Hawkins v Commissioner of Taxation

8 Further background detail was offered by Wigney J in Hawkins v Commissioner of Taxation at [2] - [5]: 2. On 21 December 2015, the Commissioner issued default assessments pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) in respect of Mr Hawkins for the income years ended 30 June 2001 and 30 June 2002. The assessments were issued following an audit conducted by the Commissioner. The assessments were also preceded by the Commissioner arriving at a Fraud or Evasion Opinion on 8 December 2015. 3. The facts and findings that led the Commissioner to issue the assessments, expressed in deliberately short and simple terms, were as follows. Mr Hawkins was a director of Matrix Group Limited from 1 September 1993 to 19 June 2002. Matrix Group was the trustee for the Matrix Finance Group Unit Trust (MFGUT) from 1 September 1993 to 20 September 2002. Another director of Matrix Group was Mr Scott Tyne. 4. In 1996, Matrix Group entered into a contract with the Western Australian government which involved arranging and managing a leasing transaction for its fleet of cars. It was also awarded a mandate in 1999 to pursue a private funding package for the acquisition of the government's bus fleet. Ultimately, the leasing transaction was terminated early and the funding package for the acquisition of the bus fleet did not proceed. As a result of the termination or cessation of the agreements with Matrix, the Western Australian Government made certain settlement payments to Matrix Group. Those payments were: $2,517,980 made on 18 May 2001; $4,250,000 made on 15 June 2001; $4,286,248.93 made on 23 August 2001; and $6,500,000 made on 30 November 2001. 5. Critically, the Commissioner found Mr Hawkins and Mr Tyne directed those four payments be deposited into an offshore back account in Singapore in the name of FSA International Inc. FSA International was a company incorporated in the Cayman Islands. Mr Hawkins and Mr Tyne were its directors and ultimate shareholders. They were also signatories to FSA International's Singaporean bank account. The Commissioner concluded that Mr Hawkins and Mr Tyne applied the money that was payable to Matrix for their own benefit. The Commissioner also believed that Mr Hawkins "set-up an offshore structure and opened an offshore bank account in order to divert funds that were due and payable to Matrix, to [himself] (and Mr Tyne) and to also conceal these funds and the income tax payable on these funds from the Commissioner". The Commissioner also found that Mr Hawkins did not declare the assets he held offshore in his income tax returns for the 2001 and 2002 income years. 9 The particular categories of document in respect of which Mr Hawkins sought production are those detailed by the Tribunal at schedule 2 of its reasons. 10 The relevant statutory test in relation to production of documents is found in the modification of s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) effected by s 14ZZF of the Taxation Administration Act 1953 (Cth) (Taxation Administration Act). In the course of submissions, the applicant tendered an annotation of s 37 which incorporates the modifications made by s 14ZZF. That is a convenient way of highlighting the modifications. As was correctly submitted on behalf of the Commissioner, s 37 of the AAT Act itself is not amended. Rather, its application is modified by s 14ZZF and, in turn, the particular modification has been the subject of amendment of 14ZZF. It is helpful, nonetheless, to set out the text of s 37 with the modifications highlighted: 37(1) Subject to this section, a person who has made a decision that is the subject of an application for review … by the Tribunal must, within 28 days after receiving notice of the application (or within such further period as the Tribunal allows), lodge with the Tribunal a copy of: (a) A statement setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving the reasons for the decision; and … … (b) subject to any directions given under section 18B, every other document that is in the person Commissioner's possession or under the person Commissioner's control and is relevant to the review of the decision by the Tribunal is considered by the Commissioner to be necessary to the review of the objection decision concerned. … 37(2) Where the Tribunal is of the opinion that particular other documents or that other documents included in a particular class of documents may be relevant to the review of the decision by the Tribunal, the Tribunal may: (a) cause to be given to the person a notice in writing stateing orally at a conference held in accordance with subsection 34(1) of the AAT Act that the Tribunal is of that opinion and by oral direction at the conference require thating the Commissioner person is to lodge with the Tribunal, within a time specified in the notice, the specified number of copies of each of those other documents that is in his or her possession or under his or her control, and a person to whom such a notice is given shall comply with the notice. (b) cause to be given to the person Commissioner a notice in writing stating that the Tribunal is of that opinion and requiring the Commissioner person to lodge with the Tribunal, within a time specified in the notice, the specified number of copies a copy of each of those other documents that is in his or her possession or under his or her control, and a person to whom such a notice is given shall comply with the notice. (c) cause to be given to the person Commissioner a notice in writing stating that the Tribunal is of that opinion and requiring the person Commissioner to lodge with the Tribunal, within a time specified in the notice, the specified number of copies of a copy of a list of the documents in each of those other documents that is in his or her possession or under his or her control considered by the person Commissioner to be relevant to the review of the objection decision concerned, and a person to whom such a notice is given shall comply with the notice. 11 Mr Hawkins' submission was that the Tribunal had misunderstood the nature of the modification and, in particular, had applied too stringent a conception of the ambit of s 37 as modified. This error was said particularly to be manifest in [16] of the Tribunal's reasons, which states: The concept involved in the "may be relevant" criterion has two aspects. The first (for which the expression "substantive relevance" has been used) involves relevance in the sense of a having a rational capacity to affect the assessment of the probability of a matter in issue:- see Evidence Act 1995 (Cth) s 55(1). The second (to which the term "adjectival relevance" has been applied) involves relevance in the sense of having a capacity to "throw light" on the matters in contest:- Hutchinson v Glover (1875) 1 QBD 138; Streetscape Projects (Australia) Pty Ltd (Subject to Deed of Company Arrangement) [2013] NSWSC 355 at [5] - referring to TPC v Arnotts Ltd (1989) 21 FCR 306; (1989) 88 ALR 90 at 102-103. The idea involved in that concept is difficult to articulate but, at least in most contemporary forensic procedural contexts, does not extend to relevance in the sense of merely leading to or facilitating a "chain of enquiry":- see National Australia Bank Ltd v Idoport Pty Ltd [2000] NSWCA 8. What is required is positive satisfaction of the existence of documents (or classes of documents) "that have the capacity to influence the determination of the proceedings":- see KLGL and QCYY at [17]&[18]. That requirement of the "may be relevant" criterion is one of permissive generality, but not one that is capable of being satisfied by either bare assertions of relevance, or by the mere appearance of some relationship with matters likely to require consideration in the review process. Between the extremes of the obligation to produce documents that are patently necessary or material to the review decision, and the bare assertion of possible relevance, a nuanced and reasoned, but nevertheless impressionistic, assessment is required. 12 It was submitted that the Tribunal's use of "having a capacity to throw light" was indicative that the Tribunal was not truly seized with the language employed by s 37 as modified by s 14ZZF. The submission is not an easy one to make out. That is because, at the outset of the Tribunal's reasons, the Tribunal has correctly recited the statutory test "may be relevant" in [3(b)] and [3(d)] of its reasons, wherein the Tribunal states in its recitation of "document of production obligations, powers and principles": 3 … (b) the Tribunal's complementary power to require the Commissioner to make a more extensive production depends on a threshold opinion that particular documents (or those within a particular class of documents) "may be relevant" to the review of the decision by the Tribunal … (d) notwithstanding the Tribunal's threshold opinion of possible relevance, (and probably notwithstanding the inclusion of documents on any list the Commissioner has been required to provide) the Tribunal has a discretion whether or not to give a notice requiring the Commissioner to produce any documents other than those the Commissioner considers necessary for the review. 13 Mr Hawkins was unrepentant in the repetition of a submission made to the Tribunal but rejected by the Tribunal. This submission is as put in [4] of the Tribunal's reasons: There is obviously some tension between the Commissioner's initial exemption from the ordinary obligation to produce all documents relevant to the review proceedings and the Tribunal's specifically conferred discretion to require the production of any document that "may be relevant" to that review. Implicitly relying on that tension, VMQD advanced a submission emphasising the proposition that the Tribunal's default position in the exercise of its review jurisdiction was to ensure decision makers made all relevant documents available. This submission drew on observations to that effect in a number of Tribunal decisions - including Re Wertheim v Department of Health (1984) 7 ALD 121 at 154 (decision makers should "bring to the notice of the Tribunal all matters which the Tribunal ought take into account"); Saunders v Federal Commissioner of Taxation (1988) 19 ATR 1289 at 1296 ("the tribunal has before it all the material that was before the decision maker"); Transport Accident Commission v Bausch [1998] 4 VR 249 at 260 (material considered by a decision maker "should be squarely and unequivocally revealed to the tribunal"). 14 The effect of the modification made by s 14ZZF as it presently stands is no new subject. It was the subject of consideration by a Full Court of this Court in Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566 (Kennedy) wherein, at [27] and [28], the following observations were made: 27 In the present case, Mr Kennedy's allegation that the assessments were made in bad faith is made without any evidentiary basis or any pleadings to substantiate the claim in relation to specific documents. In substance, Mr Kennedy is seeking the additional documents in order to explore whether there is any possible foundation for raising such an allegation. The present application seeks to cast a wide net, without any foundation in the evidence, for the purpose of ascertaining if any basis exists on which to challenge the Commissioner's assessment, and for this reason the request for documents should be refused: see Cosco Holdings Pty Ltd v Federal Commissioner of Taxation (1997) 37 ATR 432. In such circumstances, the observations of Gyles J in Kennedy 208 ALR 424 are not on point, and his Honour's reasoning in that case is not determinative in this case. 28 The Presidential Member was correct to hold that no process of reasoning had been forthcoming which supported the claim as to the relevance of the additional documents sought, and on the face of their description no such relevance is apparent. The submission by Mr Kennedy that his Honour failed to consider whether the documents may be relevant lacks cogency because, to substantiate such an assertion of error, Mr Kennedy must show how a particular document or category of documents may be relevant to specific issues of fact relating to the excessiveness of the assessments issued to him. That has not been shown. The intent of s 14ZZF of the TAA was clearly to narrow the class of documents which the Commissioner must produce to the Tribunal, and in the absence of a demonstration by Mr Kennedy of the relevance of any additional documents, it is not appropriate to widen the class of documents which the Commissioner has already provided in this case. 15 The Tribunal was well-seized with these observation. It expressly made reference to them observations at [7]. Having so done, the Tribunal then embarked upon some further reflection as to the embrace of the expression "may be relevant", which culminated in [16], quoted above. That, in turn, led the Tribunal to use, frequently throughout the balance of the reasons, seemingly as a shorthand for the discussion which culminated in [16], the term "potentially relevant". 16 It is true, as was submitted for Mr Hawkins, that the authorities to which the Tribunal refers at [4] make general pronouncements in relation to the obligation of a decision-maker to provide documents to the Tribunal in review proceedings. But, as the Commissioner, correctly in my view, highlighted in his submissions, these observations were made either in relation to proceedings other than those in the Taxation and Commercial Division, or were made at a time prior to the present s 14ZZF modification. It may well be that a motivation for the amendment of s 14ZZF was, as the Tribunal itself appreciated (see [6] of its reasons) a concern as to a prior practice having led to many copies of documents being lodged with the Tribunal that were never referred to in the review. However that may be, the modification must be determined by reference to the text employed by Parliament in the present s 14ZZF. 17 It seems to me that the Tribunal, having referred to the correct text, and also to the observations made in Kennedy, did not depart from either in its attempt further to elucidate the embrace of the modification. In particular, I am not disposed to read [16] as evidencing some impermissible narrowing of the statutory test. Rather, it looks to me, as was submitted on behalf of the Commissioner, that the Tribunal's discussion of relevance, as found in that paragraph, is not intended to replace the "maybe relevant", but, rather, to highlight the nature of what may be relevant in accordance with the statutory modification. 18 It was not submitted, on behalf of Mr Hawkins, that the Tribunal's further observations in [16], made by reference to National Australia Bank Ltd v Idoport Pty Ltd [2000] NSWCA 8, were themselves indicative of error. The language of the modification is indeed such as to exclude a "chain of inquiry" ambit. Put another way, the type of test once frequently encountered in relation to discovery as elucidated in The Compagnie Financiere et Commerciale du Pacificque v The Peruvian Guano Company (1882) 11 QBD 55 is not within the embrace of the statutory modification. 19 The Commissioner's submissions included reliance upon observations made by a Full Court of this Court in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287, as endorsed by the High Court in Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 272. The frequency of encounter of those observations in no way diminishes their force. There is an imperative need to adopt a principled restraint in the scrutiny of administrator's reasons. 20 These reasons, read as a whole, do not, in my view, disclose any misconception at all as to the modification of s 37 of the AAT Act effected by s 14ZZF. To the contrary, in my view, the Tribunal has embarked on a helpful reflection of exactly what is the embrace of that modification. What follows is that I am not at all persuaded that the statutory test employed by the Tribunal in determining the application for production of further documents by the Commissioner was erroneous. 21 Very recently, in Commissioner of Taxation v Resource Capital Fund IV LP [2019] FCAFC 51 (Resource Capital Fund), a specially constituted Full Court of this Court, Besanko, Middleton, Steward and Thawley JJ, expressly approved, at [90], observations which Sundberg J had made in Rio Tinto Limited v Commissioner of Taxation (2004) 55 ATR 321 at [31] and [58], in relation to the role of statements of facts, issues and contentions required under the then practice of this Court, as found in the former O 52B of the Federal Court Rules 1979 (Cth) (Federal Court Rules), namely: 90. In our view, the existence of the onus of proof does not, of itself, permit the Commissioner to raise new contentions of fact or law, without the giving of proper notice. Nor, in our view, was proper notice given by the generalised statement that other, non-specified, "criteria for tax treaty relief" had to be satisfied. We think that if the Commissioner wished to make the point that the partners here were not residents of the United States, he should have given express notice of this issue in his appeal statement at first instance, or by the making of a timely amendment to that appeal statement before the trial below. That, after all, is the purpose of an appeal statement; it is to give fair notice to the other side and to the Court of the issues to be addressed. In Rio Tinto Ltd v Commissioner of Taxation (2004) 55 ATR 321, Sundberg J at [31] said of the former statement of facts, issues and contentions required by former O 52B of the Federal Court Rules 1979 (Cth): Whether one looks to the pre-Order 52B practice or the current regime, the real point is not whether what the Order mandates is less formal than pleadings or takes the place of pleadings, but that the intention behind the practice and the Rule is that "both parties to the litigation know what the case is which they have to meet": per Aickin J in Bailey [(1977) 136 CLR 214] at 227 and per Hill J in Bartlett [(2003) 54 ATR 261] at 265. Later at [58] his Honour said: It is now well-established that the statement [of facts, issues and contentions] takes the place of pleadings so that after the exchange of statements the parties to a tax appeal know the case each has to meet. A statement that leaves a taxpayer uncertain as to how the case is put against it is embarrassing and oppressive. A statement that does not disclose the facts on which the respondent has based his assessment and the manner in which he has arrived at it, suffers from these twin vices. 22 The Full Court stated, in respect of these observations, at [91]: The foregoing observations are equally applicable to the appeal statement now mandated by the current Federal Court Rules, and we respectfully adopt them. 23 That, of course, was a statement made in relation to the exercise of judicial power offered as an alternative by the Taxation Administration Act to review, by the Tribunal, in respect of an objection decision with which a taxpayer is dissatisfied. 24 In relation to the Tribunal as Sullivan v Civil Aviation Safety Authority (2014) 226 FCR 555 reminds, the Tribunal is, by s 33, not bound by rules of evidence, obliged to conduct its proceedings with as little formality and technicality and as much expedition as is proper, and is granted a broad discretion in relation to procedure: see s 33(1). That distinction between an exercise of administrative review jurisdictional and judicial power noted, it nonetheless remains the case that the objective in relation to the Tribunal's practice of requiring an exchange of statements of facts, issues and contentions is no different to that which the Full Court so recently referred in Resource Capital Fund. 25 In both a review proceeding and a taxation appeal, the onus of proving the assessment excessive lies on the taxpayer, and the taxpayer must do that by reference to grounds of objection: see: Taxation Administration Act, ss 14ZZK and 14ZZO respectively. The aim of statements of facts, issues and contentions is to narrow issues of fact and law and, particularly, to prevent a taxpayer from being taken by surprise as to the basis upon which the Commissioner proposes to defend an assessment. Given that objective, there was, in my view, and with all respect to those who have earlier considered production, very definitely present an element of prematurity in relation to the question of what, if anything, ought further to be produced by the Commissioner. There was just no closure at all, as the Tribunal's practice required, of exactly what remained in issue. 26 One should not assume, and I do not, that in approaching the formulation of his statement of facts, issues and contentions the Commissioner will do other than observe the statutory obligation found in s 33(1AA) of the AAT Act to use: … his or her best endeavours to assist the Tribunal to make its decision in relation to the proceeding. 27 Indeed, it might be thought that s 33(1AA) is confirmatory of an obligation which, in any event, would fall upon those who represent the Crown and right of the Commonwealth in relation to a proceeding in the Tribunal. That obligation, in turn, is supplemented by that found in s 33(1AB) which provides: A party to a proceeding before the Tribunal, and any person representing such a party, must use his or her endeavours to assist the Tribunal to fulfil the objectives in s 2A. 28 Section 2A of the AAT Act in turn provides: Tribunal's objective In carrying out its functions, the Tribunal must pursue the objective of providing a mechanism of review that: (a) is accessible; and (b) is fair, just, economical, informal and quick; and (c) is proportionate to the importance and complexity of the matter; and (d) promotes public trust and confidence in the decision-making of the Tribunal. 29 For a legal practitioner to act otherwise than in accordance with s 33(1AB) in relation to a proceeding in the Tribunal, may well be, apart from any question of the commission of a federal offence, to commit professional misconduct. It is unnecessary further to consider that particular proposition at this stage, or, hopefully, at all in this case. 30 Once the role of a statement of facts, issues and contentions by the Commissioner and the fact that the Tribunal's examination to date of whether to order production has been made in ignorance of the Commissioner's statement are appreciated, it seems to me inexorably to follow that it must be open to Mr Hawkins, if so advised, and by reference to what is revealed truly to be at issue after the exchange of statements of facts, issues and contentions, to make a new application under s 37 as modified by s 14ZZF. Of course, if Mr Hawkins can do no more than offer speculation as to the existence of documents, that would not provide a foundation for the making of an order. So much seems also to follow from the observations made in Kennedy. But, as I read those observations, it is not part of them to require that an applicant must identify a particular document. Rather it is only necessary to provide material which engenders reasonable satisfaction that a document or class of documents that may be relevant exists and that such a document is within the Commissioner's power or control. 31 In Rana v Repatriation Commission (2011) 196 FCR 137 (Rana) at [31] and [32], a Full Court was faced, as I am, with a challenge on judicial review to an interlocutory value judgement made in respect of an issue of practice and procedure by the Tribunal, made these observations: 31 In respect of the exercise of judicial power, it has long been the position that leave should not readily be granted to appeal against interlocutory judgments which concern matters of practice and procedure alone: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177. The Tribunal exercises not the judicial but rather the executive power of the Commonwealth. Parliament has, by s 44 of the AAT Act, made express provision for appeals from decisions of the Tribunal. Such an appeal is only open in respect of a decision which has about it a quality of finality: Chaney's case. Such appeals must also be on questions of law only. That such limited provision has been made for appeals does not exclude the jurisdiction to review administrative decisions vested in this Court by the Administrative Decisions (Judicial Review) Act 1977 (Cth) or s 39B of the Judiciary Act. Nor could it exclude the constitutionally entrenched jurisdiction vested in the High Court by s 75(v) of the Constitution of the Commonwealth to issue constitutional writs to officers of the Commonwealth. Each member of the Tribunal is such an officer. Such matters conceded, the focus of the express provision for appeals is not irrelevant when considering whether to grant judicial review relief in respect of a Tribunal decision which could not be the subject of such an appeal. 32 No less than in judicial proceedings, the scope for oppression by a party with a deep pocket or a querulous disposition of another party can be present in administrative review proceedings. Recalling this and that the scheme of the AAT Act is to permit challenges on a limited basis to the Tribunal's final decisions and also to confer a broad discretion on the Tribunal as to how it goes about making those final decisions, counsels a principled restraint in the granting of judicial review remedies in respect of interlocutory decisions of the Tribunal in relation to matters of practice and procedure. We read the remark of the learned primary judge as counselling just such a restraint. 32 Those observations are general in their application, and certainly extend to proceedings in the Tribunal's Taxation and Commercial Division. This case might well be thought, given its history, since the filing of the review application in 2016, to be an exemplar of the cautionary note sounded by the Full Court in Rana. It is unfortunate that that cautionary note has not been heeded. 33 Of course, if there is a demonstrable error of law which informs the making of a practical direction, then judicial review is possible, but there was no such error in this case in terms of the understanding of the meaning of s 37 as modified by s 14ZZF. 34 I was left, in the end, with a particular concern as to the elongation of these proceedings by challenges in respect of practice matters to the detriment of both parties confronting, on the merits, whether or not the assessment was excessive. I was informed, without objection, by the Commissioner that he is in a position to file a statement of facts, issues and contentions within four weeks from today. In turn, that statement informed Mr Hawkins' recognition of the element of prematurity which attended doing other than endeavouring to highlight an error on the Tribunal's part in the construction of s 37 as modified by s 14ZZF. It is certainly desirable that that statement of facts, issues and contentions be filed. 35 My conclusions as to prematurity have been informed by the statement as to by when the Commissioner could file his statement of facts, issues and contentions. Further, it must be the case, any question of error in construction aside, that the imminence of the filing of a statement of facts, issues and contentions by the Commissioner would intrude upon any discretion to grant relief if, no error of law relating to the construction of s 37 as modified were demonstrated. 36 It only comes to this, therefore: the grounds which have been pressed relating to the construction of s 37 as modified have no merit. Mr Hawkins' recognition as to other grounds, that they are attended with prematurity, and that he is not precluded from renewing, after the Commissioner's statement is filed, an application is not misplaced. The resultant order must be that the application is dismissed. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.