236 FLR 1 at [396]- [400] (Austin J). Further, s 1305 does not elevate an entry in the books and records to prima facie evidence that a transaction or any series of transactions took place. 'It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that ... such a figure should appear in the accounts': Whitton v Regis Towers Real Estate Pty Ltd [2007] FCAFC 125; 161 FCR 20 at [59] (Buchanan J, Marshall and Tracey JJ concurring).
2. Here, the taxpayers' and trustees' books and records (the general ledgers extracted from their MYOB management accounts) recorded payments the taxpayers made and the trustees received with certain codes that had the descriptions: 'Group Franchise Fee', 'Finance Charges Reimbursed', 'MD Wages & Salaries Reimbursed', 'Wages and Salaries Reimbursed', 'Group Service Fee' and 'Service Fee'. The primary judge found that there was no doubt the payments recorded in the general ledgers were made by the taxpayers: PJ [90]. His Honour was also of the view that the taxpayers had, 'at least proved the incurring of fees in the amounts as labelled in the ledgers'. However, his Honour also observed that it was 'obvious from the financial statements that, when these ledgers were reviewed by a qualified chartered accountant for the purpose of preparing entity financial statements, the entries in them did not directly translate into entries in the financial statements': PJ [91].
3. In our view, the entries in the general ledgers taken with the direct evidence of Ms Hanlon and Mr Bryant do not support the primary judge's conclusion that the taxpayers had at least proved 'the incurring of fees in the amounts as labelled in the ledgers'. At most, the evidence supports a finding that the taxpayers made payments to the trustees in the amounts recorded in the general ledger and that Ms Hanlon or another bookkeeper formed an opinion that a particular code (label) should be assigned to the payment. However, neither the entries recorded in the general ledgers nor the evidence of Ms Hanlon support a finding that the payments were made pursuant to agreements between the taxpayers and the trustees made at any time before the payments were made or before the end of the tax year in which the payments were made.
4. SNA Group recorded payments made to the trustee of the Henry Trust as 'Group Franchise Fee' in the 2015 and 2016 financial years and 'Service Fee' in the 2017 financial year. SNA Group recorded payments made to the trustee of the Emily Trust as 'Finance Charge Reimbursed' in the 2018 and 2019 financial years and 'Service Fee' in the 2015 - 2019 financial years. The trustee of the Henry Trust recorded the payments received as 'Group Service Fee'. The trustee of the Emily Trust recorded the payment received as 'Finance Charge Reimbursed' and 'Service Fee'.
5. ATPR recorded payments made to the trustee of the Henry Trust as 'Group Franchise Fee' in the 2015 - 2018 financial years, 'MD Wages & Salaries Reimbursed' in the 2017 - 2019 financial years, 'Wages and Salaries Reimbursed' in the 2015 and 2017 - 2019 financial years and 'Service Fee' in the 2015 - 2018 financial years. The trustee of the Henry Trust recorded the payments received as 'Service Fee' and 'Group Franchising Fee'.
6. Ms Hanlon gave evidence to the effect that at the time the Coronis real estate group was restructured Mr Bryant gave her instructions on how to manage the transfer of funds between the entities. Otherwise, Mr Bryant had no involvement in her day-to-day bookkeeping and she spoke to him in rare instances. Mr Bryant instructed her that, if there were excess funds in APTR or SNA Group, these funds were to be transferred through to the trustees and coded as a 'Service Fee' between the entity and the trusts. She understood that she was to deal with Mr Bryant in relation to accounting issues and had the authority of the directors to do so. But, her dealings with him were informal. None of the directors had any involvement in the day-to-day bookkeeping and accounting.
7. Ms Hanlon gave evidence to the effect that originally all the transfers of funds were coded as 'Service Fee', but (in the case of payments made to the trustee of the Emily Trust) embedded in that code was a 'finance on-charge' (Finance Charge Reimbursed). From 2017 the finance on-charge was separated out and coded separately. The 'finance on-charge' was to pay for the Commonwealth Bank loan. There was also a charge for 'Group Franchise Fee'. That was a transfer from the taxpayers to the trustee of the Henry Trust for the unit holders' 'monthly distribution'. She said they were all technically the service fee but were coded differently. SNA Group paid the trustee of the Henry Trust the group service fee and the excess funds were paid to the trustee of the Emily Trust.
8. The code 'MD Wages & Salaries Reimbursed' was for Mr Andrew Coronis's salary as managing director and Ms Hanlon's wages. These were reimbursed by the taxpayers. Evidently, SNA Group paid this to ATPR and ATPR paid it to the trustee of the Henry Trust. It was not for service fees.
9. Ms Hanlon was not instructed to transfer a percentage of revenue or an amount reflecting a percentage of net assets of the trusts.
10. The effect of Ms Hanlon's evidence was that the taxpayers made payments for the following purposes: (1) monthly payments to the trustee of the Henry Trust to pay for distributions that trustee made to unit holders; (2) payments to reimburse the trustee of the Henry Trust for the employment costs of Mr Andrew Coronis and Ms Hanlon; (3) payments to reimburse the trustee of the Emily Trust for the financing costs of its Commonwealth Bank loan; and (4) payments of funds surplus to operating requirements. Payments for any of those purposes was not consistent with a pre-existing contractual liability to pay a fair and reasonable service fee of up to 8% of the value of the business at the time the payments were made and coded in the MYOB records.
11. As already mentioned, Mr Bryant prepared the financial statements on the assumption that the 2005 agreements remained operative. Mr Bryant was not providing the directors of the trustee companies with advice about the amount of a fair and reasonable fee for use of trust assets in any of the relevant tax years. Mr Bryant gave instructions to Ms Hanlon regarding the codes (labels) to be used for payments made from the taxpayers to the trustees. Ms Hanlon was not given instructions regarding the codes from the directors. The entries in the books and records were evidence that Ms Hanlon understood that the taxpayers had liabilities to pay fees to the trustees, but, on Mr Bryant's evidence, these were to be reconciled and reviewed for reasonableness at the end of each relevant year against the taxpayers' liabilities under the 2005 agreements. Mr Bryant also prepared financial statements in each relevant year on the basis that the entries in the books and records of the taxpayers and trustee should reflect service fees calculated in accordance with the 2005 agreements.
12. It follows that the books and records and financial statements of the taxpayers and trustees are not reliable as evidence of any contractual liability existing at the dates the payments were made and recorded in the taxpayers' and trustees' MYOB management accounts or as recorded in the financial statements prepared after the end of each relevant year. Both the books and records and financial statements were prepared on the mistaken assumption that the 2005 agreements remained binding and operative and that the payments were made in accordance with those agreements. Therefore, neither the books and records nor the financial statements are evidence of any payments made pursuant to any contract.
13. Further, there was no evidence that any of the directors of the taxpayers or trustees was aware of the manner in which the payments the taxpayers made to the trustees was coded or labelled in their books and records or that any directors had given instructions regarding the manner in which the payments were to be recorded so as to reflect existing contractual liabilities at the time the payments were made. Therefore, there was no evidence of any objective communication between the directors of the taxpayers and the trustees about the nature of the payments before or at the time the payments were made and recorded in the books and records.

Books and records and financial statements as reconciled

1. Mr Graham, a specialist chartered accountant who had investigated and reported on the amounts claimed as service fee deductions, also gave evidence. A report and a memorandum he prepared containing summaries of the amounts claimed as deductions and his opinions about the reasonableness of the amounts claimed as 'service fees' and about the manner in which the payments should be reconciled and allocated for the claimed liabilities to pay fees were also tendered in evidence.
2. Mr Graham's report included tables that identified the following amounts each taxpayer claimed as service fees in each relevant year and the amounts each taxpayer was liable to pay for service fees under the 2005 agreements.

1. As illustrated in the preceding tables, the actual payments the taxpayers made to the trustees were not in accordance with the 2005 agreements. The manner in which payments (that bore no resemblance to the payments required to be made under 2005 agreements) was considered by Mr Bryant to have been calculated in accordance with those agreements and 'reasonable' was not explored in his examination or cross-examination. As the primary judge observed (PJ [84]), other than the 'end result in the financial accounts of APTR and SNA and Coronis real estate group entity recipients of service fees, there [was] no contemporaneous record of the methodology Mr Bryant used in calculating ... what was a reasonable service fee for a given year'. However, whatever methodology Mr Bryant used to review for reasonableness or to perform a reality check it was plainly not to reconcile and ensure that the amounts paid and claimed as deductions for service fees were a correct and accurate reflection of the amounts the taxpayers were liable to pay for service fees under the terms of the 2005 agreements. Moreover, there was no evidence that Mr Bryant intended to use or used any methodology that was directed at identifying 'a fair and reasonable fee up to 8% of the value of the business'.
2. Mr Graham's memorandum included tables summarising the deductions claimed as service fees the taxpayers paid to the trustee of the Henry Trust for use of intellectual property assets in each relevant year as a percentage of the total sales for each year as follows.

1. Mr Graham said in the memorandum that average service fees of 6.77% and 6.63% of sales fell within the 'interquartile range of [his] global benchmarking study' and that he did not consider the 'licencing fee to be excessive'. Amongst other things, Mr Graham gave evidence to the effect that a reasonable service fee for the use of the trustees' intellectual property was between seven and 10 percent of gross revenue.
2. In the case of SNA Group, the memorandum also included a table summarising the deductions claimed as service fees paid to the trustee of the Emily Trust for use of the rent roll asset in each relevant year as a percentage of the value of the rent roll as follows.

Market valuation of Rent Roll of the Emily Trust ($)

1. Mr Graham expressed an opinion that an average of 1.41% return on the market value of the rent roll was not excessive and significantly below the cost of financing the purchase of the roll. (The market value of the rent roll was evidently based on the valuations of Gil Wright & Associates.)
2. The primary judge unreservedly accepted the essence of Mr Graham's evidence which was to the effect that the amounts the taxpayers claimed as deductions were within the range of an arm's length value of fees for use of the trust assets. However, the mere fact that the payments the taxpayers made to the trustees and claimed as deductions for the use of trust assets fell within or below the range of an arm's-length consideration for use of that assets was not evidence of the existence of a contractual liability to pay a fair and reasonable amount up to 8% of the value of the business.
3. The concept of a 'fair and reasonable' price for services provided or value of goods supplied is well-established in legal authority and is an objective standard. Identification of a fair and reasonable price or value raises a question of fact the answer to which depends upon the methods of reasoning which are pursued. Usually, the value of the services will be assessed by reference to charges commonly made by others for like services unless no such standard is available or a fair value for the benefit provided (e.g., remuneration calculated at a reasonable rate for the work actually done or the fair market value of materials supplied). In such cases, practical necessity requires the application of an objective price derived from outside the contract which ordinarily depends on evidence of supply costs and market conditions: see, e.g., Mann v Paterson Constructions Pty Ltd [2019] HCA 32; 267 CLR 560 at [203]- [204] (Nettle, Gordon and Edelman JJ). There may be a range of methods of reasoning (methodologies) used to arrive at such a fair and reasonable fee, but, whatever methodology is used, it is to be expected that determination of a fair and reasonable fee would produce a coherent and consistent outcome in the fees paid by the taxpayers between relevant years and in fees paid for the provision of the same or similar services to each taxpayer.
4. Mr Graham's evidence regarding arm's-length consideration for use of the intellectual property of the trustee of the Henry Trust and the rent roll of the trustee of the Emily Trust adopted a methodology that calculated the fee as a percentage of the sales generated from the intellectual property or value of the rent roll. However, using that methodology, while the amount of the asserted fee for each individual relevant year was within or lower than an arm's-length fee, there was no coherence or consistency in the payments made between relevant years or in the payments made by each taxpayer for use of the same or similar intellectual property.
5. If the benchmark for a fair and reasonable fee for use of intellectual property was a percentage of annual sales, it is to be expected that there would have been an application of a consistent percentage to the annual sales or an explanation for a change in the percentage from year to year. It is also to be expected that the percentage of sales would have been the same for each of APTR and SNA Group in each relevant year for use of the same or similar intellectual property or there would have been an explanation for any differences in the percentage used for each taxpayer. Mr Graham's evidence demonstrated that there was no such consistency and there was no evidence of the methodology used to calculate the payments that could provide an explanation for the variances between relevant years and taxpayers. In the case of APTR, except for 2016, the claimed service fee declined as a percentage of sales between 2015 and 2019 whereas, in the case of SNA Group, the claimed service fee increased as a percentage of sales in that period. The percentage of fees for APTR and SNA Group were different in each relevant year. With respect to the return on the rent roll, again, there was no consistency between the claimed service fee for use of the rent roll and the percentage of the value of the rent roll used as the benchmark for the identification of a market-based fee. Again, there was no explanation of the methodology used that could explain the reasons for the lack of consistency.
6. It follows that there was no course of conduct from relevant year to relevant year from which an objective communication between the taxpayers and the trustees of a liability to pay a coherent and consistent 'fair and reasonable fee' for use of intellectual property based on a percentage of sales or a 'fair and reasonable fee' for use of the rent roll based on a percentage of the value of the roll could be inferred. Indeed, the evidence was the opposite. There was no evidence of any methodology and the objective communication was of payments of incoherent, inconsistent and seemingly random amounts from relevant year to relevant year by each taxpayer and between each taxpayers for use of the same or similar intellectual property.
7. In the case of SNA Group, Mr Graham's memorandum also included tables that were said to describe management's reconciliation of the claimed service fees paid to the trustees. These were as follows:

1. Mr Graham opined that based on the information summarised in the table, 'cash transfers/loans' were erroneously accounted for as expenses in SNA Group's financial records and income in the financial records of the trustee of the Emily Trust. He opined that these were non-deductible and 'miscoded' to the service fees expense account in the SNA Group books and records. The amounts miscoded range from $1,319,091 in 2015 to $636,354 in 2018. On that evidence, those payments could not be regarded as communications between the SNA Group and PAC Realty as the trustee of the Emily Trust of amounts paid or payable as a service fee let alone as a 'fair and reasonable service fee'.
2. In a separate table Mr Graham broke-down the finance charges reimbursed in 2019 and 2018 into components comprised of bank charges and interest expense. Mr Graham opined that these were expenses the trustee of the Emily Trust incurred which were 'repaid' by SNA Group without any mark-up. While evidence of a consistent pattern of SNA Group reimbursing the trustee of the Emily Trust for the costs the trustee incurred in repaying principal and interest on loans used to finance the purchase of the rent roll without any mark-up might provide a basis for inferring an agreement between SNA Group and PAC Realty to the effect that PAC Realty granted SNA Group use of the rent roll in consideration for SNA Group paying for the costs of financing the acquisition of that asset, that was not the agreement SNA Group alleged nor the agreement the primary judge found to exist. Further, such an agreement would not involve liability to pay a fair and reasonable service fee determined by the trustee. Therefore, a consistent payment of a financing charge to the trustee of the Emily Trust was not evidence of an objective communication of a liability to pay a fair and reasonable service fee for use of the rent roll.
3. Additionally, there was no coherence or consistency between the categories (codes or labels) and amounts allocated to each category (code or label) in the 'reconciled' tables in Mr Graham's memorandum, the general ledgers and the financial statements. It is also evident that the amounts claimed as deductions for 'service fees' in the financial statements and tax returns in each relevant year included:

(a) payments to the trustee of the Emily Trust for the financing cost of a loan used to finance its acquisition of the rent roll;

(b) payments to the trustee of the Emily Trust of amounts surplus to the operating requirements of SNA Group; and

(c) payments to the trustee of the Emily Trust that were not able to be classified.

1. Mr Graham's evidence was to the effect that the amount he categorised as 'cash transfers/loans' were non-deductible and 'miscoded' as service fees. Payments for loan financing costs and payments that were unclassified (not capable or reconciliation to any other category) were also not obviously 'service fees'. Without any evidence of the methodology for calculating the 'service fees' recorded in the financial statements, the manner in which the amounts in these categories came to be included in the 'service fees' claimed as deductions in each relevant year is inexplicable. In any event, the evidence of these payments and the categorisation of them in the books and records and financial statements does not establish that they were payments made for or on account of 'a fair and reasonable fee' for use of trust assets or the provision of other services by the trustees to be determined by the trustees after the end of each relevant tax year.

1. Although GST was evidently 'charged' on the amounts coded as 'service fees' no GST invoices were rendered by the trustee companies to the operating companies for the service or licence fees. The absence of tax invoices was an indication that there may not have been a taxable supply of goods or services for the purposes of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) because it was ordinarily necessary to hold a tax invoice to claim an input tax credit for the GST embedded in a creditable acquisition: s 29-10 of the GST Act. That is, the absence of a tax invoice is evidence that is inconsistent with an objective outward manifestation or communication between the taxpayers and the trustees of the existence and acceptance of a contractual liability to pay a fee for a service.

1. The uncommunicated subjective thoughts or intentions of Messrs Theo and Andrew Coronis about ensuring that the unit holders of the Henry Trust received a return of 8% indirectly from the trustees charging the taxpayers a fair and reasonable fee for use of trust assets provides no foundation for inferring the existence of a contract between each of the taxpayers and trustees. Likewise, Mr Andrew Coronis's subjective view that the amounts recorded as service fees in the taxpayers' financial statements were fair and reasonable provides no foundation for inferring the existence of a contract. There was no evidence of any communication between the directors from which to identify even a request by taxpayers for the trustees to provide trust assets or other services from which it could be inferred that there was an agreement to pay a fair and reasonable fee for the use of trust asset or provision of other services. Such evidence as there was concerned what Messrs Theo and Andrew Coronis thought, but there was no evidence that the foundation for their subjective states of mind was any outward manifestations or communications between the directors acting as agents for each of the taxpayers and trustees.
2. In the absence of any outward manifestations or communications the taxpayers conduct in making periodic payments and assigning codes (labels) to these payments in the taxpayers' and trustees' books and records was not sufficient evidence from which to infer a request for the provision of services or assets or agreement to pay a fair and reasonable fee. Further, the inference to be drawn from the evidence was that the codes (labels) were assigned based on a mistaken assumption that the 2005 agreements remained operative. Therefore, to the extent that assigning the code 'service fee' or similar to payments the taxpayers made to the trustees could be regarded as consistent, or not inconsistent, with the existence of an agreement of the kind the primary judge found to exist, that was not evidence from which the existence of a contract could be inferred. The directors approval of the financial statements of the taxpayers and trustees after the end of each relevant tax year was also not conduct from which the existence of a contract could be inferred because the financial statements were prepared on the mistaken assumption that the 2005 agreements were operative and the payments the taxpayers made to the trustees were made in accordance with liabilities incurred under those agreements. Otherwise, there was no coherence or consistency with respect to the payments the taxpayers made in each relevant year and mere fact that payments were made and these were within the range of an arm's-length fee for use of the assets was also not sufficient evidence from which to infer the existence of a contract.
3. On the undisputed facts, the primary facts found and the evidence the primary judge accepted as true and correct, reasonable people in the position of ATPR and PAC Realty as trustee for the Henry Trust and in the position of SNA Group and PAC Realty as trustee for the Henry Trust and SNA Group and CLAARS as trustee for the Emily Trust would not conclude that the taxpayers were subject to a liability, contractual in nature, to pay a service fee in each relevant year to be determined by the trustees based on advice from Mr Bryant as to a fair and reasonable fee up to 8% of the value of the business.

1. For the foregoing reasons the appeal should be allowed. The primary judge's orders should be set aside and in their place there should be orders dismissing the taxpayers' taxation appeals with costs. The taxpayers should also pay the Commissioner's costs of the appeal.

I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices McElwaine, Feutrill and Wheatley.