James v Chief Commissioner of State Revenue

Judgment 1The Plaintiff, David Anthony James, challenges the decision of the First Defendant, the Chief Commissioner of State Revenue, to issue notices under the Taxation Administration Act 1996, s 72. So far as is relevant for present purposes that provision was in the following terms: "(1) The Chief Commissioner may require a person, by written notice, to do any one or more of the following: (a)to provide to the Chief Commissioner (either orally or in writing) information that is described in the notice, (b)to attend and give evidence before the Chief Commissioner or an authorised officer, (c)to produce to the Chief Commissioner an instrument or record in the person's custody or control that is described in the notice. (2) The Chief Commissioner must, if the requirement is made of a person to determine that person's tax liability, indicate in the notice that the requirement is made for that purpose, but the Chief Commissioner is not otherwise required to identify a person in relation to whom any information, evidence, instrument or record is required under this section. ..... (8) The person to whom the notice is given must comply with the notice within such period as is specified in the notice or such extended period as the Chief Commissioner may allow. Maximum penalty (subsection (8)): 100 penalty units." 2While there are no cases that have considered the validity of notices issued under this section, both sides drew comfort from reference to a large number of authorities dealing with the validity of notices under the Income Tax Assessment Act 1936 (Cth), s 264, which was in the following terms: "(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority: (a) to furnish him with such information as he may require; and (b) to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto. (2) The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose he or the officers so authorized by him may administer an oath or affirmation. (3) The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend." 3Mr James buys companies or assets from liquidators or administrators if he feels he can build up the business. He becomes a director of the purchasing entity and finds somebody with the necessary skills to operate the business for him. He may offer financial assistance or business advice. 4The background to the service of the s 72 notices was summarised in James v Chief Commissioner of State Revenue [2011] NSWSC 331 as follows: "19 The affidavit of Michael Sofiak of 3 September 2010 establishes that the Chief Commissioner is investigating Mr James and his relationship to a number of companies to ascertain whether there has been a failure to declare for payroll tax purposes wages paid by entities that might constitute members of a group of entities for payroll tax purposes. 20 Mr James claimed that one such company, Liquor National Pty Ltd, did not trade and did not employ staff. Information obtained from the ATO showed that it did trade and did employ staff. 21 Mr James maintains that BAS statements for Liquor National and Liquor National Wholesale Pty Ltd disclosed wages for employees who worked for Brodav Pty Ltd. 22 There was a large discrepancy between wages in the financial statements of Print National Pty Ltd with disclosures to the ATO for the year ended 30 June 2007. Mr James said that the wages for Brodav were incorrectly included in BAS statements for Print National. 23 Mr James informed Mr Sofiak that under business licence agreements between Brodav and Print National and between Brodav and Liquor National Wholesale, Brodav ran the operations of the two companies. Mr Adams was the manager who operated the logistics side of the business of Liquor National Wholesale and the Chief Commissioner has issued a notice under s 72 to him. 24 Financial statements for the year ended 30 June 2007 of Wine National Pty Ltd disclosed wages far less than those revealed to the ATO. Mr James said that Wine National disclosed wages to the ATO for employees who worked for Douglas Hawkins Pty Ltd. No BAS or PAYG summary statements have been lodged with the ATO. Mr James informed Mr Sofiak that the contact person for Wine National was Mr Suriyachan and a s 72 notice has been issued to him. 25 Mr James informed Mr Sofiak that a new company, FPT Operations Pty Ltd, took over the offset printing side of the business conducted by Print National after the licence agreement with Brodav ended. 26 A charge over FPT Operations in favour of Rabobank Australia Ltd to a maximum liability of $100 M was guaranteed by Mr James and a number of companies associated with him. 27 A charge in favour of Rabobank to a maximum liability of $1 B over Killara 10 Pty Ltd was also guaranteed by Mr James and a number of companies. This was during a period when Mr James was not an officer. A notice under s 72 has issued to Rabobank. 28 Mr James said that Executive Brands Pty Ltd was never party to an agreement to do anything. Information supplied by the ATO revealed that in the 2009 financial year, bank account details of Executive Brands are the same as for Liquor National. Mr Johnson is shown in ASIC records as the shareholder of Executive Brands and a s 72 notice was issued to him." 5Mr James challenges the decisions to issue the s 72 notices to Mr Adams, Mr Suriyachan, Mr Johnson and Rabobank on the basis that the purported exercise of the power or function conferred on the Chief Commissioner to issue the notices was so unreasonable that no reasonable person charged with the power or function could have caused the notices to issue; that the purported notices went beyond the purpose for which the power or function had been given in that they are confusing, imprecise, oppressive, directed at gaining information unconnected with a taxation law and wholly disproportionate in what they require; and that the purported exercise of the power or function was for an improper purpose and in bad faith in that it was made to inconvenience Mr James, in retaliation to Mr James taking issue with previous notices, and without sufficient regard to the purpose for which the power or function had been given, namely, the purpose of a taxation law. 6The proceedings were conducted on the affidavits of Mr James and Mr Sofiak and the documents annexed or exhibited to them. Neither Mr James nor Mr Sofiak was cross-examined. I was invited to reserve objections to the affidavits to Mr James. I deal with those objections in an Appendix to these reasons. 7Most of the argument centered on the s 72 notice to Rabobank. It was in the following terms: "The Proper Officer Rabobank Australia Limited Level 16, 201 Sussex St Sydney NSW 2000 Private & Confidential NOTICE UNDER SECTION 72(1)(a)&(c) THE TAXATION ADMINISTRATION ACT 1996 TAKE NOTICE that I, David Morse , an Authorised officer pursuant to section 68 of the Taxation Administration Act 1996 , ("the Act) and a Delegate of the Chief Commissioner of State Revenue under section 67 of the Act, HEREBY REQUIRE YOU to provide to me in writing, or any other authorised officer, by 10.00 am on 28 May 2010, at the Security Desk, ground floor, 132 Marsden Street, Parramatta or unless alternative agreement is agreed to by this office, the following information listed in Annexure "A" which is under your custody and control. I understand that if the requested documentation/information is provided, it must not be further disclosed except as permitted under section 82 of the Act. Failure to comply with this Notice may constitute an offence under section 72(8) of the Taxation Administration Act 1996, and render you liable to a penalty not exceeding 100 penalty units ($11,000). Dated this 29 th day of April 2010 DAVID MORSE SENIOR INVESTIGATOR DELEGATE OF THE CHIEF COMMISSIONER OF STATE REVENUE Annexure "A" Names of companies covered by this Notice :