Edelsten, G.W. v. Wilcox, C.R. & Anor [1988] FCA 294

Federal Court of Australia|1988-06-20|Before: Burchett J

Income Tax ~ Judicial Review - notices under s.218 of Income Tax Assessment Act attaching the whole of all sums due to

medical practitioner by Health Insurance Commission in respect of "bulk Poilling" - nature of Commissioner's discretion under 8.218 - duty to act fairly - whether decision unreasonable in the Wednesbury sense - whether there was failure to take account of relevant matters (that the payments were almost the whole of the taxpayer's gross income required to meet both expenses of his practice and living expenses; and that there was a genuine non-scheme dispute as to liability to the tax assessed) - duty of administrator to act on the most current material available - failure to consider actual circumstances

reliance on paper exercises - effect of failure to call decision maker - whether there was denial of natural justice
legitimate expectation of opportunity of rebuttal - when, in principle, a legitimate expectation arises - effect on the court's discretion of events subsequent to the decision - ability of court to mould relief to ensure the applicant himself complies with his own relevant obligations - relevance of effect of grant or refusal of relief upon third parties.

Income Tax Assessment Act 1936, 5.218 Administrative Decisions (Judicial Review) Act 1977, s.16(1)(c) and (d).

NEW SOUTH WALES DISTRICT REGISTRY ) No. G.328 of 1987 )

Applicant AND: CHARLES ROBERT WILCOX First Respondent AND:

On 22 April 1986, original assessments in respect of income tax for the years ended 30 June 1977 to 30 June 1985 inclusive in respect of the applicant, Dr. Geoffrey Walter Edelsten, were issued by the respondent, the Commissioner of Taxation, and were the subject of objections. On 8 October 1986, amended assessments issued in respect of the same years in a

The amended assessments were the subject of objections which admittedly raised real issues, and go to the whole of the amount assessed. In respect of the same years, a number of

assessments issued against companies with which the applicant is

associated, the total amount of all the assessments relating both to him and the companies being in excess of $5,300,000-00. It has been accepted, on a number of occasions, by officers of the Commissioner that these assessments involve inconsistent "doubling up", and that either substantial amounts should not be assessed against the applicant, or they should not be assessed against the companies. It is not a case, such as Winter v. Deputy Federal Commissioner of Taxation (1987) 75 A.L.R. 104, where there is any suggestion that the same sum could properly be treated as the income of both of two parties. What the

Commissioner says, relying on Richardson v._ The Federal

Commissioner of Taxation (1932) 48 C.L.R. 192 and distinguishing R. v. Commissioner of Taxation; Ex parte Briggs (1986) 12 F.C.R. 301, is that it was open to him to issue alternative assessments in the circumstances, though not to enforce all of them to the full amount. In fact, as will appear, had the applicant been able to provide security acceptable to the Commissioner, the total liability of the applicant and the companies may well have been reduced (for this and other reasons) by agreement to $1.7

In a report to the Commissioner of Taxation dated 15 April 1987, made by an Assistant Deputy Commissioner, it was stated:

"The assessments of Dr. Edelsten, which are expected to be further disputed by either reference or appeal, are non-scheme genuine dispute cases. Similarly, the assessments of his associated entities, with the exception of one aspect of the 1976 assessment of Riahc Pty Ltd, constitute non-scheme genuine disputes."

That the applicant's objections raised genuine questions is also evidenced by the affidavit of Paul William Woods, an accountant whom senior counsel for the respondent stated that he did not wish to cross-examine. Mr. Woods attended, on 23 March 1987, a meeting at which three officers of the respondent including a Mr. Barford and a Mr. Thurlow were present. They will be referred to later. The purpose of the meeting was to discuss the assessments and amended assessments of the applicant and of the taxable entities associated with hin. One of the taxation officers at that meeting said words to the effect:

"Management fees have been double counted and the assessments would require amendment."

This statement was made so as to include a reference to particular deductions claimed by the applicant for management fees paid to a service company, which had been disallowed in a total sum of $722,275-00 in the years 30 June 1979 to 30 June 1984 inclusive. According to Mr. Woods, whose evidence in the circumstances I think I should accept, the discussion then turned to the total liability of taxable entities with which the applicant was associated and of the applicant himself. In the course of the discussion Mr. Thurlow said words to the effect: "Your arguments are valid. I have limited

authority to negotiate. We are prepared to accept $2.5 million."

That sum represented less than half the full assessed liability

Of course, the fact that tax is genuinely disputed does not prevent s.201 of the Income Tax Assessment Act 1936 ("the

"The fact that a review or appeal is pending in relation to an assessment does not in the meantime interfere with, or affect, the assessment and income tax may be recovered as if no review or appeal were pending."

Even the concession of officers of the Commissioner that income attributed to the taxpayer was also attributed to various companies, and might ultimately turn out to be taxable only in

their hands, would not necessarily alter this position.

Relying on s.201, the Commissioner issued a notice dated 8 December 1986 under 8.218 of the Act requiring the Health Insurance Commission to pay to the Commissioner the whole of any money due by it to the applicant until the amount of $1,183,583-10 tax due should be satisfied. Section 218(1)

"The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require -

(a) any person by whom any money is due or accruing or may become due to a taxpayer;

to pay to the Commissioner, either forthwith upon the money becoming due... or at or within a time specified in the notice (not being a time before the money becomes due...) -

(e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or

(£) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied,

the time for making any payment in pursuance of the notice."

The applicant got in touch with the acting Deputy Commissioner at Parramatta, Mr. Carmody, to seek a reduction of the amount required by the notice - from the whole of the moneys due to him by the Health Insurance Commission to a_ fixed Proportion of those moneys. His claim was that, not only was the tax in dispute, but also the payments in question represented almost his entire gross income, a substantial part of which was required to pay the wages of employees and the other expenses of his medical practice. It will be observed that paragraph (f) of s.218(1) contemplates that a notice may be limited to "such

amount as is specified in the notice out of each payment".

"Dr. Edelsten told you that there would be difficulties in paying staff, difficulties in conducting his practice, and difficulties in living. What I am asking you is, did you accept the truth of those assertions?"

Mr. Carmody, who had earlier said the applicant had asserted that "the notices took nearly all his income", replied: "I accepted the logic of it. I had no way of

knowing; that is why I sent somebody out to look into it."

Curiously, there was dispute as to whether it was a Mr. Barford or another officer who was asked "to look into it" (on the whole I think it probable Mr. Barford was involved in doing so), but it was agreed that the notice was withdrawn as a result of the investigation of Dr. Edelsten's representations about its effects. It was in fact revoked on 23 December 1986, when fresh notices were issued, again alleging an amount of $1,183,583-10 was due by Dr. Edelsten in respect of tax, and requiring payment of an amount of 45 cents in every dollar of each payment to be made by the Health Insurance Commission until the tax should be satisfied. There were on this occasion a number of notices, because the course was taken of issuing separate notices in

respect of each of paragraphs (a), (b), (c) and (d) of s.218(1).

At the time of these events, the objections lodged on behalf of the applicant had not been dealt with. Although it was not suggested that, in that situation, the Commissioner would have insisted upon the original notice even if satisfied that it was completely correct that the whole of the applicant's gross fees from the Health Insurance Commission were being absorbed without leaving anything to meet the expenses of his earning them, and that he would have little other income to live on, the

fact is the revocation of the original notice and the issue of

the fresh notices were treated as part of a much_~ wider negotiation with the applicant, involving also the assessments against his companies. On all the evidence, I think it is clear that the negotiations were conducted on the footing of an acceptance by the Commissioner, as the truth, that the assessments did involve the duplications to which I have referred, so that it would be necessary, either as a result of the applicant and his companies pursuing appeals, or by an overall settlement agreement or by unilateral amendments by the Commissioner, to reduce very significantly the total amount of tax payable. This, of course, did not necessarily mean that any tax had been incorrectly included in the assessment of the applicant himself (though it might mean that), but it was contemplated that an overall settlement might involve a_ rateable

Initially, Mr. Carmody demanded a substantial "up front" payment, and there was debate at the hearing as to whether a particular payment of $87,000-00 qualified as the payment demanded. I do not think it is necessary to resolve that debate, since it is clear on all the evidence that, if it did not, the Commissioner was at any rate prepared to waive insistence upon any precondition that any further payment should be made by way of ai luagp sum before the negotiations proceeded. The negotiations did proceed, and were terminated in May only after a substantial measure of agreement had been arrived at to the effect that the total tax of over $5,300,000-00 should be reduced to approximately $1.7 million dollars, to be paid over a period

expiring in June 1988. The rock on which these arrangements

foundered was the inability of the applicant to obtain security, satisfactory to the respondent, for the sum of $1.5 million dollars being the portion outstanding of the sum of $1.7 million dollars.

The negotiations having come to an end, the' respondent disallowed the applicant's objections (whereupon the applicant ledged appeals), and on 7 July 1987 revoked the notices of 23 December 1986 and issued fresh notices under 8.218 of the Act requiring the Health Insurance Commission to pay one hundred cents in every dollar of each payment due to Dr. Edelsten, who is described in the notice as "a taxpayer by whom the amount of $692,832-20 is due in respect of tax", until satisfaction of that amount. It is not clear to me how the figure shown in the notices has been calculated. According to the evidence, a sum of $192,629-63 had been paid to the respondent under the notices of 23 December 1986 up to and including 10 June 1987, and a_ further sum of approximately $30,000-00 had been paid prior to the revocation of those notices, making a total of about $220,000-00. It ig uncertain whether all of this amount had been credited against the tax assessments issued in respect of the applicant, but even if it had it would, of course, not have reduced the

On 29 July 1987, the applicant commenced these proceedings against the first respondent, who is the general manager of the Health Insurance Commission, and the Commissioner of Taxation (to whom I have referred and will refer in these

reasons as the respondent). The first respondent submits to the

order of the Court, and did not attend at the hearing. By the

application, review is sought under the Administrative Decisions

(Judicial Review) Act 1977 (the Judicial Review Act) of the decisions to revoke the notices of 23 December 1986 and to issue the notices of 7 July 1987. It was expressly accepted by the applicant (and by the trustee of his bankrupt estate who after his bankruptcy elected to continue the proceeding pursuant to 8.60 of the Bankruptcy Act 1966) that success of his challenge to these decisions would have the effect of reinstating the notices of 23 December 1986. The grounds of the application include denial of natural justice by failing to provide an opportunity to make submissions in respect of each of the decisions, failure to take account of the known financial position of the applicant, failure to take account of the known consequences and adverse effects of each of the decisions on the financial position of the applicant, and the making of the decisions without regard to the known merits of the dispute as to the amount of tax payable (a ground the formulation of which seems to me to embrace somewhat loosely an allegation that there was a failure to take those merits into account - without objection, senior counsel for the applicant argued that there was a failure to take into account both the effect on the taxpayer of cutting off substantially all his income and a failure to take into account the existence of a genuine dispute, the genuineness of which he said was evidenced by the readiness of the Commissioner's officers to consider a compromise involving a deduction of more than $3.5 million dollars from the total amount assessed against the applicant and his companies). The applicant also urged the ground contained in

B.5(1)(e), as expanded by 8.5(2)(g) of the Administrative

Decisions (Judicial Review) Act, that the exercise of the power was 60 unreasonable that no reasonable person could have so exercised the power. Additional grounds were lack of evidence and the taking into consideration of an irrelevant matter, being

the sale of certain assets by the applicant's wife.

The applicant in evidence referred to the investigation, prior to the revocation of the original s.218 notice in December 1986, of his claim that the Health Insurance Commission payments were almost his entire gross income. He swore that that investigation involved a meeting with two officers of the department, which he thought was on 17 December 1986 (a departmental minute which will be set out later in these reasons provides some confirmation of Dr. Edelsten's recollection), and he thought involved Mr. Wayne Barford. He said that he told the officers:

Commission represent nearly all of my income and without it, I won't be able to pay staff or continue to operate my medical practices

Dr. Edelsten said he went on to tell the officers during the meeting that his other sources of income were a partnership known as the Rockman partnership, which gave him $1,000-00 to $2,000-00 per month, and Superclinics Australia, from which he had been receiving a licence fee of $15,000-00 per month, but that there was a dispute and the licence fee was not expected to continue. (He had not in fact since received any moneys in respect of it,

and would not do so in the future.) He said that one of the

officers responded: "We can see that it will be impossible for you to continue your medical operations." Although I was told from the bar table that the respondent had obtained an affidavit from Mr. Barford, it was not read, nor was any affidavit proffered from the other officer, who appears to have been a Mr. Lacey. There was no suggestion in cross-examination that the conversation alleged by the applicant had not occurred, although Mr. Carmody thought the investigation of the applicant's allegations had been made by Mr. Lacey rather than by Mr. Barford, and that Mr. Lacey had actually gone out to an unspecified office of the applicant to check the true state of affairs as far as possible. In all the circumstances, giving full weight to the criticisms of Dr. Edelsten's credit which have been advanced, I am not persuaded I should reject his evidence of the investigation of his claims in December 1986, and I accept it.

It was not asserted that Dr. Edelsten had the kind of practice which involves the receipt of any significant fees directly from patients. He "bulk billed". Dr. Edelsten's evidence was that the fees from the Health Insurance Commission represented in excess of 99% of all his fees, and 96% of his entire income. Objection was taken to the form of this evidence, but I allowed it in reliance upon the views expressed by the Court of Appeal of the Supreme Court of New South Wales in Appleby v. Pursell [1973] 2 N.S.W.L.R. 879 at 891 (per Reynolds J.A.) and at 696-7 (per Bowen J.A., as he then was). In any event, on the other evidence in the case (including evidence

adduced by the respondent himself from an officer of the Heaith

Insurance Commission) I would have concluded that almost all the income of the applicant was derived from the Health Insurance Commission payments, and no other significant source of income was propounded. What was suggested on behalf of the respondent was that the applicant had been able on a number of occasions' to obtain access to substantial sums of money belonging to his wife and, in the past, from sources some of which had prior to December 1986 passed under the control of trustees of trusts of which the applicant was not a beneficiary, though his wife was, and others of which had been very adversely affected by governmental health policy decisions and by certain damaging

allegations made by a particular senator in the Senate.

A detailed appreciation of the applicant's position, made for the Commissioner of Taxation on 15 April 1987 by an assistant Deputy Commissioner, to which I have earlier referred, contains the statement:

"It appears that Dr. Edelsten does not possess any real assets."

It is unlikely, therefore, that the respondent thought he was in receipt of any significant income from property to supplement his earnings as a medical practitioner. The assistant Deputy Commissioner's appreciation also stated: "Dr. Bdelsten has restructured his affairs to disassociate himself, we believe, from the profitable entities within the Group while

reserving an option to repurchase such operations if he so desires."

That statement, while asserting the taking of deliberate steps at some time in the past (the evidence suggests Dr. Edelsten's activities have involved the use of companies and trusts over a substantial period), acknowledges that the profitable entities referred to are not associated with Dr. Edelsten himself. Nothing in the evidence supports the suggestion of an option to repurchase any operation, and I accept the applicant's denial

There is no suggestion that fresh sources of income for the applicant had come to light between the time when his situation was investigated in December 1986 and the time of the decisions of 7 July 1987. Mr. Carmody conceded in cross-examination that he was not aware of any enquiries made as to the sources of the applicant's income during 1987, and he said

As has been stated, the decisions in question were made on 7 July 1987. A minute was tendered in evidence which is signed by Mr. Barford and bears that date. Endorsed on it is a note of agreement signed by a supervisor bearing the same date, and an approval by Mr. Thurlow, again bearing the same date, which indicates that officers of the Australian Government Solicitor and the Director of Public Prosecutions "both concur with the proposed plan". It was not explained how the concurrence of an officer of the Director of Public Prosecutions was relevant to the exercise of powers under s.218 of the Act. The recommendation is headed "DR. GEOFFREY W. EDELSTEN RE:

SECTION 218 ACTION." On all the evidence, I infer that it

expresses the reasons for the decisions and the matters which

I do not find it necessary to rely upon the principle in Jones v. Dunkel (1959) 101 C.L.R. 298 for this conclusion; if it were necessary to do so, that principle would, however, support the conclusion. It is to be noted that none of the signatories to the minute was called to give evidence, and in particular the affidavit of Mr. Barford was not read. The document was tendered at the end of the hearing. Senior counsel for the applicant explained that he had earlier understood he would be able to introduce its contents through cross-examination of Mr. Barford. Senior counsel for the respondent objected that the applicant should not be permitted to reopen his case. I allowed the tender of the document, but at the same time made it clear that I would give the respondent the opportunity to apply to put before me further evidence resulting from the tender. That invitation was declined, though I was asked to note that the late tender was an explanation of any failure to deal with matters in it in the cross - examination of Dr. Edelsten. The document had been

Mc. Barford's recommendation of 7 July 1987 reads as

Notices pursuant to section 218 were issued to the General Manager of the Health Insurance Commission on 23 December 1986. The notices resulted from a meeting held between Dr. Edelsten and the then Deputy Commissioner, Ian Carmody. During the

meeting the Deputy Commissioner agreed to reduce the section 218 action, in respect of the Health Insurance Commission, from all moneys to 45c in every dollar subject to Dr. Edelsten's compliance to certain conditions (refer A.T.O. letter of 16 December 1986).

As Dr. Edelsten has not adhered to the arrangement, the A.T.O. is in a position to commence further recovery action.

CXAU Unit Trust 51,459
P'ship of Bright, Daries & Edelsten 39,307
George Street Trust 54,916
Interest from National Aust. Bank 5,174 ~ Share of Specialists' Fees 35,116
Medical Services Rendered 42,366
Minor Surgery Fees 10,000

On 17 December 1986 the taxpayer advised A.T.O. officers of sources of income other than the Health Insurance Commission

Licence fee from Superclinics Aust. P/L $15,000 per month

Trust Income (George Street Medical Centre Trust) $1,000 to $2,000 per month.

It appears that the trust distributions, interest & share of specialists' fees would be derived from sources other than payments to the taxpayer from the Health Insurance Commission.

The taxpayer appears to be liquidating all known family assets. Recently his wife has auctioned the family furniture, liquor and jewellery.

It is also noteworthy that the taxpayer has not voluntarily paid any amount to reduce his income tax liability.

In light of the above comments, it is recommended for approval to revoke the present notices which issued to the Health Insurance Commission and issue new notices pursuant to section 218 of the I.T.A.A. for all moneys payable to Dr. Edelsten.

I have referred to the virtual acknowledgment in Mr. Carmody's evidence that, so far as Dr. Edelsten's sources of income in 1987 were concerned, no enquiries were made which might have led the Commissioner to some basis for disregarding the previously investigated and accepted assertion that in substance there were no such sources, apart from the payments from the Health Insurance Commission. The recommendation does not suggest that any enquiries were made. On the contrary, it infers confirmation that they were not. The recommendation expressly

proceeds on what "it appears .. would be" the position in respect

of the applicant's sources of income disclosed for the previous financial year, ended 30 June 1986. That was to fail to take into account the actual effect, as distinct from the effect according to a theoretical construction based on the past, of cutting off the applicant's income from the Health Insurance Commission. In some circumstances, it would be reasonable to deduce the present position from even the remote past. But not when actual investigated and accepted recent information was available, which there had been no attempt to refute. What is more, the fact that there was actual information was noted (in the reference to the advice received on 17 December 1986), but it was so quoted, no doubt carelessly rather than selectively, as to suggest the applicant had acknowledged he was receiving $15,000 per month (a comparatively large amount) from Superclinics Australia Pty Ltd, whereas he had at one time been receiving that amount but had in fact made it clear to Mr. Barford and Mr. Lacey he would not continue to have it available to him, and he did

not, in 1987. In an important respect, the reference to the

investigation in December was certainly selective - in so far as the acceptance, upon that investigation, that Dr. Edelsten had no significant continuing income apart from the Health Insurance

(The recommendation is also inaccurate in stating that Mr. Carmody agreed during his meeting with Dr. Edelsten to reduce the requirement of the first 8.218 notice to 45 cents in every dollar - that figure, as Mr. Carmody himself made clear, was arrived at only after later investigation which he had ordered, a fact a proper appreciation of which would, of course, have made a new decision-maker cautious about altering the decision without

Not only does the recommendation substitute assumptions about past income - and assumed projections of it - for the facts of current income (which constituted the relevant factor), but the assumptions were in truth wrong. (This, of course, is material only to discretion since the error of law consists, not in the making of a wrong factual inference, but in the failure to take the relevant information into account: cf. GTE (Australia) Pty Ltd v. Brown (1986) 14 F.C.R. 309 at 336.) The income referred to did not continue, except to a miniscule extent, to be derived, and indeed the very first trust distributions mentioned, as apparently unaffected by the notices, those from the CXAU Trust, were shown by evidence to be dependent on the receipt of the Health Insurance Commission payments. The uncontradicted evidence is that 96% of the applicant's income is derived from

the Health Insurance Commission payments. Ultimately, after the

case had been reopened in circumstances I shall describe, it was conceded that virtually all the medical services provided by Dr.

Edelsten were the subject of "bulk billing" to the Commission.

It is also significant that the recommendation contains no elaboration of the factors which led the Commissioner's officers to accept in December 1986, after Mr. Carmody asked them to "look into it", the claim of the applicant about his sources of income and the salaries and other expenses he had to pay. If the situation had been seen as actually different in July 1987, instead of the Commissioner contenting himself with a theoretical projection of past figures, without considering the current position, one would have expected some discussion of those factors and of how they should now be interpreted in the light of the new-found realities. But there is none. And neither by evidence nor by cross-examination of the applicant did it appear the Commissioner had discovered that Mr. Carmody's investigators were misled when they concluded (as I find they did) that' the applicant was substantially dependent on the Health Insurance Commission payments for income and to pay the expenses of his

Throughout the foregoing discussion, I have taken it for granted that the Commissioner was bound to make his decision "on the basis of the most current material available to the

decision-maker" (per Mason J. in Minister for Aboriginal Affairs v. Peko-Wallsend Limited (1986) 162 C.L.R. 24 at 45; and see also

Colpitts v. Australian Telecommunications Commission (1986) 9 F.C.R. 52 at 69). To go behind the investigation of 17 December

1986, without questioning its findings, to an earlier tax return, and then make the assumptions and projections made in the minute, was to proceed in a manner directly contrary to that required by law. It was to ignore more current knowledge in favour of paper exercises based on the past. If there had been any reason to suppose that by a process of extrapolation a more accurate picture of the present could have been obtained, there might have been justification for checking the validity of the conclusions drawn from the December investigation in that way. But no attempt was made to do that - the previous conclusions were not

Another significant feature of the recommendation is the absence of any reference by Mr. Barford or the approving officer to the existence of a genuine non-scheme dispute as to the liability to the tax. This had certainly been seen as_ relevant at the time of the earlier report, and its relevance is made

clear by what Mason A.C.J. said in Clyne v. Deputy commissioner

of Taxation (NSW) (1982) 43 A.L.R. 342 at 343, a passage

discussed by Sheppard J. in Ahern v. Deputy Commissioner of

Taxation (Qld) (1983) 50 A.L.R. 177 at 189-190; cf. Ahern v.

Deputy Commissioner of Taxation (Qld) (1987) 76 A.L.R. 137. The question is whether later this aspect of the matter was, on the one hand, either overlooked or deliberately discarded, or on the other, considered though not set out in the recommendation. A factor militating against my feeling any confidence that it was considered is the very unsatisfactory treatment in the same document of the applicant's sources of income, whether or not it

is correct to conclude that that treatment in itself affords a

ground for relief. Also, the document is inaccurate, as I have pointed out. In all the circumstances, I think weight must be given to the omission of any reference to the important consideration of the genuineness of the dispute. I infer that that consideration was in fact not taken into account. The inference being open, I am enabled more confidently to draw it by virtue of the failure of the respondent to call any of the officers concerned in the making of the decisions. (See ARM

Constructions Pty.Ltd. v_ Commissioner of Taxation (1986)10 FCR

197 at 205.)I do not regard the circumstances of the tender of the document as a_ sufficient explanation, particularly as the matter was reopened at the Commissioner's request, several months

later, for the very purpose of his adducing additional evidence.

The reference in the recommendation to the applicant's non-adherence to the arrangement made in December 1986 is obscure. It is not stated which requirement it was the breach of which was asserted. Mention of the letter of 16 December 1986, written by Mr. Carmody as Deputy Commissioner of Taxation, does not cast very much light on this matter, since that letter was certainly overtaken by subsequent events. The letter was concerned with the conditions for a complete cessation by the Taxation Office of action to recover tax and additional tax against both the applicant and his companies pending negotiations to settle their total liability. One of the conditions set out in the letter was "that you will provide whatever guarantees or securities are available to cover the balance of the present total liability." As I have said, the negotiations eventually

reached an impasse because the securities offered by the

applicant (and it was never suggested any better securities were

available) proved unacceptable to the Commissioner. Whether this denouement, in respect of the ultimately crucial issue, was perceived as a failure to adhere to the arrangement and was

Another condition of the letter of 16 December 1986 was "that a substantial payment be made off the present overall liability", a payment also described in the letter as "of at least $500,000-00". It would be extraordinary if this requirement was intended to be referred to in the recommendation, since in later correspondence and discussions it was first varied in amount, and then waived, and the negotiations proceeded over a number of months without insistence upon it. As has been said, by April 1987 the Commissioner's officers had concluded that "Dr.

A third possibility is that the recommendation was referring to the requirement in the letter of 16 December 1986 "that you assign a fixed proportion of the income payable to you under your personal providor (sic) number by the Health Insurance Commission to this office which monies will be acquitted against the present liabilities. Upon such assignment being effected, this office will withdraw the notices served upon the Health Insurance Commission pursuant to the provisions of section 218 of the Income Tax Assessment Act. Mr. W. Barford of this office should have been in contact with you by now with a view to assessing the appropriate apportionment of such income." (The reference to Mr. Barford is consistent with my conclusion that

Dr. Edelsten is right in saying he was involved in the December

investigation.) It seems that what was contemplated, when the letter was written, was the substitution for the section 218 notice of a system of instalment payments, by virtue of an assignment to be obtained from the applicant of a fixed proportion of his gross income from the Health Insurance Commission, to be applied not only against his own liability but also against the liabilities of the various companies. However, after the investigation and the report to Mr. Carmody, instead of notifying Dr. Edelsten that the percentage to be assigned would be 45% of the Health Insurance Commission payments, the Taxation Office departed from the original proposal in its letter and substituted fresh section 218 notices requiring the Health Insurance Commission to pay the 45% to the Taxation Office. There is no suggestion that this action was preceded by a request to Dr. Edelsten with which he failed to comply, and indeed there is no explanation at all for the unilateral change of the arrangements, set out inthe letter, which was' involved. But although the mechanism envisaged in the letter was abandoned, the original concept persisted that Dr. Edelsten should be' required to make payments in respect of the liabilities of the companies, as well as his own, out of his Health Insurance Commission entitlements. A number of letters were written, and oral complaints made, to the effect that the applicant was breaching the required conditions by failing to furnish, in the precise terms required by the Taxation Office, an authority to apply the moneys received under the section 218 notices against various liabilities other than his own liability pursuant to the amended assessments against hin. In contrast to the Commissioner's

acquiescence in the applicant's failure to provide a lump sum of

the order of $500,000-00, this matter was the subject of strong protest, and of allegations that Dr. Edelsten was in breach of applicable conditions. It may be that this, the matter of which complaint was certainly made, was the alleged non-adherence to

At the hearing, no attention was given to the inconsistency between the terms of the letter of 16 December 1986 and a requirement, not that Dr. Edelsten assign part of his income, but that he authorize application in a particular manner of payments of income attached by the Commissioner pursuant to s.218. Yet it seems to me that the only way the application of Dr. Edelsten's income towards payment of the obligations of various companies, more or less associated with him, could have been contemplated in the first place must have been by a voluntary assignment. If this was not so, then I think what was envisaged was beyond any possible power. Section 218 does not authorize the Commissioner to collect one taxpayer's tax by a notice directed to a person by whom money is due to another taxpayer. When an amount is paid by the recipient of a section 218 notice to the Commissioner, it is so paid in respect of "the amount due by the taxpayer". It is not paid in respect of an amount due by some other taxpayer. Section 218 clearly contemplates that the obligation of the taxpayer will pro tanto be satisfied by the payment made under the notice. If the debt due to the Commonwealth is satisfied by the payment, how can the taxpayer direct that it be applied to some other taxpayer's debt? The same sum cannot be used twice over to pay two debts, nor of course could that have been the Commissioner's intention in

In any case, the applicant did eventually (and before the decisions under challenge) supply an authorization which was accepted as complying with the requirement, though it will be clear that in my opinion he could not have been regarded as in

breach of any lawful requirement if he had failed to give it.

It is next necessary to consider the nature of the discretion conferred on the Commissioner by s.218. In Clyne v.

Deputy Commissioner of Taxation (1981) 150 C.L.R. 1 at 19 Mason J. said:

"The similarity between s.218 and the provisions for garnishee orders in Rules of Court is quite striking."

Similarly, the power conferred by the section was referred to in

F.J. Bloemen Proprietary Limited v. The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 C.L.R. 360 at 375 as

"the garnishee power in 8.218." See also fTricontinental

Corporation Limited v. Federal Commissioner of Taxation (1987)

A.T.C. 4454 at 4457, and Huston v. Deputy Federal Commissioner of Taxation (1983) 83 A.T.C. 4525 at 4526, 4531. As was pointed out

by the Court of Appeal in White, Son & Pill v. Stennings [1911] 2 K.B. 418, a garnishee proceeding, or the attachment of debts, is a species of execution, and the issue of such a proceeding is ordinarily controlled by the Court. The process of control, and the discretion exercised by the Court, are discussed by Lord

Denning M.R. in Choice Investments Ltd. v. Jeromnimon - Midland

Section 218 is in Division I of Part VI of the Act, which is headed "Collection and Recovery of Tax". Section 218 itself is headed (if it be permissible to refer to this heading - see Acts Interpretation Act 1901, s.13): "Commissioner may collect tax from person owing money to taxpayer." The opening words of the section are "The Commissioner may ...", and the alternatives contained in paragraphs (e) and (f) of sub-section (1) make it clear that a discretion is intended to be exercised by the Commissioner as to whether it is appropriate that a notice

to be issued should attach the whole, ora part only, of a payment.

The statutory context of Part VI _ includes such discretions as that contained in s.206, clearly requiring the Commissioner of Taxation to have regard to the particular position of an individual taxpayer. Section 218 must, I think, be seen as part of the whole scheme of the Act for the collection and recovery of tax, which of course includes rights of objection and appeal. It is a strong power designed to protect the revenue, but it was not intended to subvert the principle which has been established at least since Magna Carta, that a citizen's property should not be subject to arbitrary seizure. It cannot have been contemplated that the power should be used to negate the rights to contest assessments contained in the Act by the complete wiping out of the business of a taxpayer who is genuinely pursuing proper avenues of appeal. (Of course, the traditional application of 5.218, as in Clyne's case (supra), to

a discrete sum of money, rather than to an entire income flow,

would not generally raise this question.) As was stated in the joint judgment of Mason and Wilson JJ. in the F.J. Bloemen case

"It is true that Pt VI contains large powers to enable the recovery of tax; powers the exercise of which may make life uncomfortable both for the taxpayer and perhaps others who owe money to the taxpayer. So much may be conceded, but the Act does not proceed upon the hypothesis that the Commissioner will be motivated in the exercise of his powers by improper or collateral purposes."

(See also The Queen v. Toohey; Ex parte Northern Land Council (19861) 151 C.L.R. 170 at 193 where Gibbs C.J. affirmed the

control by the courts of the exercise of "a power granted ... by

statute for a purpose which the statute does not authorize". )

The problem is how to define the parameters within which Parliament intended the discretion to be exercised. For this purpose, it is proper to look at the nature of the power

conferred, as well as the statutory context. I refer to the well

known statement of Mason J. in Minister for Aboriginal Affairs v. Peko-Wallsend Limited (1986) 162 C.L.R. 24 at 40:

"In the context of judicial review on the ground of taking into account irrelevant considerations, this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard ... By analogy, where the ground of review is that a relevant consideration has not been taken into account and the discretion is unconfined by the terms of the statute, the court will not find that

the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject matter, scope and purpose of the Act."

The subject (as well as the purpose) of 5.218 is the collection of tax by the attachment of debts, a means also used to enforce judgments of Courts, and in that case, as I have pointed out, subject to the exercise of a discretion. Tax may be collected under the Act by various other means, including judgments of courts, which too may lead, under the enforcement procedures just mentioned, to the attachment of debts. It is clear from the Act, the authorities, and the policy guidelines which the Commissioner himself has issued, that the collection of tax in cases where appeal procedures have been properly invoked and genuine questions are outstanding is, in general, the subject of discretions, which must take account of that situation, and of the effect upon the individual taxpayer of the contemplated recovery. The legislature cannot have intended that s.218 should confer a more despotic power, not subject to the same

In this context, the power of attachment of debts was given in order that tax might be collected, subject to the discretions to which I have referred, from the source subjected to the power. Senior counsel for the Commissioner suggested the Commissioner was entitled to act to enforce payment, as any creditor may, without regard to the consequences for his debtor or other creditors. But what is in question is not an action of

a kind which can be taken, under the general provisions of the

law, by creditors. An extraordinary power has been conferred on the Commissioner, and it must carry with it a special obligation. He is not given this power so that he may bring to the collection of the Commonwealth's revenues the rapacity of a Verres who takes what he can, but because wide discretions, fairly exercised, have been found necessary. There must be advertence to the quality of fairness, which is applicable to the analogous procedure for the attachment of debts by garnishee order: Jeromnimon's case (ubi cit. supra). That quality expresses an essential element of the

Commissioner's duty: I.R.C. v. National Federation of

Self-Employed and Small Businesses Ltd. [1982] A.C. 617 at 651-3, per Lord Scarman; In re Preston [1985] A.C. 835 at 864; Federal Commissioner of Taxation v. Biga Nominees Pty Ltd (1988) 88

A.T.C. 4270 at 4275; and see Little's Victory Cab Co. Pty Ltd v. Carroll [1948] V.L.R. 249 at 255-6 where Barry J. emphasized the

duty of an administrator possessed of wide powers affecting an individual to "have regard to the justice of the particular

Section 218 was not intended to become an instrument of oppression, to be utilized for a collateral purpose of extorting money from other sources, such as friends or relatives, by making it impossible for the taxpayer to continue to earn his living by the ordinary conduct of his business or profession. Nor was such a facility for the collection of tax intended as a means for the infliction of punishment upon a taxpayer who in the past had adopted, or was presently persisting in, legal and permissible means for the limitation of his liability to tax. If the means employed exceed what is truly permissible, well known provisions of the Act may be attracted, but that does not entail the

consequence that 8.218 may be employed, not to collect tax from

the source which attracts its operation, but to penalise the

Nor, as I have already pointed out, can the power properly be used to obtain payment, not of the tax payable by the taxpayer in question, but of tax payable by other persons. The Commissioner, to whom the discretion has been committed, should be careful to ensure that so wide a power is not perverted to collateral purposes of that kind. It would be a gross perversion if it were used to apply pressure to induce payment of another

It is not irrelevant to observe that if, at the date of the decisions, the applicant's appeals had all been determined, and determined against him, judgments had been entered for the tax assessed, a sequestration order had been made (as, in fact, it has been since), and an order had been sought in bankruptcy in respect of the current earnings of his medical practice, a proper allowance would inevitably have been made to enable him to meet the expenses of carrying on his practice and, unless most exceptional circumstances were shown, all ordinary living expenses. When the legislature conferred the discretion to require part only of each payment made to be paid to _ the Commissioner, it is difficult to see a reason why it should have intended that discretion to be exercised on some harsher basis than would, in the circumstances I have outlined, prevail in

recommendation to non-adherence to requirements imposed upon the

applicant was intended to relate to the original demand for a payment of $500,000-00, in circumstances where it was accepted that "Dr. Edelsten does not possess any real assets", it is difficult to avoid the conclusion that such a basis for the decision to substitute 100% of each payment for the previous requirement of 45%, where 100% would be likely to damage greatly or entirely prohibit the applicant's practice, would amount to an attempt to extort the $500,000-00 from the applicant's wife or from some entity which in law bore no such liability. Of course, it is not suggested in the recommendation that there was any such purpose to be served by the 8.218 notices. For that reason, as well as for other reasons already discussed, it may be that' the reference in the recommendation to non-adherence to "the arrangement" was really intended to refer to Dr. Edelsten's inability to provide security acceptable to the Commissioner in order to achieve an overall settlement compromising assessments which were admitted to total substantially more than was due. If so, these comments must be made: (a) such an inability can hardly have been a significant consideration adverse to the applicant in the assessment of an appropriate amount to be the subject of the 6.218 notices; (b)} to say of this matter that the applicant had "not adhered to the arrangement" was to use language very inaccurately; and (c), as the outstanding assessments to be secured were not limited to the applicant's own assessments, the alleged non-adherence touched upon matters difficult to relate to the discretion conferred on the Commissioner by 8.218 for the collection of tax owed by the

applicant as the person entitled to the debts attached.

I have concluded that, in this case, it was a_ relevant consideration, which the Commissioner was bound to take _ into account, that the payments from the Health Insurance Commission constituted almost the whole of the taxpayer's income, and were required to meet not only a proportion of his living expenses but also the expenses of his practice. I have also concluded that this consideration was not truly taken into account by the adoption of a wholly artificial projection of a previous year's figures, although it was known that actual information had been supplied, and especially as there was added a substantial actual figure which that information showed would not be available in the relevant period. Similarly, I think there was a failure to take into account a relevant consideration, which the Commissioner was bound to take into account, in that the existence of a genuine non-scheme 8 dispute, previously acknowledged, was simply ignored. In all the circumstances, I also hold that the exercise of the power to revoke the previous notices, and substitute notices relating to 100% of the amount of the payments, was so unreasonable that no reasonable person could have so exercised the power. I do not reach that view lightly, bearing in mind the limitations upon the ground it invokes which

are well summarised in Prof. Peiris's article Wednesbury

Unreasonableness: The Expanding Canvas (1987) 46 Cambridge L.J. 53 at 56. However, it must not be forgotten that, in Australia,

It is not necessary, having regard to the above conclusions, to determine whether, in addition, there was a

breach of the rules of natural justice, but I think the applicant

would also be entitled to succeed on that ground. He was not given an adequate opportunity to submit that the action the

I was referred to Kioa v. West (1985) 159 C.L.R. 550. I think the principles stated in that case, when applied to 5.218, make it clear that the rules of natural justice can have no automatic application. The example of Clyne's case (supra) sufficiently illustrates the point. In a case of that kind, the Commissioner must be entitled to act swiftly, before the target of action escapes. However, it is argued that here, after an examination of the applicant's position had been made in December 1986 and it had been accepted that the taking of 100% of the Health Insurance payments was inappropriate, he acquired a legitimate expectation that this decision would not be changed without his being afforded an opportunity to answer any suggestion that there had been a relevant change in the situation, particularly if that suggestion involved an assertion of some improper or inappropriate conduct on his part. It is emphasised that no evidence has been led onthe part of the Commissioner from the officers who investigated the situation in December 1986 to suggest that the applicant had misled them in any way as to his sources of income or his assets. While it is conceded that the applicant had the opportunity to put submissions in general terms (cf. Minister for Arts Heritage and Environment v. Peko-Wallsend Ltd (1987) 75 A.L.R. 218, per Wilcox J. at 254-5), and availed himself of that opportunity, nothing was done, to use the language of Mason J. in Kioa's case (supra,

at 587), "to bring to (his) attention the critical issue or

factor on which the administrative decision (was) likely to turn

so that he (might) have an opportunity of dealing with it."

The circumstances which are requisite, and may suffice, to raise, for the purposes of the principles of natural justice, a "legitimate expectation" have been examined by Lord Diplock in Council of Civil Service Unions v. Minister for the Civil Service

[1985] A.C. 374 at 408, where his Lordship referred to the

"by depriving him of some benefit or advantage which either (i) he had in the past been permitted by the decision-maker to enjoy and which he can legitimately expect to be permitted to continue to do until there has been communicated to him some rational grounds for withdrawing it on which he has been given an opportunity to comment; or (ii) he has received assurance from the decision-maker will not be withdrawn without giving him first an opportunity of advancing reasons for contending that they (sic) should not be withdrawn."

This formulation is expressed to identify two separate grounds, but they tend to merge in practical application, since the situation described in the first is likely to involve an implicit assurance of the kind referred to in the second. At the same time, the formulation does not embrace all the types of case where courts have held a relevant legitimate expectation to have

arisen. In Regina v. Secretary of State for Transport, Ex parte Greater London Council [1986] Q.B. 556 at 587, McNeill J. applied

the rule where, as Prof. Peiris has pointed out in (1987) 46 C.L.J. at 68, "the expectation which the applicant for relief

purported to entertain was not fortified [I have corrected an

obvious printing error] by either of the principles of sustained practice or unequivocal representation." There, the expectation arose by implication from the nature of the statutory power and the terms of its enactment. It may be, with respect, that such a case is better grounded directly on statutory requirement, without resort to any question of legitimate expectation. But if such cases do illustrate the potential for growth of the emerging principle of legitimate expectation, that principle may perhaps be seen as extending wherever there are sufficient grounds (the categories of which may not yet be closed) for the applicant to entertain a legitimate expectation of being afforded an opportunity to put his case, and those grounds are not of a_ kind the respondent should be permitted to repudiate as no concern of his. A legitimate expectation so understood may arise out of sustained practice, out of representation, out of implications inherent in the governing statute, or for other reasons. See the statement of the principle by Mason J. in Kioa v. West (1985) 159 C.L.R. 550 at 582-3, which is more widely expressed than that of Lord Diplock in the Civil Service Unions case, and see

Attorney-General of Hong Kong v. Ng Yuen Shiu [1983] 2 A.C. 629 at 636-7 where the Privy Council treated the principle as

extending to expectations which "have some reasonable basis".

In so far as the recommendation states "the taxpayer appears to be liquidating all known family assets", this was a consideration adverse to the applicant, analogous to the matter which proved decisive in Kioa's case. There was evidence and argument presented on behalf of the Commissioner at the hearing,

and more especially after the reopening of the hearing, in order

to justify the assertion made and rebut Dr. Edelsten's case on this issue. The point in a claim of denial of natural justice is, of course, not that there was in fact a strong answer to the case made against the party complaining, but that he was never given an opportunity to make answer at all. I collected some of the authorities bearing on this proposition in Colpitts v. Australian Telecommunications Commission (1986) 9 F.C.R. 52 at 71. The true circumstances may, nevertheless, be relevant to an exercise of discretion by the Court under the Judicial Review Act. In the present case, the allegation that assets were being liquidated seems to have been regarded as important by the officers of the Taxation Department, since it was the only matter specifically referred to by the Deputy Commissioner, Miss Brady, when the applicant saw her on 20 July 1987 to complain about' the decisions. That was, of course, after the decisions had already been made, and so her reference to the allegation did not afford

The nature of the point actually taken into account in the decision should not be allowed to disappear in a dazzlingly bright haze of hindsight. Much evidence of Dr. Edelsten's transactions is now before me; but what the recommendation refers to is the liquidation of "all known family assets", which appears quite clearly to be a reference to his wife's auctioning of "family furniture, liquor and jewellery". It was followed by the comment that Dr. Edelsten had "not voluntarily paid any amount to reduce his income tax liability." Considering there had been for six months an involuntary extraction of almost half the

applicant's gross income, that his objections were still

outstanding until shortly before the decision, and that up to their disallowance the attitude of the Commissioner's officers, as expressed to the applicant and his accountant, was that very large double assessing had occurred, it is difficult to see the failure to make voluntary payments, out of the proceeds of sales of family furniture or otherwise, as a significant aspect of the grounds for a draconian application of the power conferred by 6.218. The sum of about $100,000 realized by sale of the furniture may well have been required to make up the shortfall of gross income to meet necessary outgoings - there was nothing to show the contrary. Nor was realization of family assets, such as furniture, liquor and jewellery, more than remotely relevant to

At the time the decision was made, the plain fact was it did not relate, as in Clyne's case, to a discrete sum of money; it involved the cutting off of virtually the whole of the applicant's gross income. That was almost certain, in the circumstances, to bring about the bankruptcy which in fact ensued, and it was also to ride rough-shod over the interests of other persons, including employees, other creditors, and patients. It was to prohibit the doctor's practice. At one stroke, for a relatively small cash gain, it also terminated the applicant's capacity to pay the balance of the tax. As a ground for so weighty a decision, if it was appreciated that a true discretion was involved, a disposal of furniture (not said to be for a spendthrift or other improper purpose) seems a_ slight thing. I do not think it counted as a significant consideration.

What is surprising is that Mr. Barford's recommendation gives

attention to the consequences of notices in respect of 100 cents in the dollar of payments only by implication from the mention of assumed additional sources of income, and without any analysis at all of the adequacy of those sources, or of the previous inquiry which had found them inadequate, and some of them not to be continuing. The only conclusion which really fits the terms of the recommendation is that it was framed on the basis, which counsel endeavoured to support, that the Commissioner owed no duty of fairness and was not obliged to consider the consequences. It may be significant that the recommendation, and the argument presented for the Commissioner before me, never spelt out any object claimed to be sought, beyond the generalization that revenue was to be gathered, or the self-defeatingly myopic aim of collecting the instant takings of

But, after I had reserved my decision, the Commissioner sought leave, which I granted, to reopen his case. Upon reopening, he tendered evidence that, in February and early March 1987, Dr. Edelsten had entered into agreements involving assignments of his interests in two medical practices, or groups of medical practices, for a total of $360,000, and spent the proceeds. It appeared that some of the applicant's practices were currently unprofitable, and in his view likely to remain so, but he was able to withdraw from them in favour of certain of his colleagues at a substantial price. The Commissioner did not attempt to show that the money was used otherwise than to pay expenses of the medical business conducted by Dr. Edelsten,

including necessary legal fees. Dr. Edelsten gave evidence the

money was paid into the bank account of his medical service company, and expended in that way. A specific payment of $40,000 was celated in cross-examination to the satisfaction of obligations in respect of surgery equipment, the kind of expense the loss of almost half the doctor's gross income (under the s.218 notices in operation at that time) might have been expected to have left him unable to meet. Not all payments were accounted for so precisely, though details were supplied by Dr. Edelsten of the expenditure of the bulk of the money. In the circumstances, I accept that the money was spent inthe manner described. However, the onus on this matter, which was certainly not intended to be referred to by anything raised in the recommendation, and could not fairly be brought, even ex post

facto, within the words "family assets" as used therein, lies on

As was pointed out on the reopened hearing by senior counsel for the trustee in bankruptcy, who, it will be recalled, had elected under 8.60 of the Bankruptcy Act 1966 to continue Dr. Edelsten's application, the significant matters bearing on the Commissioner's discretion must relate to the situation as at 7 July 1987, when the decisions were taken. There is no suggestion the circumstances of the assignments, and of the expenditure of the proceeds of them by early March, were such as to justify termination of the applicant's business in July. And if they were not of that kind, the considerations the Commissioner was bound to regard must continue to be those already discussed, concerned with the consequences of the issue of the notices and

with the purposes the power was intended to serve. In any case,

it cannot be an answer to the proposition that relevant matters the Commissioner was bound to take into account were overlooked or disregarded (as I have held), to say there was another matter on the basis of which, if the Commissioner had proceeded according to law, he could have arrived at the same result.

But the Commissioner relied on these matters, and on other matters occurring at about the time of and after the impugned decisions, which were proved when the case was reopened, to found an argument that the application should be dismissed on discretionary grounds. Undoubtedly, subsequent events may be capable of sustaining a judgment that, as a matter of discretion, a decision should not be set aside: Vangedal-Nielsen v. Smith (Comissioner of Patents) (1980) 33 A.L.R. 144 at 151;

Peko-Wallsend Ltd. v. Minister for Aboriginal Affairs (1985) 5 F.C.R. 532 at 561.

The further situation relied on arose in the following way. In May 1987, the Health Insurance Commission issued a new "header", or claim form, for utilisation by doctors who "bulk billed". The new form, which varied the terms of the previous one, provided expressly for a doctor, who chose to do so, to authorize payment of benefits claimed to another practitioner "at or from whose practice the services were rendered". Dr. Edelsten, in a few cases before 7 July 1987, and in many cases after that date and during the next two or three months, utilized this facility to authorize payment of claims in the names of

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Judgment (221 paragraphs)

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