the resolution of the issues
84 The starting point is to determine the scope of the Notice as a matter of construction. First, it calls upon Mr Hart to furnish, in writing, the name and last known contact address of certain clients of the firm.
85 Secondly, the field of clients in the list is to be each and every client who has a relationship with "the arrangement" implemented, by the firm, which is the arrangement referred to in correspondence as the "Limited Liability Partnership" arrangement or the "Removal of Accumulated Profits" arrangement.
86 Thirdly, the proper way to construe the two identifying phrases for the relevant arrangement is, due to the quotation emphasis adopted in the Notice, the Limited Liability Partnership arrangement or the Removal of Accumulated Profits arrangement.
87 Fourthly, those arrangements however they might be configured, structured or implemented in each transactional example are "arrangements" involving the use of a Limited Liability Partnership in a method of application contemplated by correspondence examples of which include the enclosures described at paragraphs [40], [43], [44] and [45], contained in correspondence and correspondence of the kind described at paragraph [46].
88 Alternatively, the arrangement is described, by comparison, as the removal of profits arrangement which, by reference to the correspondence described at paragraph 46 and correspondence enclosing stepped sequence documents described at paragraphs [40], [43], [44] and [45], is an arrangement for the formulation and implementation, in the circumstances of the particular client's affairs, of that sequence of steps involving the use of a Limited Liability Partnership comprising some but not necessarily all of those steps recited in the matrices or correspondence identified at paragraphs [40], [43], [44], [45] and [46], designed to effect a removal of accumulated profits from one legal entity to another howsoever those entities or collection of entities might be legally arranged.
89 Fifthly, the period of implementation of the arrangement is not constrained by the Notice. The Deputy Commissioner seeks information about all such arrangements of the kind contemplated by the correspondence and matrices for each client whenever the implementation might have occurred.
90 Sixthly, the Notice does not seek out information within the knowledge only of Mr Hart as an individual but calls upon Mr Hart to provide information of the firm about those clients of the firm for whom the arrangements have been implemented. The Notice requires Mr Hart to assemble the information and communicate it to the Deputy Commissioner. The Notice is not asking Mr Hart to reflect, per se, upon his own recollections and knowledge of those clients for whom the firm has implemented such arrangements. The Notice calls upon Mr Hart to seek out from the cohort of administrative and legal members of the firm, the name and address of those clients of the firm for whom the firm, as a corpus, has undertaken the relevant implementation steps.
91 The next question is whether the Notice so construed is so uncertain as to make compliance with the Notice impossible. The Respondent in formulating the Notice "assumed that the term [Removal of Accumulated Profits arrangement] is familiar to Cleary Hoare and does not require a definition by the Commissioner" (see para. [39]). Such assumptions are apt to be fatal in the exercise of coercive power and it would be prudent to incorporate appropriately crafted definitions of the scope of the information (in an inclusive way - perhaps by reference to particular illustrative attachments within the inclusive definition) so as to avoid potential ambiguity. However, in this particular case, I am satisfied that the assumption is correct for the reasons indicated at paras. [43] to [51]. It seems to me that, on all the evidence, those arrangements were sufficiently well defined, promoted, articulated to potential clients and the subject of implementation with a sufficient degree of systemic application that it cannot be said the arrangements were unknown, uncertain or ambiguous so as to make compliance with the Notice impossible. The Authorities establish that the Notice must be framed with sufficient clarity to show the person to whom the Notice is addressed, the information required: see Amalgamated Television Services Pty Ltd v Australian Broadcasting Tribunal (1989) 91 ALR 363 and May v Deputy Commissioner of Taxation (1999) 92 FCR 152. The clarity of the Notice must be considered against the background of the knowledge and circumstances of the Respondent to the Notice and the contextual facts. In this case, the Notice was clear having regard to all the evidence.
92 In relation to the failure to nominate in the Notice a period of implementation, the Commissioner has elected to call for information concerning the field of implemented arrangements whenever that may have occurred and the question of when the process of promoting the nominated arrangements began and ended lies entirely within the knowledge of the principals of the law firm. Further, the Notice in the form sent to Mr Hart resulted from a reasonably long period of managed access consequent upon the exercise of powers under s.263 and Mr Hart had been in dialogue with the Respondent about those matters. Although I accept Mr Hart's evidence as indicated at para. [49], it is clear that documents within the firm to which the Respondent had access reflect a real sense of understanding in the minds of some members of the firm of the content, detail and utility of the arrangements promoted by the firm. On any fair reading of the material, it seems to me that the relevant members of the firm understood the meaning of the two comparative phrases and proper enquiry by Mr Hart would reveal the boundaries of the period within which such arrangements began to be promoted and implemented and when they ended (if at all).
93 The next question is whether such a Notice so construed is beyond power. Subject to addressing the Applicant's contentions at paragraph [11], the principles are these. The scope of the power conferred by s.264 is extensive and wide-ranging. Since the scope of the power is circumscribed only by reference to the limitations expressed in the section, the power conferred by the first limb of s.264 is, in terms, largely unconstrained. Relevantly for present purposes, the Commissioner may require any person to furnish him with such information as he may require. The only constructionist words of addition are, "for the purposes of enabling the Commissioner to perform his functions under the Act". In performing those functions, the Commissioner may need to make "wide-ranging inquiries" as part of "the process of investigation" unconstrained by the "strong reasons which inhibit the use of curial processes for the purposes of a fishing expedition": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra), Mason J at p.536. Such an investigation may bear the character of a "roving enquiry": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (supra), Gibbs CJ at p.524 and "the fact that [the Commissioner] may be concerned about the existence or prevalence of a particular arrangement or proposal which may have implications in relation to provisions of the ITA Act 1936 rather than whether a particular taxpayer has entered into such an arrangement or adopted such a proposal does not put an investigation … outside the scope of s.264(1)(a)": Deloitte Touche Tohmatsu & Ors v Deputy Commissioner of Taxation (1998) 40 ATR 435 at 450.
94 Section 264(1)(b) is circumscribed, in terms, by limitations. The coercive power is restricted to requiring an individual to attend and give evidence concerning "his or any other person's income or assessment" and the power to require such a person to produce all books, documents and other papers whatever is confined to such material in his "custody or under his control" relating to his or another person's income or assessment. The exercise of the coercive power under s.264(1)(b) which requires, for example, a person to create a document, would not be within power if the scope of the power is confined to the production of books, documents and papers, in existence, in that person's custody or under his control: Fieldhouse & Ors v Commissioner of Taxation (1989) 25 FCR 187.
95 Because s.264(1)(b) reflects points of limitation in the coercive power, any notice given in exercise of the power "must in terms conform to the statutory limitations if it is to be valid": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra) Mason J at 537. Such a notice will conform to the limitations only if the notice clearly confines the documents to the relevant class. Mason J, in the context of s.264(1)(b) observed; "if not so limited, the notice fails on its face to express the limitation which the section places on the Commissioner's authority": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra) Mason J at 538 and "the demand for production must be so formulated that it expresses the limitation imposed by the section": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra) Mason J at 539.
96 Since the power conferred by s.264(1)(a) is circumscribed only by the purpose of enabling the Commissioner to perform his functions under the Act, should the Notice, in terms, conform to that limitation on its face and express the limitation imposed by the section. In other words, should the Notice recite that the information is required not just pursuant to s.264 (as a point of reference to the source of power) but rather, for the purpose of investigating whether the use of Limited Liability Partnership arrangements to circumvent the application of Division 7A of Part III of the I T A Act, is widespread, and such other operative purposes. In the context of s.264(1)(b), Mason J further observed in Federal Commissioner of Taxation (supra) at p.538, "It is for the Commissioner to so formulate his notice that this limitation on his authority is drawn to the attention of the recipient."
97 It seems to me that these observations upon the limitations of the coercive power are confined to those limitations which appear within the language of s.264(1)(b) itself and the Notice need not express, in terms, on its face, the purpose of the exercise of the power when the Notice relies upon s.264(1)(a).
98 Subject to para. [11], the Notice is within power. The Statement of Reasons and Briefing Paper (see paras. [80] to [83] make it clear that the power was exercised for the purpose of enabling the Commissioner to perform his functions under the Act. As to the issues raised by para. [11], the position seems to be this. The Notice calls upon Mr Hart to bring a document into existence which is the necessary physical mechanism by which the information is to be communicated. It is unrealistic to think that a requirement to provide the information in writing exceeds the power conferred by s.264(1)(a). The conclusion reached by Their Honours in Fieldhouse & Ors v Commissioner of Taxation (1989) 25 FCR 198 by Lockhart J at 194 and Hill J at 209 that a purported exercise of power under s.264(1)(b) was beyond power in requiring an addressee to bring a document into existence was expressly a function of the words of limitation upon the power contained within that limb of the section. Those limitations have no role to play in construing s.264(1)(a) as limiting the power so as to prevent the Commissioner requiring Mr Hart to bring into existence a written instrument (list) by which the information is furnished.
99 In Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475, Stephen J observed at p.481 that s.264(1)(b) "is designed to permit the Commissioner to gain access to the knowledge residing in men's minds" and in considering the obligations of an individual called upon to attend and be questioned under s.264(1)(b), His Honour observed at p.482 that such a person "must attend and may be questioned as to their own knowledge of the corporation's affairs; if it turns out that they do not possess the relevant knowledge they can no doubt be required to identify those who do have that knowledge and those others may then, in turn, be required to appear and give evidence". The fundamental reason why such a notice is concerned with an individual's own knowledge is because the individual is called upon to give evidence on oath or affirmation about their knowledge, firsthand. That notion has no necessary application to a call for information pursuant to s.264(1)(a).
100 The Notice to Mr Hart is addressed to him in his capacity, properly construed, as a principal of the firm and sole trustee of the Cleary Hoare Practice Trust which is the proprietor of the business Cleary Hoare, Solicitors. It calls upon him to take the steps described at para. [90]. There is nothing in the authorities which limits the power conferred by s.264(1)(a) to information within the knowledge of the specific individual. Mr Hart is in a position to draw together, through the resources available to him, the information concerning implementation arrangements undertaken by the firm. The Notice, on that ground, is not beyond power.
101 The Applicant says that the requirement to bring a list into existence is a requirement to create a document which could not have been obtained as an exercise of power under s.264(1)(b). The document does not exist and must be created. In exercising power under s.264(1)(b), the Commissioner cannot, as an incident of the power to require the production of all books, documents and other papers, require a respondent to a notice to create a document. The Applicant says that the exercise of power in this case is simply an attempt to achieve by s.264(1)(a) that which could never have been achieved under s.264(1)(b) and, in that sense, the purported exercise of power is expressly the vice His Honour Chief Justice Gibbs had in mind in Geosam Investments Pty Ltd & Ors v Australia and New Zealand Banking Group (1979) 25 ALR 445 at p.446 when His Honour said:
"It is quite obvious that the Commissioner would not be able to obtain, under para (a), full information as to the contents of a document which he could not have produced under para (b) but what he can require is information which will enable him to know which books, documents and papers he can require to be produced."
102 In this case, the Commissioner is not seeking full information of the contents of a document which he could not have required to be produced under s.264(1)(b). The Commissioner seeks information as part of an investigation of the name and address of each client for whom an arrangement was implemented. The power is not the expression of a device to secure the content of a document beyond reach. It is a request for information. In May v Commissioner of Taxation (1999) 92 FCR 152 at p.166, paras. [50] to [53], Branson, Finn and Kenny JJ accepted, in the circumstances of that case, that the notice under s.264(1)(a) sought full details of the terms of a Memorandum and Articles of Association and a Trust Deed. The documents, however, were susceptible to production under s.264(1)(b) and the Notice seeking information simply "telescoped" the requirements of s.264(1)(a) and s.264(1)(b). Their Honours saw nothing impermissible in the Commissioner using the power conferred by s.264(1)(a) if the document could have been sought under paragraph (1)(b). There is no question here of a use of paragraph (1)(a) in any relationship with a document capable of production or not under paragraph (1)(b).
103 As to the constitutional question, the Notice requires the information to be given in writing. The physical pieces of paper must be provided to the Respondent. There is no suggestion that title in the pieces of paper passes to the Commissioner. In that sense, there is no acquisition. If there is an acquisition, it seems to me, as a matter of logic, that the value of the paper as an article (with the information written upon it) is valueless as it has no other use. Nevertheless, in my view there is no "acquisition of property" in the exercise of the power. The section conferring the power so construed is a valid law of the Commonwealth. The position may be otherwise in circumstances where the exercise of the power called for the production of photocopies of documents at a cost as occurred in Fieldhouse v Commissioner of Taxation (supra) thus giving rise to the comments of Their Honours Lockhart J at p.194 and Hill J at p.209.
104 The next question is whether the time prescribed in the Notice was unreasonable because it was such as to deny the Applicant the capacity to comply by the said date. The time allowed by the Notice was 30 days. Mr Festa has given evidence concerning the steps and costs involved in compliance with the Notice. The Notice requires Mr Hart and the firm to identify the particular clients across the period of the implementation of the arrangements. That period is not known to the Commissioner. It may be that the documents identified by the Commissioner in the course of managed access in the period 20 to 24 September 2004 reflect implementation arrangements across a limited number of years. Nevertheless, the effect of Mr Festa's evidence is that either of the approaches to method 2 would reveal those clients (thus enabling the list to be prepared) who had participated in an implementation arrangement and although Mr Festa's evidence talks of working days, either method could have been completed within the number of days provided by the Notice. The costs associated with undertaking steps to ensure compliance with the Notice under either approach to method 2 are considerable although the majority of the costs are lost opportunity costs. However, that is the burden of the Notice and I cannot conclude that the steps and the costs are so burdensome as to render the period provided by the Notice, unreasonable. Mr Festa's evidence was not challenged or contradicted. Mr Festa was cross examined and it was put to him that the steps and costs identified by the first and second approach to method 1 were "straw men" in the sense that they were expansive, full records searches, at great cost and not to be taken seriously. In the absence of any other evidence, I accept what Mr Festa says concerning the steps and costs associated with the first and second approach to method 1. However, I find that the steps associated with the two approaches to method 2 could have been completed within time recognising the resources that such steps would have commanded.
105 Moreover, the letter from the Respondent enclosing the Notice (see para. [4]) says: "If you are having difficulty complying with the notice in the time allowed [bold added] you should advise the Commissioner in writing as soon as possible and in any event, before the date stated in the notice. You should state your concerns and the reasons for them for consideration by this Office." The time stipulated by the Notice, in terms of reasonableness, should be construed in conjunction with the letter. The Applicant did not seek an extension of time and it seems that the first response to the Respondent was on 17 December 2004 approximately 24 days after service of the Notice (see para. [34] and the sequence of events at paras. 35 to 40). The period of time allowed by the Notice, in all the circumstances, was reasonable.
106 The Applicant contends that the Statement of Reasons and the Briefing Paper (paras. [80] to [83]) reveal that the decision-maker did not take into account any consideration of the likely compliance steps or costs of those steps in deciding the period for compliance and, as a result, there has been an improper exercise of the power conferred by s.264, because, the decision-maker was bound, as a matter of construction of the statute, to consider those factors and he failed to "call his attention" to them; see, Minister for Aboriginal Affairs v Peco-Wallsend Ltd (1985-1986) 162 CLR 24 at 39. As a matter of principle, His Honour, Mason J, said at p.40, (proposition (b)), where: "the discretion conferred is unconfined by the terms of the statute, the Court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject matter, scope and purpose of the Act". Section 264(1)(a) confers a discretion, unconfined, in terms. The decision-maker is not bound, in terms of the section, to take into account the detail of compliance steps or the actual and opportunity costs of those steps. In any event, by setting a period of 30 days, it is clear that the decision-maker turned his mind to a period within which the requirements of the Notice might be satisfied. 30 days is objectively a reasonably long period for compliance. The failure to describe the particular matters in the s.13 Reasons does not mean the decision-maker had no regard to the activity which might be required to satisfy the Notice particularly since the Notice issued against the background of many years of managed access pursuant to powers exercised under s.263. In addition, the decision-maker seems to have additionally turned his mind to factors influencing adequacy of the time for compliance because the covering letter, expressly, invites Mr Hart to take up the question of the time for compliance with the Respondent if Mr Hart finds himself experiencing difficulty in complying with the Notice in the time allowed.
107 I conclude that the section does not require the particular matters to be considered but in any event, consideration was given to what was thought to be a reasonable time.
108 Accordingly, I propose to make the following orders. Leave is given to further amend the Amended Application for an order to review but for paragraph 2.5 and paragraph 3. Paragraph 2.5 is not a proper particular of an absence of power or improper exercise of power. As to paragraph 3, the statute does not require the decision-maker to take those matters into account. I dismiss the Application with costs.
I certify that the preceding one hundred and eight (108)
numbered paragraphs are a true copy of the
Reasons for Judgment herein of the
Honourable Justice Greenwood.
Associate:
Dated: 5 December 2005