Frangieh v Deputy Commissioner of Taxation & Anor

4. The following information was requested under a formal notice that issued on 31 March, 2010. Information in relation to the $160,000 loan and the source of the loan. Bank account details The financial institution The BSB The account number Name of the account holder 5. The following was requested on 30 March 2010 * banks statements for all bank accounts held for the 2007 year * details of all bank accounts held in the 2007 year including the BSB account number and the name of the account"
5. On 12 August 2010 Ms Johnston sent a further email to Mr Mascari as follows: "Please refer to my previous email of 4 August 2010 that gave you details of the information requested by the ATO. The following information has been received from your client or his previous representative in relation to requests for information for the 2007 income tax audit: * Copy of Loan agreement in relation to the profit share agreement. * copies of bank statement of BSB [XXX-XXX-XXXX] account [YY-YYYY] account name - Mr Joseph Frangieh and Sharon Frangieh * correspondence from your client dated 10 March 2010. Attachment One - copies of deposits made to the above account for the period 4 September 2006 to 6 November 2006. Attachment two Equity Access Loan approval correspondence. Attachment three email from QLD group. In addition to the above your client will need to provide explanations and evidence of all transactions in all bank accounts held for the above period. For example, your client has explained deposits to the loan account above where he has indicated that amounts deposited are the sale of motor vehicles. The example of the type of evidence required would be RTA transfer slips, registration numbers, VIN number, full name and address of the person who purchased the vehicle, details of how the motor vehicle was transported to the purchaser, invoices for freight etc. Where a deposit is the repayment of a loan, examples of the details required would be copies of any loan agreement indicating the name/s of the party/s, terms of loan and the relationship to the client. I wish to conduct an interview with you and your client to discuss the audit and collect information and evidence of the transactions. Tentative appointment details are as follows ..."
6. The primary judge found that the proposed interview did not go ahead (Judgment [205]).
7. On 20 August 2010 Ms Johnston wrote to a Mr Mark Vale, Team Leader Risk Strategy and Intelligence, in the Serious Non-Compliance (SNC) business line of the ATO. She conveyed information about Mr Frangieh and four persons she identified as being business associates of his or his relatives and suggested that they were criminals or associates of criminals. She also referred to the possibility that Mr Frangieh had a criminal history. She asked whether SNC planned to undertake or were undertaking any audit activity on Mr Frangieh and whether they had any relevant intelligence. On 24 August 2010 she was informed by Mr Vale that SNC databases did not hold any records of Mr Frangieh or his addresses or enterprises and he assumed that no SNC audit activity was planned for him. His email was sent to a Mr Ian Cameron, SNC Audit Manager for New South Wales.
8. On 26 August 2010 Mr Cameron advised Ms Johnston and Mr Vale that "This matter has significant organised crime links and would not be appropriate for any area but SNC" (Judgment [209]). On the same day Ms Johnston sent an email to her team leader, Ms Rogers recording a course of action suggested by Mr Cameron that included that the case be referred to SNC for failure to comply with the s 264 notice. Ms Johnston reported to Ms Rogers that her suggestion was that the ATO should proceed with raising default assessments. She said "The client and his representatives have failed to supply the information in a timely manner. They have continually requested to change interview appointment dates and insisted that the interview be conducted at the TAG's (tax agent's) office.
9. Mr Hyde Page criticised Ms Johnston's statement to her superior in her email of 26 August 2010 that Mr Frangieh had failed to supply information in a timely manner, submitting that only two weeks had passed since Ms Johnston's email of 12 August. However, Ms Johnston's email of 12 August was not the first occasion upon which information had been requested. The information requested on 24 February 2010 had not been supplied and the notice under s 364 of 31 March 2010 had not been complied with. The email of 26 August does not disclose targeted malice or conscious maladministration or anything like it.
10. On 27 August 2010 Ms Rogers wrote to Ms Johnston: "... Are we able to continue our audit in the immediate period via telephone and email and set out the information we require him to provide? I think we should consider this before we consider default assessment."
11. On 30 August 2010 Ms Johnston sent a further email to Ms Rogers revising her earlier suggestion. She wrote: "I was thinking about this case last Friday when I was off work. Probably, my way forward was a little harsh. Regardless of the business activities of the client and his associates we should probably give the client more time with the new TAG to arrange the client's tax affairs. The purpose of the interview was to collect further records (copies of bank statements and evidence of transactions to the personal accounts of the client) and obtain further explanation of certain transactions. Yes this can be done via email, phone calls and letters. However, this does generally prolong the audit. We still have time on our side for POR [period of review]. The audit is on the 2007 year the 2007 issued on 17/09/2007. The two year exclusion does apply to this client. The client is conducting a business of some sort and is probably not a STS taxpayer. I will contact the TAG today to see how they are progressing with collating the information and records that have been requested. [At] this stage no physical contact with the client. If the client and the TAG fail to cooperate, then I feel that we should proceed with the harsher line, including referral to SNC IHP for failure to comply with the notice."
12. On 31 August 2010 Ms Johnston sent an email to a Mr Sam Simpson of the SNC section of the ATO that included the following: "A comprehensive audit commenced on the client under the Western Jetz (Siebel case id 1-1QZ1M6N) on 20 October 2007. Initially the audit was for a specific issue- the distribution from a profit share arrangement. As a result of questions asked in providing evidence of payments to and from the profit share arrangement, the auditor at the time extended the scope of the audit to the entire 2007 year. Information was requested from the client both formally and informally. The client has failed to provide all the information requested. The client has changed TAG [tax agent] three times in the last few months. The current TAG [is] insisting that I conduct the interview at his office. I have advised the TAG that it is office policy that interviews of this nature are held at an ATO site interview room. After discussion with my Team Leader, Marianne Rogers, we have decided that the audit will continue, but will be done via email, phone and perhaps delivery of bulky records to the Sydney Latitude East Office, then transferred internally to me in Newcastle. Could a check with Australian Crime Commission and NSW State Police also be undertaken on the above client for any information that would assist me in the audit or any background information on the of the [sic] client."
13. On 31 August 2010 Ms Johnston sent an email to Mr Sid Sassine, who was acting for Mr Frangieh that, in substance, confirmed that she agreed to an extension to 17 September 2010 for Mr Frangieh to provide the document and information previously requested. She noted that the extension did not apply to the information requested in the s 264 notice dated 31 March 2010 that had been required to be furnished by 5 May 2010. She noted that that information had still not been received.
14. On 17 September 2010 Mr Mascari sent an email with numerous attachments to Ms Johnston in response to her emails of 4 August and 12 August 2010. He attached a copy of the profit-sharing agreement in relation to Western Jetz and asserted that Mr Frangieh's signature on that document was forged. He attached other documents in relation to the Western Jetz transaction. He advised that upon the ATO's approval his firm would amend Mr Frangieh's 30 June 2007 financial accounts and income tax return for In-Style Developments Pty Ltd to reduce the fees received by $190,000 and vary the director's fees paid to Mr Frangieh to nil. He would amend Mr Frangieh's 30 June 2007 tax return to include $190,000 in income received from Mr Cheihk and/or Mr Bassilli. He conveyed advice he had received from Mr Cheihk that part of the $700,000 paid to Mr Frangieh was a loan reimbursement and part was income.
15. Mr Mascari identified seven payments that he said his firm believed were transactions which made up, or partly made up, the asserted $510,000 loan to Mr Cheihk and Mr Bassilli. He said that on receipt of vouchers that had been requested from Westpac his firm would be in a position to confirm how the loans had been made. He referred to 14 deposits to Mr Frangieh's bank account. In respect of some deposits he said that his firm was still waiting on information from Westpac. In relation to others he asserted that the payments were believed to be for the sale of a motor vehicle, or were loan repayments, or were payments received from Mr Frangieh's wife, or were income for consultancy work which would be reflected in an amended return.
16. The primary judge found that much of the information provided by Mr Mascari had already been provided to the ATO (Judgment [217]).
17. On 13 December 2010 Ms Johnston had a telephone conversation with a new tax agent for Mr Frangieh in which she read the text of her email of 12 August 2010.
18. On 24 January 2011 Ms Johnston advised the tax agent that Mr Frangieh had had over a year to provide the information and she would be preparing a position paper on proposed adjustments. The tax agent stated that he had further information and details as requested, but was unable to discuss the additional information with her then. A later position paper of May 2011 records that the information was not provided.
19. On 21 March 2011 Ms Johnston again asked the tax agent if Mr Frangieh had any additional information. The position paper of May 2011 noted the need for the provision of information and sought written comments "with supporting details" if Mr Frangieh took issue with what was stated in the position paper.
20. Mr Hyde Page submitted that Ms Johnston did nothing to implement Ms Rogers' suggestion in her email of 27 August 2010 that Ms Johnston continue the audit by telephone and email and set out the information Mr Frangieh was required to provide. He submitted that Ms Johnston took no further steps to obtain information from Mr Frangieh and did not communicate details of the information he was required to provide prior to the issue of the position paper on 12 May 2011. That was not so.
21. On 2 May 2011 Ms Johnston sent to a Ms Sandford of the ATO a draft position paper relating to Mr Frangieh. The primary judge explained that the purpose of the position paper was to provide Mr Frangieh with a summary of the ATO's position in relation to his affairs which were subject to the audit so that he could comment before the audit was finalised (Judgment [223]). The draft was considered by Ms Sandford and another ATO officer. Minor amendments were made to the draft. The final position paper was sent to Mr Frangieh on 12 May 2011. The position paper identified as an issue what was really the ATO's conclusion, namely that: "The profit from your investment in Western Jetz Pty Ltd and unexplained deposits to the Equity Access loan account is assessable income for the 2007 financial year under s 6-5 of the Income Tax Assessment Act 1997."
22. The position paper noted that Mr Frangieh had contended that some of the bank deposits were the proceeds of the sale of motor vehicles, repayments of loans and deposits of other cash amounts. It noted a tax agent's explanation of the Western Jetz transaction, namely that the net profit had been included in the income tax return of Mr Frangieh's company, In Style Developments Pty Ltd, and a partial distribution of the profit was made to Mr Frangieh by payment of directors' fees. The paper set out a chronology of facts including the reference to a loan agreement between Mr Frangieh as lender and Mr Cheihk and Mr Bassilli as borrowers for $510,000; various contentions made by Mr Frangieh or his tax agent in relation to the nature of the $700,000 distribution and the alleged $510,000 loan; previous requests for information including advice of 30 March 2010 that the audit had been extended to include all income for the 2007 year and the request to Mr Frangieh that he provide details of all bank accounts within 28 days (30 March 2010); the issue of the s 264 notice on 31 March 2010; the email of 12 August 2010; the extension granted on 31 August 2010 for the submission of information previously requested a call to Mr Frangieh's tax agent on 13 December 2010 explaining the information required as previously requested; and advice from Mr Frangieh's tax agent on 24 January 2011 that he had further information and details as requested (which were not provided). The position paper stated that the information provided on 17 September 2010 was information that had already been provided to the ATO by Mr Frangieh and his previous tax agents. The summary of the telephone call on 24 January 2011 included the ATO's asking the tax agent whether the further information and details he had was additional information. It was recorded that the tax agent advised that he would call back on 25 January 2011 with further details, but no further contact had been made.
23. The position paper concluded that the total amount of deposits to the Westpac account of $3,572,517.16 should be considered to be ordinary income derived by Mr Frangieh from an unknown source, they being unexplained bank deposits and that of the $700,000 distribution from Western Jetz $350,000 should be treated as income (that being the difference between the amount received and the $350,000 loan that the ATO accepted had been made). The paper then addressed the proposed imposition of penalties or of the Shortfall Interest Charge.
24. In her email of 2 May 2011 to Ms Sandford, Ms Johnston noted that she had recommended that a 25 per cent Base Penalty Amount be imposed reflecting a conclusion that the taxpayer had not acted with reasonable care. In her email to Ms Sandford she asked whether Ms Sandford thought that recklessness might be a more appropriate characterisation of the taxpayer's behaviour, given the sizeable amount of the tax shortfall. Such a finding would have increased the penalty to 45 per cent. Ms Johnston stated: "The taxpayer has obstructed the ATO in its enquiries during the audit. The taxpayer has failed to comply with s 264 notice for information and several requests for that same information."
25. On 12 May 2011 Ms Johnston, signing for Greg Williams, Deputy Commissioner of Taxation, Small and Medium Enterprises, sent the finalised position paper to Mr Frangieh explaining that the paper set out the ATO's view on unexplained deposits and the Western Jetz profit-share agreement that were identified during the audit of his 2007 income tax return. He was invited to provide written comments with supporting details if he disagreed with its contents. The primary judge noted that the total amount of deposits which the ATO said should be characterised as income in the absence of adequate explanation was somewhat less than the total of all deposits to the account in the 2007 financial year ($4,007,030). Her Honour also noted that no allowance had been made for outgoings (Judgment [226]).
26. On 18 May 2011 Ms Johnston sent an email to Mr Frangieh stating that: "During a recent telephone conversation you said that you had further information and documentation and that you had approached the bank. Would [you] kindly advise:- ● which points of the position paper these relate to ● what evidence or proof you currently have and will provide e.g. Banks statement invoices or other third party documentation. ● what evidence or proof you anticipate to have. These details are required prior to the interview. This will assist in expediting discussions at the interview."
27. Later on 18 May 2011 Mr Frangieh sent seven emails with attachments to Ms Johnston summarised in the reasons of the primary judge at [232]-[239]. Ms Johnston responded the following day stating that: "The evidence that you have provided so far does not support the transactions that occurred in the 2007 year. Please follow my instructions in my email of 18 May."
28. Counsel for Mr Frangieh did not submit that Ms Johnston's response was inaccurate. The primary judge observed that there was no explanation how the attachments related to deposits to the Westpac account in the relevant period (Judgment at [234]-[239]).
29. On the same day Mr Frangieh responded to Ms Johnston by saying that he had given her as much evidence as he could surrounding the circumstances (Judgment [242]).
30. On 20 May 2011 further documents were provided by Mr Frangieh to Ms Johnston. These were referred to in the judgment at [243]. Again, there was no explanation as to how the documents were said to relate to the deposit in the Westpac account.
31. The primary judge observed (Judgment [247]) that in an email of 23 May 2011 Mr Frangieh again alleged that his signature to the Western Jetz profit-share agreement had been forged.
32. Mr Frangieh attached to his email of 23 May 2011 a long letter that advanced various explanations for most of the deposits. These included that some deposits were repayments of loans, or in some cases payment of interest on loans, or repayment of funds earlier withdrawn (without explanation for the reason for doing so), or the proceeds of sale of motor vehicles, or repayment of expenses Mr Frangieh had incurred for third parties.
33. The primary judge concluded in relation to Mr Frangieh's response to the audit position paper that: "The cross claimant's responses to the audit position paper are confusing and often irrelevant. Importantly, the cross claimant did not draw links between the documents and explanations he was providing to the particular transactions in the Westpac account which were the subject of the audit. Insofar as those links could be drawn, they did not assist Ms Johnston's understanding of the cross claimant's tax affairs for the purposes of the audit." (Judgment [251])
34. On 25 May 2011 Ms Johnston attended an interview with Mr Frangieh and his wife and solicitor, Mr Richards.
35. Ms Johnston prepared a record of the interview (Judgment [252]). The record of the interview includes Mr Frangieh's saying that "The Western Jetz was a sham and that [he] intended to prove that. He went on to explain that he did sign the loan agreement and did not get back what was agreed to." The record of interview also recorded Mr Frangieh's saying "JF invested $500,000 which was 10 per cent share of the project". There was discussion about the importance of provision of documentary evidence. Mr Richards stated that he wished to prepare a schedule showing the amounts and evidence of proof of deposits to the account. He would prepare a timeline when all the information was provided. A Mr Peter Smith from the ATO, who was also present at the interview, suggested that Ms Johnston prepare a random sample of deposits initially for Mr Richards and Mr Frangieh to provide explanations and evidence about. They were advised that the list would be emailed the following day and a response would be required by close of business on 3 June 2011. Ms Johnston explained to Mr Frangieh that he needed to review all of his entities.
36. The following day (26 May 2011) Ms Johnston sent an email to Mr Richards and Mr Frangieh attaching a random sample of deposits made to the Westpac account between 14 July 2006 and 12 June 2007. There were 21 such deposits on the list with a statement of such details as were available about them. For example the place where the deposits had been made, or in the notation "deposit Pullen S Car" or "Deposit Lewis Discount C Leo Lewin".
37. On 3 June 2011 Mr Richards sent Ms Johnston a letter setting out information regarding the 21 deposits. The primary judge noted that for each of the 21 deposits Mr Richards set out an explanation and in many cases referred to an annexed document. For many of the deposits the annexure was either a copy of a page of the Westpac account statement showing the deposit or copies of the deposit slip or the cheque relating to the deposit. Her Honour noted with apparent approval (subject to one exception) the respondent's submission that such documents did not themselves prove the nature of the transaction that gave rise to the deposit and provided no evidence as to whether the deposit was assessable income or not. The exception was there was one deposit (2 February 2007) for the sum of $15,081.64 which was an ATO refund cheque and the primary judge noted that this should have been obvious to the ATO (Judgment [254]). No submissions were made about this on appeal.
38. Mr Richards stated Mr Frangieh believed that a payment of $35,000 was made to him by a Mr Leo Lewin as project commission and the 2007 tax return would be amended to reflect the commission. He also said that the return would be amended to reflect $190,000 in omitted interest income and $30,000 in omitted consulting fees.
39. The primary judge analysed the information provided by Mr Richards (Judgment [256]-[265]). Her Honour noted that it was apparent from the handwritten annotations on the copy of Mr Richards' submissions that each of the explanations provided was considered and the explanation or evidence provided was considered to be deficient (Judgment [261]).
40. Mr Hyde Page did not refer to the substance, let alone the detail, of the information provided. He did not submit that there was no proper basis for Ms Johnston to have considered the explanation or evidence provided to be deficient.
41. The primary judge noted (Judgment [264]) that Mr Richards' submission on behalf of Mr Frangieh acknowledged that there had been an unsatisfactory attendance to his accounting affairs and better records could have been maintained (at [264]).
42. On 23 June 2011 Ms Johnston had a telephone conversation with Mr Richards recorded in a file note in which Ms Johnston said: "I explained that he needed to provide further evidence of these loans to family members and business associates. I said that tpr [sic] would not borrow money for a personal loan account to lend to others for no return. ... Robert said that perhaps the best way forward on this matter would be for the AAT to decide. Where affidavits in cross-examination may take place." (Judgment [266])
43. This appears to have been a suggestion by Mr Richards who was acting for Mr Frangieh that the ATO could issue a default assessment which would be the subject of objection and review. The conversation was another informal request for provision of documents.
44. Not being satisfied with the documents and information provided by Mr Frangieh the ATO's attention turned to the making of a default assessment. The ATO's notice of assessment for Mr Frangieh's taxable income for the 2007 financial year was issued on 17 September 2007. Because more than four years had passed the Commissioner could only make an amended assessment pursuant to s 167 of the Income Tax Assessment Act if he or she were of the opinion there had been fraud or evasion (s 170(1) Item 5). The ATO had internal guidelines referred to in the reasons of the primary judge at [268] ff as to how and when the ATO could issue a default assessment after the expiry of the four-year period. The guidelines provided, by reference to the judgment of Dixon J in Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296 at 313, that evasion means more than avoidance and connotes some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible, and that an intention to withhold information lest the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede would justify a finding of evasion.
45. Administrative guidelines required Ms Johnston to prepare an opinion. Three drafts of an "evasion opinion" were prepared primarily by Ms Johnston, but with input from others (Judgment [282]-[291]).
46. On 16 February 2012 Ms Johnston forwarded a draft "Fraud or Evasion Opinion" to a Mr Howarth, having the title "STL TEP Advisor Phoenix Arrangements", in the ATO. The form she was required to complete included a question "Was there a blameworthy act or omission?" She answered that "Yes". She identified the blameworthy act or omission as being the omission of two sources of income from Mr Frangieh's return being $350,000 of omitted income from a profit-sharing arrangement with Western Jetz and $3,234,064 in unexplained deposits into his personal account and his failure adequately to explain the majority of the transactions.
47. Although not referred to in the appellant's submissions, the primary judge's reasons record that the draft evasion opinion was considered by a panel comprising seven ATO officers who sought more facts and details than included in the draft that had been presented orally (Judgment [303]). On 18 June 2012 an amended draft evasion opinion was again considered by the panel that concluded that the finding of evasion with respect to (Western Jetz) profit-share and unexplained deposits and sale of cars was supported (Judgment [305]).
48. The primary judge recorded that at trial Mr Frangieh's main criticism in relation to the evasion opinion was that Ms Johnston did not consider withdrawals and deductions and that all she turned her mind to was excluding deposits that were reversals of amounts previously withdrawn (Judgment [311]). As noted below Mr Frangieh's initial written submissions on appeal addressed the fact that the default assessment was based upon treating most of the deposits to the Westpac account in the 2007 financial year as income without considering whether any of the withdrawals could be considered as taxable deductions. That submission was not pressed on appeal.
49. The primary judge recorded that by 18 June 2012 the ATO panel considered there was ample evidence to support the evasion opinion. The primary judge rightly noted that it was not Ms Johnston who made the decision that there should be a finding of evasion (Judgment [308]).
50. On appeal, although apparently not at trial, the focus of Mr Frangieh's submission was on a decision communicated to Mr Frangieh by a letter dated 4 July 2012. The letter was sent out under the name of Mr Cranston, as Deputy Commissioner of Taxation. It was signed for him by Ms Johnston. The letter relevantly stated: "Further to the Position Paper issued to you on 12 May 2011, we will amend your 2007 income tax return to include the distribution from your investment in Western Jetz Pty Ltd and unexplained deposits to the Westpac Equity Access Account We found that you need to pay additional tax of $1,700,017 (the shortfall amount). Enclosed are the reasons for our decision which includes details of any penalty or interest charged or remitted and an 'Adjustment sheet' outlining the changes being made. A notice of amended assessment and notice of assessment of shortfall penalty will be issued shortly."
51. A statement of reasons was attached to the letter. As noted above at [5] the asserted shortfall of income fell into two categories. In relation to the asserted shortfall of $350,000 in respect of the Western Jetz transaction the reasons stated: "When the Western Jetz profit was realised on 1 May 2007, you constructively derived the assessable income as per the details outlined in the Western Jetz Pty Ltd Profit Share Agreement, which entitled you to a 20% share of the profits. You had the right to the assessable income at 1 May 2007 and it is assessable income to you in the 2007 year. The transfer of the $700,000 to the bank account known as In-Style Developments Pty Ltd ATF for the Frangieh Family Trust indicates that the monies were dealt with on your behalf or at your direction. The distribution you derived from your investment in Western Jetz Pty Ltd during the 2007 income year is ordinary income in accordance with 6-5(2) of the ITAA. The amount of assessable income is $350,000, that is, the distribution of $700,000 less the initial investment of $350,000."
52. In relation to the asserted income being unexplained deposits the reasons stated: "During the 2007 year, there were eighty two credit transactions to the above account totalling $4,007,030. After taking into consideration all the information and evidence provided as well as the results of the vouching exercise of the credit and debit transactions to this account, $3,234,064 remains unexplained. Adequate evidence was not provided to the ATO to support the contentions on the amount of unexplained deposits. Forensic analysis was conducted on the $4,007,030 credit transactions. The analysis concluded that an amount of $3,234,064 unexplained deposits should be included in your assessable income for the 2007 year. The analysis is described below: ● Eighty two credit transactions, total value $4,007,030 took place. This includes multi deposits on the same day. ● Thirty two transactions or 34% of the total credit transactions are cash (11), cheques (14) and no bank vouching available. You and your representative were requested on several occasions to provide further evidence of the transactions. No satisfactory explanations and/or evidence were provided. Total $1,366,828 ● Twenty four transactions or 38% of the total credit transactions, you contend are repayment of loans. You were requested on several occasions to provide further evidence of the transactions. No satisfactory explanations and/or evidence were provided. No loan documentation was provided. There appears to be no regular repayments of capital and interest of these loans. Total $1,522,084 ● Six transactions or 7.6% of the total credit transactions, you contend are the sale of motor vehicles. You contend that you are a collector of cars. Follow up action by the ATO on the details you provided indicate that some of the vehicle sales were for luxury cars. You provided registration and chassis details of motor vehicles sold. Further third party enquires [sic] do not support the details as provided by you. You have not provided evidence to support your contentions that you are merely a collector of motor cars. Total $304,500 ● Seven transactions or 1% of the total credit transactions, you and your representatives contend are income from consulting and interest received. The ATO has accepted these disclosures made by you or your representatives. This has not been included as assessable income in your 2007 income tax return. Total $40,651" (Blue 7/3448)
53. The reasons went on to state the basis for the imposition of a base penalty of 50 per cent that was assessed on a finding of recklessness.
54. Mr Frangieh's submissions on appeal focused not upon Mr Ravanello's issue of a notice of assessment, but upon the decision made by the Commissioner (through Mr Cranston and by him through Ms Johnston) under s 167 of the Income Tax Assessment Act to make the assessment because the Commissioner was not satisfied with the return furnished by Mr Frangieh.

Condition for exercise of s 167 power

1. In the first written submissions filed for Mr Frangieh he submitted that the assessment under s 167 was invalid, not because the pre-condition to the making of an assessment was unsatisfied, but because it should be inferred that Ms Johnston was motivated by malice by treating Mr Frangieh's gross income as taxable income without making allowance for deductions and not using other available indirect methods to estimate taxable income, such as the "T" account methodology explained in Favaro v Federal Commissioner of Taxation (1997) 36 ATR 55 at 57 or the "asset betterment" method described in the reasons of the primary judge at [413]. In those written submissions Mr Frangieh submitted that Ms Johnston had available to her the power in s 73 of the Taxation Administration Act 1997 (Vic) to make inquiries in order to obtain information required to enable her to make an amended assessment, it was beyond the scope of her power to make a "penal" amended assessment because she had failed to obtain the necessary information. The gist of the submission was that the assessment under s 167 was so unreasonable that no reasonable decision-maker could have made it and was infected by malice that amounted to conscious maladministration so that its validity was not protected by s 175 (Futuris Corporation). This contention was not pressed.
2. In revised written submissions Mr Frangieh submitted that Ms Johnston showed disregard for the proper ascertainment of Mr Frangieh's true liability and for the pre-conditions to the exercise of the s 167 power. In oral submissions Mr Hyde Page acknowledged that there were authorities including decisions of the Full Court of the Federal Court which have held that when there is a relevant default the Commissioner is no longer strictly bound by the balance of the tax legislation and can engage in a process of ascertainment that goes close to guesswork and that it was common to see default assessments where the only process of ascertainment is that the Commissioner has taxed all the deposits to a bank account and treated them as assessable income with no deductions. He submitted that that was a permissible ambit of s 167, but the power to do so was only enlivened when there was a default. He submitted that any satisfaction of the pre-condition to the power under s 167 (relevantly para (b)) was vitiated by bad faith or by Wednesbury unreasonableness.
3. I do not accept that submission. The pre-condition to the exercise of the power under s 167 was merely that the Commissioner not be satisfied with the return furnished by Mr Frangieh. Mr Frangieh or his representatives had admitted that the return was wrong. Irrespective of whether or not all of the deposits to the Westpac account should be treated as income, on the information available to Ms Johnston at least the deposits to the account that were admitted to be consultancy fees and interest on the asserted loan of $510,000 and interest on other loans would be income. This alone would be a sufficient basis for Ms Johnston, on behalf of the Commissioner, to not be satisfied with the return so as to satisfy s 167(b).
4. In his oral submissions in chief on the appeal Mr Hyde Page submitted that the formation of the opinion on behalf of the Commissioner that the Commissioner not be satisfied with the return furnished by Mr Frangieh was vitiated either for targeted malice or reckless indifference by Ms Johnston to the pre-condition to the power to make an assessment under s 167. Having abandoned written submissions filed by other counsel for Mr Frangieh, in his submissions in chief, Mr Hyde Page addressed only the pre-condition to the making of an assessment under s 167 (being relevantly the Commissioner's lack of satisfaction with the return furnished) rather than attacking the assessment as being excessive. The forensic reason for this approach was to seek to avoid the operation of s 175 of the Income Tax Assessment Act (see [27] above). Mr Hyde Page sought to resile from that position in his submissions in reply by saying that the "... necessary state of satisfaction that needs to be achieved is one that draws its colour from what is in fact contemplated by way of a default assessment." That point had not been raised before submissions in reply and is not available. In any event it has no substance.
5. The contention that Ms Johnston knew that there was no basis on which she could form the opinion on behalf of the Commissioner that the Commissioner was not satisfied with the return furnished by Mr Frangieh does not bear examination. Mr Frangieh's tax agents had admitted that his return failed to record the receipt of $190,000 of income on what was said to be the difference between the distribution of $700,000 from Western Jetz and the loan of $510,000. Although evidence was produced of a loan of $350,000, no evidence had been produced of any greater advance. Information provided to the ATO by Mr Frangieh or persons acting on his behalf in relation to the transaction was contradictory. There were deposits made to the bank account that Mr Frangieh's tax agents had accepted were the payment of consultancy fees that were not included in his income tax return. Mr Frangieh had admitted that some deposits were payment of interest on a loan made by him. Irrespective of the absence of a proper explanation of the other deposits to the Westpac Bank account, Mr Frangieh's tax return was admittedly wrong. No submission was made to attempt to show that Ms Johnston ought to have been satisfied with the explanations and information provided by Mr Frangieh, let alone that she knew that the explanations and information provided were satisfactory or was recklessly indifferent to their sufficiency.
6. On the hearing of the appeal Mr Frangieh did not challenge the validity of the exercise of the power under s 167 if that pre-condition were satisfied. No submissions were advanced either in written submissions provided before the hearing of the appeal or orally during the hearing that challenged the merits of the decision that the deposits to the Westpac account that were treated as income should not have been treated as income.
7. In R v Deputy Commissioner of Taxation (WA); Ex Parte Briggs (No 2) (1987) 14 FCR 249 Sheppard J applied observations of Latham CJ in Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87-88 in relation to a predecessor provision to s 167 that: "Obviously the facts in relation to his [the taxpayer's] income are facts peculiarly within the knowledge of the taxpayer. In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books. The application of s 39 [the conclusivity of a notice of assessment] is not, in my opinion, excluded as soon as it is shown that an element in the assessment is a guess and that it is therefore very probably wrong. It is prima facie right - and remains right until the appellant shows that it is wrong. If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right. I say 'as a general rule' because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the Commissioner for further consideration." (at 268)
8. Sheppard J noted that the process might go close to guesswork and yet be lawful. His Honour also said (at 270): "The essential question in this case is whether there was any assessment at all. The fact that it may have been able to be better done than it was will not make it a nullity if in truth the process of assessment, however unsatisfactorily, or even erroneously, it may have been done, was carried out. What is involved is a judgmental exercise to determine whether what Mr Gill did constituted an assessment or was an exercise unrelated to the prosecutor's circumstances." (The taxpayer was the prosecutor in the application.)
9. Sheppard J's decision was followed by Foster J (with whom Sheppard J agreed) in Madden v Madden (1996) 65 FCR 354 at 394. In particular Foster J agreed with Sheppard J's conclusion in Briggs that s 167 did not require the Commissioner to ascertain the taxpayer's assessable income and allowable deductions. His Honour approved the statement of Sheppard J in Briggs (at 270) that: "The essential question in this case is whether there was any assessment at all. The fact that it may have been able to be better done than it was will not make it a nullity if in truth the process of assessment, however unsatisfactorily, or even erroneously, it may have been done, was carried out. What is involved is a judgmental exercise to determine whether what Mr Gill did constituted an assessment or was an exercise unrelated to the prosecutor's circumstances."
10. In Marijancevic v Mann [2008] FCAFC 161; (2008) 73 ATR 709 the Full Court of the Federal Court (Ryan, Kenny and Stone JJ) said (at [20]): "In making default assessments under s 167 of the ITAA 1936, the Commissioner is entitled to exercise his judgment to arrive at the figure upon which income tax ought to be levied even though he is not in possession of all relevant information and he is aware that the figure may well be incorrect: see R v Deputy Commissioner of Taxation (WA); Ex parte Briggs (1987) 14 FCR 249 at 270; Briggs v Deputy Commissioner of Taxation (WA); Ex p Briggs [No 2] 18 ATR 570 at 589 per Sheppard J and Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87-88 per Latham CJ. As Sheppard J said in Briggs (at FCR 270; ATR 588; ATC 4294; ALR 386): 'The essential question … is whether there was any assessment at all. The fact that it may have been able to be better done than it was will not make it a nullity if in truth the process of assessment, however unsatisfactorily, or even erroneously, it may have been done, was carried out. What is involved is a judgmental exercise to determine whether what [the Commissioner] did constituted an assessment or was an exercise unrelated to the prosecutor's circumstances.' The Commissioner is entitled to exercise his judgment in making an assessment of the amount upon which income tax ought to be levied, provided that the Commissioner makes a genuine attempt at assessing what this amount should be: see Madden v Madden (1996) 65 FCR 354 at 394-395; 32 ATR 223 at 257 per Foster J, with whom Sheppard J agreed."
11. There is nothing to suggest that the default assessment was invalid, irrespective of the operation of s 175 of the Income Tax Assessment Act that would preserve its validity, except in the case of deliberate or conscious maladministration. The merits of the conclusion of Ms Johnston that the information provided by Mr Frangieh did not identify that the deposits were not assessable income was not challenged on appeal. The pre-condition to the making of the assessment, namely that the Commissioner was not satisfied with the return that was lodged, was clearly established. The return was admittedly wrong. That had been admitted by Mr Rizkallah on 30 October 2009 (at [37] above), by Mr Frangieh on 10 March 2010 [at [41] above), by Mr Mascari on 17 September 2010 (at [56] above), by Mr Richards on 3 June 2011 (at [80] above), implicitly by Mr Frangieh on 23 May 2011, and Mr Crawford on 10 August 2012. This last admission was made on 10 August 2012 when a new tax agent acting for Mr Frangieh stated that: "With the exception of the $35,000 of commission income on 2 February 2007 that had been incorrectly omitted, the remaining balance of deposits totalling $3,199,063.64 should not be deemed to be taxable income as they were private in nature."
12. The fact that the Commissioner of Taxation ultimately accepted that Mr Frangieh's 2007 taxable income was as stated in his return does not indicate that there was not a reasonable basis for Ms Johnston not to be satisfied with his return. The reasons the Commissioner ultimately accepted that Mr Frangieh's taxable income was as originally declared were not before us except in the most general of terms (see [128] below).

Alleged inadequate investigation and misrepresentations

1. Mr Frangieh submitted that malice, bad faith and conscious maladministration were demonstrated by Ms Johnston by her alleged failure properly to investigate whether deposits to Mr Frangieh's bank account were income, by her alleged misrepresentations to other ATO officers as to requirements made to Mr Frangieh to produce information, and by evidence (so it was alleged) that she had a subjective malice to harm Mr Frangieh. None of these grounds is made good.
2. The first and second grounds are related. Mr Frangieh submitted that during the two-year audit period Ms Johnston transmitted only a single request for Mr Frangieh to provide evidence of all of the transactions occurring in his bank account. This was said to be the request contained in her email to Mr Sassine dated 12 August 2010 (referred to at [47] above) in which it was said, almost as a throwaway line or afterthought, that he should provide explanations and evidence of all of the transactions in his bank accounts for the 2007 financial year. I do not accept this submission. Ms Johnston's email of 12 August 2010 (referred to at [47] above) was not an informal request, let alone a request in the nature of a throwaway line or afterthought. The position paper provided to Mr Frangieh in May 2011 clearly outlined the ATO's position.
3. Mr Frangieh submitted that it could and should be inferred from what was said to be misrepresentations of fact made by Ms Johnston to other officers of the ATO about the audit and Mr Frangieh's alleged lack of co-operation, that she was motivated by malice and was conscious that she was breaching s 167, or was recklessly indifferent to its limits. It was said that in Ms Johnston's draft evasion opinion (para [88] above) she misrepresented the position in stating that: "ATO have requested information from Joseph Frangieh and his TAGs over a two-year period. There are eighty-four (84) credit transactions to the above account. The taxpayer was requested on numerous occasions both formally and informally to provide full details of the transactions." Mr Hyde Page also submitted that the ATO did not have sufficient evidence of fraud or evasion and had not done enough that it could be satisfied that Mr Frangieh had failed to declare $4 million in income.
4. Mr Hyde Page submitted that the assertion quoted above clearly referred to the unexplained deposits and it was submitted in relation to that subject matter that there had been only one request, namely the email of 12 August 2010 and that was not a formal request.
5. The statement that the taxpayer had been requested on numerous occasions, both formally and informally, to provide details of the transactions was accurate. On 24 February 2010 information was requested in relation to 14 identified deposits and that request was repeated by Ms Johnston on 4 August 2010. In the email of 12 August 2010 she advised Mr Frangieh that he needed to provide explanations and evidence of all transactions in all the bank accounts held for the relevant period and gave examples of the kinds of explanations that would be required to explain that deposits were loan repayments or proceeds of the sale of motor vehicles. The fact that the request was conveyed by email did not mean it was made informally. On 31 August 2010 Ms Johnston extended the time for the provision of documentation and information. There were further requests on 13 December 2010, 24 January 2011 and 21 March 2011 referred to above at [59]-[62]. The May 2011 position paper sought comments with supporting detail. The taxpayer's responses to the position paper were answered by Ms Johnston pointing out the kind of information that had not been provided.
6. I reject Mr Frangieh's submission that Ms Johnston misrepresented the position to other officers of the ATO in her draft of the evasion opinion. No inference can arise from that opinion that Ms Johnston had a subjective awareness that her investigation was inadequate or that she sought to inflict harm on Mr Frangieh as distinct from seeking to recover tax that might be due in the absence of any satisfactory response to the issues raised in the position paper.
7. Counsel also submitted that between 12 May 2011 and 1 October 2012 Ms Johnston transmitted only one further request to Mr Frangieh seeking an explanation about the deposits to the account, that being the email to Mr Richards of 26 May 2011 attaching the random sample of deposits referred to at [78] above. That submission is also incorrect. (See paras [68], [69] and [84] above.)
8. The primary judge found that although Ms Johnston's approach to seeking information from Mr Frangieh was not invalid or unlawful, it was inadequate (Judgment [428]). The reason for this was that the primary judge found that Mr Frangieh would have been greatly assisted if Ms Johnston had advised him early on in the process to provide evidence of withdrawals so that she could apply the "'T' account methodology" or the "asset betterment" methodology. The primary judge found (at Judgment [418]) that Ms Johnston ideally should have taken deductible withdrawals into account in reaching the default assessment amount, but said that she did not have information available to her to do so.
9. As noted above, on the hearing of the appeal counsel for Mr Frangieh accepted that where the s 167 power was enlivened it is generally permissible for the ATO to disregard sections of the taxation legislation and just do the best it can or proceed on the basis that the taxpayer would have the onus of establishing the withdrawals from the account were allowable deductions. Counsel accepted that: "... Ms Johnston would have been on solid ground in thinking that an imprecise addition of the deposits was within the ambit of the power if she felt that there had been fraud and evasion, and that she was dissatisfied with the tax return that had been lodged. So it is true that after s 167 is enlivened that the ATO can take those sort of steps."
10. The way in which the matter was presented on appeal, the primary judge's criticism of the adequacy of Ms Johnston's approach to seeking information from Mr Frangieh was of no moment. In any event, such inadequacy as was found does not affect the validity of the pre-condition to the making of the assessment under s 167, nor otherwise the validity of the assessment made. Nor does it indicate targeted malice or conscious maladministration.

Later statements alleged to exhibit malice

1. Mr Frangieh also relied upon later statements of Ms Johnston that were said to be evidence of malice towards Mr Frangieh during the audit.
2. On 18 October 2012 Ms Johnston wrote to a Ms Benjamin stating that Ms Benjamin might wish to follow up other accounts from which funds deposited to the Westpac Equity Access account were drawn. Ms Benjamin responded on the following day saying that she was not sure that that would be worthwhile, having regard to the passage of time. Ms Benjamin said that: "All my current bank investigations have shown small amounts available and no other transactions of interest. Once the debt becomes payable I will likely file a statement of claim with a view to bankruptcy."
3. Ms Johnston replied, "Yes, good idea."
4. On 25 October 2012 Ms Johnston sent an email to Ms Benjamin asking Ms Benjamin whether she had thought about "putting a DPO [Departure Prohibition Order] on Frangieh?".
5. Mr Frangieh's objection to the amended return was allowed in part. The assessment was reduced to $843,243. On 1 July 2014 Ms Johnston wrote to a Ms Jones (who was an ATO officer in the section responsible for dealing with the objection) in which Ms Johnston complained about the decision partially to allow the objection. In her note Ms Johnston said that during the course of the audit the taxpayer changed representatives approximately eight times and on each occasion the taxpayer was given further time to provide information and evidence of the unexplained income. Mr Hyde Page said that that statement was false. There was no evidence that it was false and it was at least substantially true.
6. Ms Johnston objected that the reasons for partially allowing the objection was that the taxpayer provided statutory declarations and bank statements with further explanations from Mr Frangieh and some third parties. She complained that the "IA officer" had accepted the documents on face value without taking action to verify them. She also said that "the IA officer is aware that the taxpayer has been involved in Phoenix activities". As was later pointed there was no evidence to that effect. But the critical point of Ms Johnston's concern was that: "The ATO partially allowing the objection by a substantial amounts [sic] are sending a messaging to this taxpayer (and most likely to all his associates) that providing statutory declarations are evidence to support any type of transactions and not supported by real evidence. [sic]"
7. She complained that taxpayers involved in Phoenix activities were egregious taxpayers and that objection officers dealing with objections of amended assessments raised by Phoenix Active Compliance Audit Officer (viz. Ms Johnston) should be determined by appropriate IA areas that understand the techniques used by taxpayers involved in Phoenix activities.
8. On 15 June 2015 Ms Johnston complained about the ATO's decision to concede Mr Frangieh's objection in the Administrative Appeals Tribunal. She noted that other participants in the Western Jetz project had included the gain in their taxable income or that gain had been included as assessable income as a result of Phoenix audit activity. She asked whether the other participants in the project would request an amendment to exclude the gain from their taxable income. She also complained that the ATO had accepted third party statutory declarations, some of which she asserted appeared to contain false statements. The merits of her complaint were not the subject of submissions on appeal.
9. The primary judge found that the reason for the different outcome in the objection decision to the outcome of the audit was that Mr Frangieh had provided additional evidence to support contentions which he had not provided during the audit. Her Honour found that: "A great deal more information was provided by Mr Frangieh at the objection stage for the first time. This information had not been provided during the earlier audit proceedings. This new information with supporting documentation was considered by the ATO and led to the partial allowance to the objection." (Judgment [607])
10. On 18 June 2015 an ATO officer, Mr Aftanas, as part of an internal review of the case, stated (Judgment [615]): "...As is commonly the case, as taxpayers move through the objection and litigation stages, taxpayers put more effort into refuting the basis of the amended assessments. They obtain legal representation, provide better evidence and more plausible and coherent arguments. Such was the case with Frangieh. At the litigation stage the majority of the unexplained deposits were explained with the explanations corroborated by sworn statements or third party documents. To the extent the deposits were not corroborated, Mr Frangieh had unassailable explanations supporting his inability to obtain corroborating evidence. Given we had no evidence contradicting the explanations we had no option but to concede. The litigation outcome may have been different if we had been able to mount a positive case. However, there was no evidence with which to do so. Significantly, we did not have the applicant's other bank accounts, we did not have his company's books of account and bank statements and there was no evidence from which would could paint a picture of Mr Frangieh's business and income earning activities. It is arguable that such evidence should have been obtained at audit. However, this argument is only valid in hindsight. While it is clear that such evidence would be essential to a defence of the assessment at litigation, it was not needed to make an audit decision in circumstances where a taxpayer had implausible explanations and a complete lack of corroborating evidence."
11. Ms Johnston's reactions to the outcome of the objection to the assessment and to the settlement of the appeal to the Administrative Appeals Tribunal do not show that she conducted the audit and arranged for the issue of the amended assessment through malice.

Jones v Dunkel

1. Mr Frangieh submitted that an inference of malice was available from the documents tendered and could be more readily drawn because Ms Johnston was not called to give evidence. Counsel submitted that the principles in Jones v Dunkel (1959) 101 CLR 298 applied.
2. The principle in Jones v Dunkel is that where the evidence permits an inference adverse to a party to be drawn, the failure of that party to call a witness who could be expected to explain or contradict the evidence giving rise to that inference, enables the tribunal of fact more readily to draw that inference against that party (at 305 per Dixon CJ, 308 per Kitto J, 308-309 per Taylor J, 312 per Menzies J, and 317, 319 and 320-321 per Windeyer J). The evidence of Ms Johnston's communications with other officers of the ATO and with Mr Frangieh or those acting for him does not reasonably give rise to an inference that she was motivated by malice. Rather, the evidence overwhelmingly demonstrates that Ms Johnston was endeavouring to do her duty as she saw it to seek to recover tax that she considered Mr Frangieh was evading. The charge of malice or conscious maladministration does not rise higher than conjecture.
3. The primary judge held that it was not appropriate to draw any Jones v Dunkel inference because Ms Johnston had not held back contemporaneously from expressing her views in writing (Judgment [457]). The lack of available adverse inferences from the contemporaneous documents demonstrated that the Deputy Commissioner did not call Ms Johnston not because he was afraid to do so, but because there was no need to do so.

Liability of Deputy Commissioner or Commissioner for alleged tort

1. It follows that the question whether the Deputy Commissioner who was defendant to Mr Frangieh's cross-claim (Mr Ravanello) or the Commissioner of Taxation (who was joined as respondent to the appeal) could be vicariously liable for the alleged tort of Ms Johnston does not arise. However, in deference to the submissions made on this question I would make the following observations.
2. First, there is a question of who was named as the cross-defendant. The statement of claim was brought in the name of "Deputy Commissioner of Taxation". Section 255-5 of Schedule 1 to the Taxation Administration Act provides that an amount of a tax-related liability that is due and payable is a debt due to the Commonwealth and is payable to the Commissioner. Section 255-5(2) provides: "(2) The Commissioner, a *Second Commissioner or a *Deputy Commissioner may sue in his or her official name in a court of competent jurisdiction to recover an amount of a *tax‑related liability that remains unpaid after it has become due and payable."
3. It was common ground that the Deputy Commissioner of Taxation named as cross-defendant was the plaintiff, Mr Ravanello.
4. The notice of amended assessment was issued by Mr Ravanello. However, the impugned decision, being the decision to make an amended assessment under the power conferred by s 167 of the Income Tax Assessment Act was made by Ms Johnston acting for the Deputy Commissioner for the SME BSL, Mr Michael Cranston.
5. The Commissioner of Taxation consented to an order joining him as an additional respondent and defendant to the cross-claim. Mr Frangieh's application to join Mr Cranston as an additional party was refused.
6. Mr Cranston was not represented at any stage of the proceedings or on the hearing of the appeal. He had no notice of the application. There was no evidence that he might enter a submitting appearance. There was no evidence that were he to be found vicariously liable for the alleged tort of Ms Johnston that he would be indemnified by the Commonwealth in respect of that liability, and in any case the Commonwealth was not a party.
7. The Commissioner of Taxation was not Ms Johnston's employer. Her employer was the Crown in right of the Commonwealth of Australia. There was no challenge to the primary judge's finding that neither a Deputy Commissioner nor the Commissioner was Ms Johnston's employer (Judgment [80]).
8. The primary judge noted that pursuant to s 20(1) of the Public Service Act 1999 (Cth) the Commissioner of Taxation (on behalf of the Commonwealth) has the rights, duties and powers of an employer of the ATO public officers. Section 20 provides: "20 Employer powers etc. of Agency Head (1) An Agency Head, on behalf of the Commonwealth, has all the rights, duties and powers of an employer in respect of APS employees in the Agency. (2) Without limiting subsection (1), an Agency Head has, in respect of APS employees in the Agency, the rights, duties and powers that are prescribed by the regulations."
9. Section 20 does not provide that an Agency Head has the liabilities of an employer in respect of APS employees in the Agency.
10. The primary judge concluded that the Deputy Commissioner of Taxation was the wrong defendant. As the relevant Deputy Commissioner of Taxation who was sued was Mr Ravanello, this conclusion was not disputed on appeal.
11. On 28 September 2011 and pursuant to s 8 of the Taxation Administration Act, the Commissioner of Taxation delegated to (amongst others) Deputy Commissioners of Taxation in different business lines, including the Small and Medium Enterprises business line, his powers and functions under the Income Tax Assessment Act 1936 (subject to certain presently irrelevant sections).
12. On 28 September 2011 Mr Cranston, the Deputy Commissioner of Taxation, Small and Medium Enterprises, issued an instrument authorising all officers from time to time holding or occupying positions or assigned to duties in Small and Medium Enterprises, or who exercised powers and functions in relation to any matters arising in Small and Medium Enterprises to exercise: "in the name of the person from time to time holding or occupying the position or assigned to the duties of Deputy Commissioner of Taxation, Small and Medium Enterprises, or the powers and functions delegated to the office of the Deputy Commissioner of Taxation, Small and Medium Enterprises and that powers and functions which the Deputy Commissioner of Taxation, Small and Medium Enterprises, exercises in his or her own right including those under the acts listed in Schedule 1 to the authorisation."
13. This authority was subject to limitations listed in schedules 2-9 of the instrument. There was no issue but that Ms Johnston was authorised to form the opinion on behalf of the Commissioner of Taxation that the Commissioner was not satisfied with the 2007 income tax return furnished by Mr Frangieh. This authorised the Commissioner (or someone acting under delegated authority) to make the assessment that was later conveyed in a notice of assessment to Mr Frangieh.
14. In Northern Territory of Australia v Mengel the plurality said (at 347) that "... it is to be borne in mind that, although the tort is the tort of a public officer, he or she is liable personally and, unless there is de facto authority, there will ordinarily only be personal liability" (citing James v The Commonwealth (1939) 62 CLR 339 at 359-360 and Racz v Home Office [1994] 2 AC 45 at 50-54). Mr Frangieh argued that in this case Ms Johnston did have de facto authority to act on behalf of the Deputy Commissioner of Taxation (relevantly Mr Cranston) who in turn was the Commissioner's delegate. He submitted that Ms Johnston was acting as "the Carltona agent" for a delegate of government power and was acting with de facto authority of that delegate sufficient to make the delegate vicariously liable for the actions of the Carltona agent. The reference to a Carltona agent is to the decision in Carltona Ltd v Commissioner of Works [1943] 2 All ER 560 where Lord Greene MR said (at 563): "It cannot be supposed that this regulation meant that, in each case, the minister in person should direct his mind to the matter. The duties imposed upon ministers and the powers given to ministers are normally exercised under the authority of the ministers by responsible officials of the department. Public business could not be carried on if that were not the case. Constitutionally, the decision of such an official is, of course, the decision of the minister. The minister is responsible. It is he who must answer before Parliament for anything that his officials have done under his authority, and, if for an important matter he selected an official of such junior standing that he could not be expected competently to perform the work, the minister would have to answer for that in Parliament."
15. The primary judge held that the decision in Carltona did not assist Mr Frangieh in establishing the Deputy Commissioner of Taxation's liability as it was concerned only with Ministerial responsibility. The respondents did not seek to support this part of the primary judge's judgment. In O'Reilly v State Bank of Victoria Commissioners (1982) 153 CLR 1, one of the questions was as to the validity of a notice expressed to be an exercise by a Deputy Commissioner of power conferred upon the Commissioner by s 264 of the Income Tax Assessment Act to require a person to furnish information and to attend and give evidence before an official, which power had been duly delegated to the Deputy Commissioner. At the foot of each notice was a facsimile of the signature of the Deputy Commissioner that had been imprinted on the notice by a Mr Holland who occupied the position of Chief Investigation Officer of the Australian Taxation Office (at 28-29). The majority of the High Court (Gibbs CJ, Murphy and Wilson JJ) applied the principles in Carltona in holding that the Deputy Commissioner was not required to exercise the power delegated to him personally, but could do so through officers authorised by him (per Gibbs CJ at 12-13 (Murphy J agreeing (at 27)), per Wilson J at 31-32).
16. Subject to contrary statutory provision, where a statute confers a power or authority on A and authorises A to delegate that power or authority to another, and the delegation is made, the delegate exercises personally the power or authority that has been conferred on him or her. The delegate does not act as agent for A because the effect of the delegation is that the power in question is exercised by the delegate and not by A (Blackpool Corporation v Locker [1948] 1 KB 349 at 365, 374; Re Reference Under Section 11 of Ombudsman Act 1976 (1979) 2 ALD 86 at 94; New South Wales Land and Housing Corporation v Navazi [2013] NSWCA 431 at [58]). Section 8(2) of the Taxation Administration Act modifies this principle by providing that when the power or function is exercised or performed by the delegate, then "for the purposes of the taxation law or the other law, as the case may be" the power or function is to be deemed to have been exercised or performed by the Commissioner. The reference to the "taxation law or the other law" is to a taxation law or other law of the Commonwealth or a Territory referred to in s 8(1), being such a law as confers powers or functions on the Commissioner. Thus the act of Ms Johnston in making the amended assessment under s 167, being an action she was authorised to take pursuant to the instrument of authority given to her by Mr Cranston, is the exercise of a function that is deemed to have been exercised by the Commissioner. But that is only so for the purposes of the taxation law, relevantly the Income Tax Assessment Act. Section 8 does not provide that for the purposes of a common law claim in tort the function is deemed to have been exercised by the Commissioner, let alone, that the state of mind of the officer, being (assumedly for the purposes of the argument) one of malice or conscious and reckless indifference to the causing of harm, is to be deemed to be possessed by the Commissioner. Section 8 would not make the Commissioner directly liable for the alleged tort of Ms Johnston.
17. The Commissioner could not be vicariously liable by reason of an employment relationship. In Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 the majority explained Dixon J's decision in Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 as falling within the same bounds or principles on which vicarious liability of an employer for the acts of his or her employee rests, notwithstanding that the agent in Colonial Mutual Life acted as agent but not as employee. There, the insurer was held to be vicariously liable for slander committed by the insurer's agent in the course of the agent's attempting to induce a third party to enter into a contract of insurance with his principal. The majority said (at [24]): "The conclusion reached in Colonial Mutual Life, that the party engaging an agent (albeit as an independent contractor) to solicit for the creation of legal relationships between that party and others is liable for the slanders uttered in the course of soliciting proposals, stands wholly within the bounds of the explanations proffered by Pollock for the liability of a master for the tortious acts of a servant. It stands within those bounds because of the closeness of the connection between the principal's business and the conduct of the independent contractor for which it is sought to make the principal liable. The relevant connection is established by the combination of the engagement of the contractor as the agent of the principal to bring about legal relations between the principal and third parties, and the slander being uttered in the course of attempting to induce a third party to enter legal relations with the principal."
18. It is arguable that in relation to Ms Johnston, the Commissioner stands in an analogous position to the position the insurer in Colonial Mutual Life stood in relation to its agent. Nonetheless, if it were necessary to decide the question I would incline to the view that as principles of vicarious liability have developed as a matter of policy such that the employer will generally be vicariously liable for the conduct of its employee, there is no justification for also making either the Commissioner of Taxation or another person acting as delegate of the Commissioner pursuant to s 8 vicariously liable for the acts of the Commonwealth's employees. In all probability if such vicarious liability existed the Commonwealth in turn would be obliged to indemnify the Commissioner or the Deputy Commissioner in respect of his or her vicarious liability. Prima facie if vicarious liability existed at all, the Commonwealth would be vicariously liable as the employer. There would be no policy reason to impose an additional vicarious liability on either the Commissioner or his or her delegate. It is not a sufficient reason to impose vicarious liability on those statutory officers that the cross-claimant in this case decided not to join Ms Johnston's employer.
19. It is not necessary to express a concluded view on this issue.

Conclusion

1. For these reasons the primary judge was right to dismiss Mr Frangieh's claim. It is unnecessary to consider the respondent's notice of contention.
2. I propose that the appeal be dismissed with costs.

Amendments 20 December 2018 - Minor typographical errors corrected. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 December 2018