BEFORE THE PRIMARY JUDGE
9 The primary judge upheld the appellants' contention that by treating the deductibility of the $250,000 claimed by each of them as dependent upon whether the partnership had in fact paid, as distinct from having agreed to pay, the full sum of of $14,968,000, the Tribunal applied the wrong legal test to the operation of s 8‑1 of the Income Tax Assessment Act 1997 (Cth).
10 However, his Honour went on to uphold the Tribunal's conclusion that Part IVA applied to disallow the deductions. He rejected the appellants' contention that they did not derive a tax benefit within the meaning of s 177C because they were in fact each out of pocket in the sum of $250,000 with respect to their investment in the partnership. He did this on the basis that the submission sought to take issue with a finding of fact made by the Tribunal. No question of law was raised.
11 The primary judge also rejected the appellants' contention that they were not themselves parties to any scheme of a kind referred to in Part IVA. He said:
To the extent that this submission involves a question of law, there is no substance in it. Under s 177D of the 1936 Act, a scheme is one where, having regard to various enumerated factors, "it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme …" This provision, which requires an objective approach, is concerned with the purpose of the person, or any of the persons, who entered into or carried out the scheme. It need not be the purpose of the taxpayer. It is apparent from the extract from the Tribunal's reasons set out above that the Tribunal took an objective approach, and concluded that "the promoter and the partners entered into the scheme purporting to borrow funds to increase the claim for expenditure beyond that actually incurred for the purpose of obtaining a tax benefit by inflating the amount sought to be deducted". To avoid the operation of s 177D, it would not be enough for the applicants to establish that they did not have the purpose there referred to: they would have to show that none of the persons who entered into or carried out the scheme had such a purpose. Notwithstanding their own protestations, the Tribunal's finding on that point was one of fact which was amply open to it. To the extent that it involved an (objective) inference about the purpose of the applicants (along with that of other partners), it was equally open to the Tribunal. It involved no error of law.
12 The final issue before the primary judge did not arise out of the Tribunal's reasons. It involved the appellants' complaint of a denial of natural justice occasioned by the Tribunal proceeding to hear and determine their applications notwithstanding the absence from the witness box of Mr Brereton to whom they had caused a summons to be issued under s 40(1A) of the AAT Act. The facts which form the background to this issue can be summarised as follows:
(a) It was the appellants' intention to have Mr Brereton give evidence as part of their case.
(b) On 23 April 2007 the first appellant informed the Tribunal that Mr Brereton had refused to give evidence voluntarily, and had said that if summoned to appear he would refuse to answer questions in order to avoid self‑incrimination.
(c) Mr Brereton did not give evidence during the hearing of the application for review over the period 19‑21 November 2007.
(d) At the end of their evidence, the appellants informed the Tribunal they could go no further without Mr Brereton's presence.
(e) The Tribunal decided to hear final submissions before deciding whether to adjourn the hearing to give the appellants a further opportunity to produce Mr Brereton.
(f) On 21 November the Tribunal decided "with strong reservations" to grant an adjournment to a date to be fixed so that Mr Brereton could be called. It did so on condition that on or before 5 December the appellants provide confirmation to the Tribunal and the Commissioner from Mr Brereton that he would attend and give evidence on one of a range of dates specified by the Tribunal.
(g) Having ascertained from the Tribunal that it would resume the hearing on 11 March 2008, the appellants caused a summons to Mr Brereton to be issued which was left with a staff member at his office on 13 February.
(h) On 20 February 2008 the first appellant sent an email to the staff member seeking confirmation that she had brought the summons to Mr Brereton's attention.
(i) On 21 February 2008 the Commissioner's solicitor drew the first appellant's attention to the fact that reg 15 of the Administrative Appeals Tribunal Regulations 1976 (Cth), which requires a summons to be served on a proposed witness personally, had not been complied with, so that Mr Brereton was not obliged to obey the summons. On the same day the first appellant responded that he had been told by a Tribunal officer that service could be effected by leaving the summons at Mr Brereton's office. However, he would attempt to serve Mr Brereton personally, but the latter will "most probably seek to avoid this fate". There was no evidence of any further service or purported service.
(j) On 27 February 2008 Mr Brereton wrote to the first appellant. After referring to the summons, he requested that the appellants agree to adjourn their matter in the Tribunal until after Mr Brereton's own matters ("Jolson and other matters") had been dealt with. The first appellant replied to the effect that there would be no problem with the adjournment so long as the Commissioner consented. The Commissioner made clear that he would not consent.
(k) By letter to the appellants of 7 March 2008 Mr Brereton claimed that the summons had not been served as required by reg 15. He also complained about its width, and the fact that the appellants had arranged a resumed hearing date without consulting him as to his availability. He said he would not be attending the Tribunal on 11 March 2008. He sent a copy of the letter to the Tribunal. The Tribunal received the letter before the resumed hearing. The appellants did not.
(l) On the resumed hearing on 11 March Mr Brereton was not present. The appellants thereupon ascertained from his office that he was at an airport on his way overseas and that it was not known when he would return. The Tribunal then announced that it was not prepared to adjourn the matter any further. It said:
· it had no doubt that any attempt to enforce the summons in the courts would be strongly defended by Mr Brereton;
· it had no confidence that Mr Brereton's own matter would progress with any great speed;
· it suspected that it would be a long time before "we're actually going to get Mr Brereton down to a hearing and giving evidence";
· it had some reservations about an adjournment on the last occasion, and that's why it imposed the condition that the appellants confirm that Mr Brereton would attend on the adjourned date;
· it had no confidence that Mr Brereton would appear to give evidence; "my guess is he has no intention of appearing".
The Tribunal proceed to determine the application adversely to the appellants.
13 After referring to s 39(1) of the AAT Act, which requires a party to be given a reasonable opportunity to present his or her case and to make submissions, and noting that a failure to accede to a reasonable request for an adjournment can constitute procedural unfairness (Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597 at [40]), the primary judge said:
there could be no suggestion that the period between 21 November 2007 and 11 March 2008 was not a reasonable one to enable the applicants to take such steps as were necessary to procure Mr Brereton to give evidence. However, when the hearing resumed on 11 March, Mr Brereton was not present, but had sent a letter to the Tribunal contending that he had not been properly served with the applicants' summons. If there was substance in that contention, I do not think the applicants would be in any position to say that Mr Brereton's absence was the result of an unexpected supervening event for which they had no responsibility. At this point, the court is confronted with an unresolved question of fact … The Tribunal made no finding on the subject of the efficacy of the applicants' service on Mr Brereton. Neither have the applicants led any evidence on the subject in the present proceeding. The matter was, quite clearly, one on which the applicants carried both the legal and the evidentiary onus. In the circumstances, I cannot take it to have been established in point of fact that Mr Brereton was duly served in accordance with reg 15 of the AAT Regulations. Indeed, the applicants' own email to Mr Brereton's office of 20 February 2008 implies that personal service was not effected.
14 His Honour went on to say that the appellants' failure to establish that Mr Brereton had been duly served was fatal to their contention that their application for an adjournment was a reasonable one, and to their allegation that they were denied natural justice.