Elsey v Federal Commissioner of Taxation [1969] HCA 48;

Elsey v Federal Commissioner of Taxation [1969] HCA 48; - HCA 1969 case summary — Zoe

[13]

6. In 1952 or 1953 he bought land at Main Beach, Southport, and built there a holiday building called "Surfrider". This he sold after about eighteen months for 37,500 pounds, a considerable profit on the cost. In 1955 he bought land at Surfers Paradise for 44,500 pounds and by an additional expenditure of 30,000 pounds built there the Beachcomber Private Hotel. This he still, at the date of the hearing, owns, the business there being conducted by one of his companies as a lessee. In 1961 or 1962 he bought other land at Surfers Paradise and built a motel called "Beachcomber Ski Lodge". This he sold in December 1968 for 82,000 pounds - he says at a loss. In September 1963 he built a motel called "Beachcomber Tiki Village" at Surfers Paradise, which he still owns, the business being conducted by Beachcomber Motel Pty. Limited, one of his companies, as a lessee. It is in connexion with this undertaking that the questions of the Esso land and lot 7 arise. Also in September 1963, his company, Bernard Elsey Pty. Limited, established the Beachcomber Motel at Coolangatta. I say nothing more of that in this judgment, because it is from transactions connected with it that the other set of appeals arises and in those I am giving a separate judgment. In 1965 the taxpayer bought the border land at Coolangatta and sold it in two lots the next year. To that I shall come. In addition to these matters, the taxpayer was concerned in a transaction by which, in 1964, Beachcomber Motel Pty. Limited bought land at Surfers Paradise which it has recently sold at a handsome profit on cost. That is not involved in these cases. The taxpayer was at all relevant times well aware of the generally rising land values on the Gold Coast. By his acquaintance with members of the Gold Coast City Council, and in other ways, he kept well in touch with development plans and projects there. But, although he has been, directly and indirectly, concerned in buying and selling land and buildings there, the evidence does not shew that he was in business as a land speculator. The tourist trade is his business, his main current enterprise being "Daydream Island Resort" off the coast of North Queensland conducted by his company Daydream Island Pty. Limited as his tenant. His occupation is stated in his income tax return as "hotel proprietor". With that as the background I turn to look at the Esso land and lot 7. (at p103)

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Elsey admitted that he had had conversations with the bank manager about his purchase of the land. He would not admit that he had told him that he had any firm arrangement with Caltex (meaning Caltex Oil (Australia) Pty. Limited) to sell any part of the land to it or that he had received any offer for it. When counsel for the Commissioner tendered the copy document, Mr. Kelly, who appeared for the taxpayer, did not object to my receiving it in evidence, remarking only that it was imcomplete and that the taxpayer denied that he had told the bank manager what appears in it. I therefore admitted it as an exhibit and read it. I questioned its admissibility. It was urged for the Commissioner that it was made admissible by The Bankers' Books Evidence Act of 1949 (Q.), it having been proved that it was an entry in a book "used in the ordinary business of the bank" and by s. 4 of the Act made "evidence of the matters, transactions and accounts therein recorded". I said at the time, and I now repeat, that in my opinion this took too much from the Act. The principal purpose of the Act is to allow copies of entries in bankers' books to be received to overcome the inconvenience which would occur if books in current use had to be brought to court. Differing judicial opinions have been expressed as to whether the Act goes further and creates an exception to the hearsay rule, by not only allowing the original entries to be proved by the production of an authenticated copy, but also by making those entries direct evidence of the transactions to which they relate. This matter was adverted to in Myers v. Director of Public Prosecutions (1965) AC 1009 where Lord Morris of Borth-y-Gest said, "The Bankers' Books Evidence Acts did more than merely avoid the need to have actual books in court" (1965) AC, at p 1028 , and Lord Hodson spoke of the copies as "admissible in evidence to prove the transactions recorded in the books" (1965) AC, at p 1033 . But, however that may be, the Act does not, I think, make all statements of any kind in any book which a bank manager keeps in the ordinary course of his business admissible as evidence of the truth of those statements. It seems to me that, at the most, the entries are evidence of matters and transactions in which the bank was a party: see Hart v. Minister for Lands (1901) 1 SR (NSW) 133 . Counsel for the Commissioner referred me to the decision of Stable J. in Re L. G. Batten Pty. Ltd. (1962) QWN 2 . This certainly supported his proposition that a banker's diary can be within the enlarged definition of "bankers' books" in the present Queensland Act. But that I do not question; and otherwise the case seems to me to have no bearing on the matter before me. It deals with the admissibility of a record in a banker's diary of the terms of an arrangement made between the bank and its customer. Assuming that the present entry can be read as recording something which Elsey told the bank manager - which from its terms is by no means clear - what then? It does not record any transaction into which the bank entered. The entry in the diary could perhaps be read as meaning that Elsey had said something to the bank manager that is inconsistent with his testimony in the witness-box when he swore that he had not made any offer to sell any part of the land to Caltex or received any offer from Caltex. I would not be surprised if, when seeking finance to complete his purchase of the land, he had made some lavish statements to the bank as to its value. Evidence which he gave in another context makes me think that on occasions his optimism about his ventures could override strict scruples about accuracy. But, although I strongly suspect that the entry in the bank diary was not made without some foundation, I cannot accept it as evidence against Elsey's denial. The document is not evidence of what is stated in it. And, even if it were, I do not think that I would be justified in concluding from it, and from the fact that Elsey had some fruitless dealings with Caltex, that his purpose in buying the land was to make a profit by selling it off in parts. The whole of the admissible evidence is to be considered. A conclusion cannot be reached from part of it in isolation - and that part of at least questionable admissibility. (at p107)

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11. Elsey gave evidence of what his purpose was in buying the land, of the use he planned to make of it, of the kind of motel incorporating a service station which he envisaged. To support his testimony evidence was tendered by Miss Joy Collins. She was asked to narrate what he had said to her of his intentions, his plans and his purposes. This was objected to, and naturally. The taxpayer's statements to Miss Collins cannot be said to form part of the transaction by which he acquired lots 1 to 7 or of the subsequent transactions by which he sold parts, the Esso land and lot 7. Their conversations were pressed on the basis of the general evidential value of statements of intention accompanying acts done: and pars. 222-224 in Phipson on Evidence, 10th ed. (1963), were referred to. But I do not think that what Elsey told Miss Collins about the land at Surfers Paradise can be regarded as part of the res gestae of its purchase or of the sale of any part of it. Nevertheless I held that statements he made to her in 1963 and 1964 as to his then purposes and intentions with regard to the land were, on other grounds, admissible. His evidence in the box was directed to verifying the main events in a long circumstantial narrative he had sent to the Commissioner with his notice of objection. Mr. Row for the Commissioner said that any inferences from this, or from his statements in the witness-box, as to his intentions and purposes in relation to the land were not true. As I understood him, his case was that these untrue suggestions and statements had first been put forward after officers of the Taxation Department had begun an investigation of the taxpayer's dealings. That being the Commissioner's contention, stated by counsel and foreshadowed in his cross-examination of the taxpayer, it was, I considered, proper to admit evidence in the taxpayer's case of his previous consistent statement, in anticipatory rebuttal as it were, of the suggestion of recent fabrication. Counsel for the Commissioner acquiesced in the admissibility of the evidence on that ground. Some of the matters then elicited strayed rather far. But parts did, having regard to the time and circumstances in which the conversation occurred, rationally tend to answer the Commissioner's attack: see Nominal Defendant v. Clements [1960] HCA 39; (1960) 104 CLR 476 , especially per Dixon C.J. (1960) 104 CLR, at p 479 . (at p107)

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22. Between the land on which the motel stood and the border, there was a further section of the former railway land. Until April 1965 this was still vacant. It had an area of fifty-four perches. Having been used simply to carry a railway, it was a long narrow block about a hundred and fifty feet wide at its greatest width and with a frontage of about three hundred feet to Griffith Street. There had been a proposal which had attracted interest and some public support that this land should become a public park, and that it should carry some sign informing road travellers coming from the south that they had crossed the border and welcoming them to Queensland and the Gold Coast. The Queensland Government was not agreeable to giving the land to the Council as a park: like the rest of the railway land it must be sold: the Council was told that if it wanted it, it could bid for it. On 17th April 1965 the land was put up for public auction. Elsey had been an advocate of the park proposal. He had a fancy for a fountain and an arch as a welcoming sign for visitors. I have no doubt that he had in mind that this would be an ornament for his motel; that it would have an attractive appearance if in front of it there was a well-kept park. On the other hand, if the land were sold for commercial use he feared, as he frankly said, that tall buildings on it would obscure the approaching traveller's view of the motel - and, worse still, that there might even be another motel erected, which, not his, would be the first across the border in Queensland. He therefore conceived the idea of buying the land, having in view the possibility of thereafter selling it to the Council for a park. Friends he had among the aldermen and others had, he said, encouraged him to think this was a practicable plan. There had, it seems, been talk of the Council resuming the land for a park. Resumption of the land by the Council was the phrase commonly used. It is strictly an inapt expression; for the land never had been vested in the Council. But what was meant was well understood. It was a compulsory acquisition of the land for public purposes. (at p112)

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24. Having bought the land, Elsey suggested that the Council take it over from him at the price he had paid for it. But the Council, if it formally considered the matter at all, did nothing. It had failed to get the land by free grant from the Government. It did not wish to buy it. Elsey could not afford to wait long in the hope that he might sell the land to the Council. He had had to borrow money to pay the purchase price. The manager of a finance company with which he dealt in the matter was called as a witness for the Commissioner. In the course of his evidence he said, and I think it was a discerning assessment: "At the time Mr. Elsey's plans were obviously flexible." The most that can be said with assurance is that Elsey did not intend to make any use of the land himself. His purpose in buying it was to dispose of it as soon as possible in some way advantageous to himself and at no cost to himself. If he could get the Council to take it over, he would gain a park setting for his motel and frustrate any use of the land which would have been hostile or harmful to him or his company. If he could not without any cost to himself have achieved these advantages, he was prepared to sell the land for the best price he could get. It was a valuable piece of land. Disappointed or disillusioned by the Council's unreadiness to buy it, he within a fortnight of the auction sale consulted land agents about selling it in subdivision. Two forms of subdivision were mooted - one into ten small lots; the other into two lots. The land was levelled at Elsey's expense to make it more saleable. The plan of subdivision into two lots was adopted by him and approved by the authorities and he put the land in the hands of agents for sale. At one stage he tried to interest the Council in another scheme he had conceived. He suggested that he give the Council the lot nearest the border as a "welcome park" and that in exchange the Council convey to him a Council-owned small park adjoining the land on which his motel stood, but on the far side. This plan would have had advantages for him. The land he sought to get in exchange for the suggested park could have been used in conjunction with the motel. But nothing came of this idea and Elsey was thrown back upon selling. In January 1966 he sold one lot for 13,500 pounds, and in the next month he sold the other for 26,000 pounds. The Commissioner claims to bring to tax, as part of the assessable income pursuant to s. 26, the profit which the taxpayer gained by these sales. Whichever branch of par. (a) of s. 26 be invoked, the "profit arising" would not be simply the amount of the difference between the price paid for the land and the amount realized upon the sale of it, 39,500 pounds. The cost of levelling it and other outgoings have to be taken into consideration. (at p114)

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26. I turn now to the taxpayer's objection that it was not open to the Commissioner to amend his original notice of assessment so as to increase the taxpayer's liability. The taxpayer, it is said, had made a full and true disclosure of all material facts. This proposition, based on s. 170 (3) of the Act, depended on a written statement which the taxpayer had sent with his income tax return for the year in question. This dealt with his acquisition of the land and purported to shew his plans for its development. It contained several quotations of tendentious paragraphs which had appeared in newspapers. These were expressed to be reports of the taxpayer's wish to have at least some part of the land tken by the Council as a park, with complaints of the failure of the Council to adopt this proposal. The Commissioner naturally did not accept these paragraphs in newspapers as evidence of the intentions and purposes of the taxpayer. Moreover, if he did take notice of them, he could not have failed to notice that a newspaper, published on the day after the auction, stated that the taxpayer had said that he wanted to have only the corner of the land near the border "developed as an attractive park with a sign welcoming tourists to the Gold Coast": and that, "Mr. Elsey said he planned to erect business premises on the remainder in keeping with the appearance of his nearby Beachcomber Motel". If he did say this, his statement contradicted the claim that he had bought the whole of the land with a view to selling it all to the Council as a park. In addition to the quotations of what various newspapers said the taxpayer had said on various dates from April 1965 to January 1966, the document he sent to the Commissioner with his tax return contains also paragraphs which are not hearsay but his own statements. One reads as follows: "Immediately prior to the commencement of the auction I asked the auctioneer, Mr. Adrian Marr 'was it true that the Council had announced their intention to resume this land as a park, and did the Council have the necessary power'. He answered 'yes' to both questions." I have already said that I am not satisfied that this occurred. Moreover I cannot see why, if it did, it establishes or tends to establish that the taxpayer made a full disclosure of all material facts. If he had really wanted an answer to the questions he says he asked, I do not understand why he waited till the auction and asked them of the auctioneer. If he did so, it must have been, as indeed he frankly said in his evidence, to discourage others from bidding and thus to keep down the price for which the land would be sold. But that to my mind does not of itself shew, or tend to shew, anything more than that he wanted to get it as cheaply as he could. His document concludes:

At a glance

Court

Decision date

Before

Source

Judgment (50 paragraphs)

Elsey v Federal Commissioner of Taxation [1969] HCA 48; (1969) 121 CLR 99 (10 October 1969)

Parties

Legislation Cited (1)

Cases Cited (4)