Fernmist Investments Pty Ltd v Commissioner of Taxation

REASONS FOR JUDGMENT 1 An application has been made by counsel for the applicants in this Court in various matters that I disqualify myself on the basis of apprehended bias. It is not suggested, nor could it be, that there is any question of actual bias in the sense that I have a closed mind on the outcome of the case. 2 There are also before me in my capacity as Presidential Member of the Administrative Appeals Tribunal other matters and, although there is some suggestion that these matters may ultimately settle, I assume that the application is made in them to the extent to which they do in fact proceed. 3 The application, which is not directly made on motion but for present purposes can be taken to be made on motion, subject of course to the filing fee being paid in each matter, is based upon two matters either alone or together. I shall deal with them separately although conscious that the real submission is that it is the two matters cumulatively that are said to be important. 4 The first matter arises because with Dowsett and Hely JJ I sat on appeals from a judge of this Court, brought by some of the applicants now before me, seeking declarations that various assessments and determinations should be held to be void. The applications were brought under s 39B of the Judiciary Act 1903 (Cth) and underlying them was a submission that the Commissioner of Taxation, or those exercising his powers by delegation, acted other than in good faith in assessing the income tax payable by the various taxpayers concerned. The appeals were appeals from Lindgren J and the judgment of the Full Court in the Court's numbering is [2000] FCA 1807. 5 As appears from paragraph 7 of that judgment, no findings of fact were made by the Full Court nor could they be. The judgment itself records that the account of the facts which is set out in the judgment is not to be taken as representing any factual findings relevant to the substantive income tax disputes between the parties but is rather a summary of material which Dr Dan's accountant had annexed to the affidavits that were read before Lindgren J. 6 After the appeal was called on, I advised the parties that the substantive income tax appeals, concerning assessments sought to be impugned in the s 39B proceedings, had been allocated to me as the docket judge in accordance with the ordinary procedure of the Court. I suggested that perhaps thought should be given as to whether my sitting on the appeals would have any bearing on whether I should continue to sit and determine the substantive income tax appeals. Mr Edmonds SC, who appeared for the taxpayer, noted that it was unnecessary that the matter be determined then and that he would get instructions on it. 7 Subject to one legal matter to which I will return in relation to the affairs of Kordan Pty Limited the issues raised in the proceedings brought under s 39B were completely different from the issues that will arise in the substantive tax appeals. The only issue which was before the trial judge on the s 39B proceedings was whether, on the evidence before his Honour, it would be concluded that the Commissioner had acted in bad faith in the sense well understood from the rule which has emanated from the decision of the High Court in R v Hickman; Ex parte Fox & Clinton (1945) 70 CLR 598. 8 His Honour held ultimately that bad faith had not been made out and dismissed the applications before him. On appeal, in one sense, the issue was whether the trial judge erred in the conclusions he arrived at. The Court, of which I was a member, unanimously held that Lindgren J was correct in dismissing each of the applications before his Honour and the Court noted that no error had been shown in his Honour's judgment. 9 I have been told from the bar table, and a glance at the file in the present appeals makes it very clear, that there are considerable factual disputes between the parties; factual disputes that extend so far apparently at the moment, so I was told from the bar table, that a fire and destruction of records which the applicants alleged happened is put in issue by the Commissioner. One might only hope that the issues might be narrowed to some extent but that is a matter for the future. 10 In my view, there is nothing in the judgment in the Full Court proceedings or my participation in it which could in any way found an application that I not sit on the substantive proceedings. There could be said to be, perhaps, a different position in respect of Kordan Pty Limited and the matter dealt with at paragraphs 55 to 57 of the Full Court judgment. One of the matters at issue between the parties on the appeal was whether the primary judge was correct in deciding it was open to the Commissioner, having regard to the terms of s 226(1) of the Income Tax Assessment Act 1936 (Cth), to make the determination he did in relation to Kordan Pty Limited without a particular course having been followed. 11 That question went ultimately to a submission that because it was not open to the Commissioner to act in that way, the Commissioner should be held to be acting in bad faith in the way that he acted. I think it is clear that the Court did not necessarily decide the point. We said: "If it is necessary to go further and decide the point we are of the view that s 226(1) does not require that course [ie the particular course contended for by the appellants in that case] to be taken." 12 We then expressed a particular view on the construction of s 226 that was adverse to Kordan Pty Limited. 13 The most recent leading authority in the High Court of Australia on the question of apprehended bias is the decision of the Full Court in Ebner v Official Trustee in Bankruptcy (2000) 176 ALR 644. The particular context of that case was not the same as that before me. It was concerned more with submissions as to whether judges should on the basis of apprehended bias disqualify themselves as a result of suggested pecuniary interest. 14 However, the judgment is nevertheless significant for a number of principles which it sets out. In the joint judgment of the Chief Justice, McHugh, Gummow and Hayne JJ at 650 (paras 19 and 20) their Honours say, inter alia: "Judges have a duty to exercise their judicial functions when their jurisdiction is regularly invoked and they are assigned to cases in accordance with the practice which prevails in the court to which they belong. They do not select the cases they will hear, and they are not at liberty to decline to hear cases without good cause. Judges do not choose their cases; and litigants do not choose their judges. If one party to a case objects to a particular judge sitting, or continuing to sit, then that objection should not prevail unless it is based upon a substantial ground for contending that the judge is disqualified from hearing and deciding the case. This is not to say that it is improper for a judge to decline to sit unless the judge has affirmatively concluded that he or she is disqualified. In a case of real doubt, it will often be prudent for a judge to decide not to sit in order to avoid the inconvenience that could result if an appellate court were to take a different view on the matter of disqualification. However, if the mere making of an insubstantial objection were sufficient to lead a judge to decline to hear or decide a case, the system would soon reach a stage where, for practical purposes, individual parties could influence the composition of the bench. That would be intolerable." 15 Their Honours make it clear that one could not state categorically all the circumstances in which a judge might or might not decline to sit. However, their Honours point out, and this indeed was the substantial ratio of the case, that the appropriate test for deciding apprehended bias is that which has been adopted in Australia in numerous cases, and to some extent may differ from that adopted in the United Kingdom, namely the test involving whether the fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge was required to decide. 16 Their Honours make it clear that that was the test to be applied in Ebner and no one has suggested here that any different test would apply in a case such as the present. It is impossible, of course, to categorise all the circumstances that might give rise to such a reasonable apprehension from a fair-minded lay observer. In Webb v R (1994) 181 CLR 41 at 74, Deane J identified four distinct, although overlapping, categories of case involving disqualification by reason of the appearance of bias, namely interest; conduct; association; and extraneous information. 17 So far as the application is based upon my participation in the Full Court Appeal, it hardly falls under any of those categories nor must I say can I think of any other category which would, in the circumstances of the present case, be applicable. Put shortly, participation in the Full Court Appeal could not on any view of the matter constitute a substantial ground for contending that I was disqualified from hearing and deciding the substantive income tax appeals which yet remain to be determined. 18 The second matter, and as I have already indicated it was really suggested to be cumulative rather than to be looked at on its own, concerned what was said at a directions hearing on 20 November 2000 when Mr Bevan, who is counsel for the taxpayers on the present application, appeared for the taxpayers in the various applications. By the time the matters were called, and I have no recollection whether they had been called at an earlier time and then stood down, it was around 10.00 am so the transcript records. It seems that at least 15 minutes had been spent between Mr Bevan and Mr Catt, a solicitor from the Australian Government Solicitor acting for the Commissioner, discussing the terms of the directions which it was suggested I should make. 19 The discussion opened, in essence, with Mr Bevan advising me that he and Mr Catt had been discussing the directions. I had earlier asked Mr Bevan whether the document which set out the directions his clients sought had been shown to Mr Catt earlier or whether Mr Catt had just seen that document "a few seconds ago", the transcript says, but presumably that meant a few seconds before the discussion. I said, and I stand wholly behind what I said, that the idea of directions is that they be discussed beforehand, not after the time at which they would be expected to be called on. 20 There were, so the transcript notes - and I have no reason to doubt its accuracy - three pages of directions in each of the various matters though, no doubt, the directions in each matter would have been the same. I note that Mr Bevan did not reply to the question whether he had shown to Mr Catt the directions sought and had discussed them beforehand. I said to Mr Bevan that it was not good enough that he and Mr Catt were just now discussing the directions and indicated I thought he had been far too long at the Bar to do that. The transcript then goes on to deal with particular matters in the directions although by then, as Mr Bevan tells me from the bar table, the parties were agreed on the precise terms of them. 21 Together with a one page of transcript to which I have referred, Mr Bevan handed me an affidavit from his instructing solicitor dated 14 November 2000 dealing with the directions that were made together with correspondence between the parties which concluded with a letter from Mr Catt dated 20 November 2000 dealing with his client's response as to whether the derivation of assessable income of Fernmist Investments Pty Limited occurred on 30 June 1993 or on some other date. I am not quite sure what I am supposed to get from the affidavit and correspondence save that there had been some discussions between the parties. Mr Bevan does not ask me to allocate the fault between the legal advisers of the parties on there still being a need for further discussion on the morning of the directions. 22 With respect to the submission, neither that matter alone nor in conjunction with the fact that I participated in the Full Court hearing and judgment could possibly afford a substantial ground for disqualification. Were I to think that there was a matter of real doubt concerning whether a fair-minded lay observer, or for that matter the parties, would entertain the view that a reasonable apprehension of bias was established I would seriously consider disqualifying myself on the basis that such disqualification might avoid litigation between the parties on the issue. However, I would then and do now have to also consider the other more practical matters which would arise were I to take what is the easy course in one sense and decline to participate in the various taxation issues that arise between the parties. Accordingly, I do not propose to disqualify myself. 23 I am of the tentative view that the costs of the motion to disqualify should follow the outcome of the motion. However, there is the fact that the parties were necessarily represented in Court for directions. I thus order the applicants to pay the respondent's costs limited to correspondence and other attendances notifying that the application was to be made thereafter and an hour and a half of time in Court this morning. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.