Kennedy v Administrative Appeals Tribunal

Federal Court of Australia (Full Court)|2008-07-04|Before: Mansfield JJ

REASONS FOR JUDGMENT 1 This is an appeal from a decision of a Presidential Member of the Administrative Appeals Tribunal ("the Tribunal"), who refused to exercise the power under s 37(2) of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"), as modified by s 14ZZF(1)(b) of the Taxation Administration Act 1953 (Cth) ("the TAA").

Background 2 The appellant ("Mr Kennedy") applied to the Tribunal for review of objection decisions by the second respondent ("the Commissioner") in respect of the years of income ended 30 June 1993 to 30 June 1996 inclusive and 30 June 1998 to 30 June 2000 inclusive. The "objection decisions" were that the Commissioner disallowed objections lodged by Mr Kennedy against amended assessments of income tax issued by the Commissioner, in which the Commissioner included in Mr Kennedy's assessable income for each of the relevant years of income an amount which the Commissioner alleges Mr Kennedy failed to include. The amount totalled approximately $6.96 million (including penalties). 3 In making the amended assessments and disallowing the objections made by Mr Kennedy, the Commissioner relied on a number of documents which have been described throughout the proceeding as "foreign documents". These included a transcript of examination of Mr Kennedy in Switzerland, a transcript of examination of another person and a number of letters. Shortly before the hearing in the Tribunal, the Commissioner filed and served further documents, including copies of the letters referred to above, which the Commissioner did not have at the time of providing the original set of documents pursuant to s 37(1) of the AAT Act. Under s 37(1), where a decision-maker has made a decision that is the subject of an application for review by the Tribunal, the decision-maker must lodge with the Tribunal a statement which sets out the findings on material questions of fact with references to the material on which the findings were made, the reasons for the decision, and any other documents in the decision-maker's possession or control which are relevant to review of the decision by the Tribunal. 4 Before the Tribunal, Mr Kennedy submitted that the Tribunal should, pursuant to its powers under s 37(2) of the AAT Act, require the Commissioner to lodge with the Tribunal, in addition to six volumes of documents already lodged under s 37(1) of the AAT Act, the documents identified in the Schedule to the Presidential Member's reasons. Mr Kennedy submits that these additional documents are relevant to the validity of the Commissioner's amended assessments, which validity is challenged on the ground that the assessments were not made in good faith or were made for an improper purpose. Mr Kennedy also submits that the additional documents are relevant to his substantive liability under the assessments, if valid. On this latter point, the essence of Mr Kennedy's submissions is that the Commissioner's function of deciding the amount on which tax should be paid miscarried because of the "doubtful authenticity" of some of the material on which the Commissioner relied to make the objection decisions. He argues that the additional documents are relevant to whether the foreign documents are authentic and reliable, and they affect the weight which ought to be given to the foreign documents. Mr Kennedy also says that the documents are relevant to the formation by the Commissioner of the opinion that there was fraud and evasion by Mr Kennedy for the purposes of s 170(2) of the Income Tax Assessment Act 1936 (Cth) ("the ITAA"). 5 It is worth noting at this stage that Mr Kennedy, in the Statement of Facts, Issues and Contentions filed by him in the Tribunal, alleges that the amended assessments were not made by the Commissioner in good faith. This is said to be because: (i) the assessments were issued for the impermissible collateral purpose of assisting other governmental agencies' investigations of Mr Kennedy; (ii) the Commissioner obtained, used and relied upon evidence in breach of foreign (Swiss) law; (iii) the Commissioner was seeking to collect tax twice, as he had already assessed another person in respect of the income alleged to have been derived by Mr Kennedy; (iv) the Commissioner assessed the various years of income on two different bases, knowing that both could not be correct; (v) the formation of the judgment as to taxable income required by s 167 of the ITAA miscarried because of the "doubtful authenticity" of some of the material on which the Commissioner relied; and (vi) there was no fraud or evasion by Mr Kennedy for the purposes of s 170 of the ITAA, meaning that the Commissioner did not have power to amend an assessment at any time if of the opinion that there has been fraud or evasion.

Tribunal's decision 6 The Presidential Member accepted that the raising of the amended assessments and the Commissioner's decision not to allow the objections against them were based substantially on the foreign documents. His Honour then noted the submission of Mr Kennedy that documents which explain or evidence how the foreign documents came to be received by the Commissioner may be relevant to the Tribunal's review. However, his Honour did not accept that such unspecified documents may have been relevant to issues before the Tribunal. His Honour was not satisfied that there was any line of reasoning to support the asserted relevance of the documents. His Honour noted the submission that Mr Kennedy was entitled to a fair opportunity to challenge the authenticity, reliability and probity of the foreign documents, but considered that no explanation had been provided as to why Mr Kennedy would be denied procedural fairness if the additional documents were not furnished. 7 His Honour considered that Mr Kennedy's challenge to his substantive liability under the assessments, and therefore the relevance of the additional documents sought to be obtained pursuant to s 37(2) of the AAT Act, was based on the following two premises: (i) that the Commissioner's function of forming a judgment on the amount on which tax ought to be levied pursuant to s 167 of the ITAA miscarried because of the nature of the material relied on and how it was relied on; and (ii) that the formation of the Commissioner's opinion that there was fraud and evasion for the purposes of s 170(2) of the ITAA miscarried for the same reasons. 8 In considering the first premise, his Honour relied on the decision of the High Court in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623, where Brennan J said: "The ground of objection on which the taxpayer here relies is error in the formation of a judgment as to the amount on which tax ought to be levied. But mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment under s 167(b), the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous." (Emphasis added.) 9 The High Court in Dalco 168 CLR 614 referred to an earlier decision in George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 200, where the taxpayer submitted that the assessment was excessive because the judgment contemplated by s 167 of the ITAA had not been formed "by the right person and that in any case it had been formed on no material." The High Court refused to order the furnishing of particulars relating to that issue, stating at 203-204: "The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess. It is part of the very process of assessment itself. … The fact is that unless the taxpayer discharges the burden laid upon him by s 190(b) of proving that this ascertainment or judgment is excessive, he cannot succeed and it can be no part of the duty of the commissioner to establish affirmatively what judgment he formed [for the purposes of s 167], much less the grounds of it, and even less still the truth of the facts affording the grounds. Yet that is what is involved when the demand for particulars of the sources alleged of the appellant's income is justified by reference to s 167." 10 In relation to the second premise on which Mr Kennedy's challenge was based, his Honour accepted the submission of the Commissioner that none of the additional documents sought by Mr Kennedy were relied on by the Commissioner for the purpose of forming the judgment as to the amount on which tax ought to be levied. His Honour found that, in any event, Mr Kennedy's Statement of Facts, Issues and Contentions did not challenge the formation of the Commission's judgment other than to contend there was in fact no fraud or evasion on the part of Mr Kennedy. 11 His Honour also decided that the challenge by Mr Kennedy to the validity of the assessments on the ground they were made in bad faith could not be raised in review proceedings commenced in the Tribunal, or in appeal proceedings commenced in this Court, pursuant to Part IVC of the TAA. This is because, his Honour found, the issue in such proceedings is whether the assessment was excessive, and the proceedings are predicated on there being an assessment against which the taxpayer may object, and an objection decision which could be reviewed or appealed if a taxpayer so elects. His Honour referred to the reasons of Mason CJ in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 187, where his Honour said: "… the paramount purpose of the [ITAA] is to ascertain the liability of taxpayers to tax and … the [ITAA], with that object in view, sets up a legislative regime whereby the Commissioner assesses a taxpayer to tax, the taxpayer being liable to pay the amount stated in the notice of assessment, subject to a reference to the Administrative Appeals Tribunal or an appeal under Pt IVC to the Federal Court. In such an appeal, it is for the taxpayer to show that the assessment is excessive. In that context, the existence of inadmissible purpose on the part of the Commissioner plays no part." (Emphasis added). 12 His Honour also referred to the statement of Rath J in F J Bloemen Pty Ltd v Federal Commissioner of Taxation [1978] 2 NSWLR 468 at 480, where his Honour said: "… I am satisfied that, in appropriate proceedings, the appellant may raise the question whether the assessment to which the notices of assessment and of amended assessment refer was provisional …. The appeal, in my view, is not an appropriate proceeding. A properly constituted appeal assumes there is a valid assessment." 13 His Honour accepted that the Tribunal is competent to form a view as to whether its jurisdiction extends to consider the invalidity issue raised by Mr Kennedy's allegations of bad faith, notwithstanding that its opinion had no binding legal effect. It also accepted that the Tribunal is competent to review objection decisions even though the validity of the underlying assessment is a matter in dispute. Notwithstanding this, his Honour concluded that the Tribunal did not have jurisdiction to determine the validity of the amended assessments because they were brought under Part IVC of the TAA. This was sufficient to dispose of the claim by Mr Kennedy that the Tribunal should issue a notice pursuant to s 37(2) of the AAT Act that the Commissioner lodge with the Tribunal the additional documents sought by Mr Kennedy.

Parties' submissions on appeal 14 The appellant says there are two issues on appeal. The first is whether the Tribunal has power in a proceeding under Part IVC of the TAA to consider the challenge by Mr Kennedy to the validity of the amended assessments on the ground that they were made in bad faith. The second issue is whether the Commissioner should be required to produce to the Tribunal under s 37(2) of the AAT Act (as modified by s 14ZZF(1)(b) of the TAA) the additional documents which, it is said, may be relevant to the review by the Tribunal under Part IVC of the TAA. 15 Mr Kennedy submits that the Tribunal erred in law in holding that it had power to hear and determine the Part IVC proceeding on the basis that the assessments are valid, even though the validity of the assessments and therefore the jurisdiction of the Tribunal to hear and determine those proceedings are matters in dispute. Mr Kennedy says that the Tribunal's power is such as to require it to form an administrative opinion as to whether it has jurisdiction. Mr Kennedy also asserts that the Tribunal is competent in the context of a Part IVC proceeding to determine whether the assessments were validly made. He submitted that the Tribunal can as part of its functions determine whether there is a reviewable and valid decision before it, and indeed it must do so if the existence of a reviewable decision is challenged. As noted above, the relevant decision challenged by Mr Kennedy is the decision of the Commissioner in respect of objections by Mr Kennedy to various amended assessments of income tax made pursuant to the power reserved to the Commissioner under the TAA. 16 In relation to the second issue concerning s 37(2) of the AAT Act, Mr Kennedy submits that the Commissioner has formed an opinion that the omission of certain amounts of taxable income was due to Mr Kennedy's fraud and evasion, and that this is the issue in respect of which the additional documents are relevantly sought. This is an important submission because, in the absence of an opinion that there was fraud and evasion, the impugned amended assessments were made outside the relevant time limit. Mr Kennedy further says that the documents are relevant to his substantive liability under the assessments (presuming those assessments to be valid). He says that the income in respect of which he has been assessed was not derived by him directly or indirectly, and that neither the Commissioner nor the Tribunal on review was entitled to form the opinion that there was fraud and evasion. 17 Mr Kennedy also submits that the foreign documents were, as is acknowledged by the Commissioner, relied on to make the amended assessments, form the opinion about fraud and evasion, and disallow his objection to the amended assessments. Mr Kennedy does not know the provenance of those documents and he says that there is reason to believe that some of them are of doubtful authenticity. In this respect he referred to the observations of Gyles J in Kennedy v Wallace (2004) 208 ALR 424 at 455-456, where his Honour refused to admit a copy of interview by Swiss authorities into evidence in the exercise of his discretion under s 135 of the Evidence Act 1995 (Cth) due to "serious questions … as to authenticity". 18 Mr Kennedy submits that the Tribunal is not confined to the material before the Commissioner as primary decision-maker or to the events which had occurred up to the time of the Commissioner's decision. He says that the Tribunal must form its own judgment about the reliability, authenticity and probity of the material before it and is not bound by any laws of evidence. The foreign documents were among the documents which the Commissioner lodged with the Tribunal under s 37(1) of the AAT Act, and therefore it is said the Commissioner clearly considered those documents necessary to the determination of the proceedings. Accordingly, Mr Kennedy argues, it would be procedurally unfair not to lodge the additional documents, which explain the provenance of the foreign documents, with the Tribunal as they would assist the Tribunal and Mr Kennedy in assessing the reliability, authenticity and probity of the documents on which the Commissioner relied. In support of this proposition, Mr Kennedy refers to the decisions of this Court in McLachlan v Australian Securities Commission (1998) 28 ACSR 473 at 483 and Woodroffe v National Crime Authority [1999] FCA 1128 at [48], [72] and [81]-[83]. 19 The Commissioner on appeal referred the Court to the Explanatory Memorandum to the Taxation Laws Amendment Act (No. 3) 1991 (Cth). This was the legislation which introduced s 14ZZF into the TAA and thereby modified s 37 of the AAT Act in the context of a proceeding under Part IVC of the TAA. The Explanatory Memorandum states at [26.30]: "After being notified that there is an application for review with the AAT, the Commissioner will now be required to lodge with the AAT the prescribed number of copies of: … every other document that is in the Commissioner's possession, or under his control, that the Commissioner considers is necessary to the review of the objection decision and a list of those documents. The change from relevant to necessary puts the requirement to lodge documents with the AAT on a similar footing to that required for appeals by Order 52A Rule 8 of the Federal Court Rules." (Emphasis added.) 20 Commenting on this new standard of necessity, the High Court in Glennan v Federal Commissioner of Taxation (2003) 198 ALR 250 at 256 (per Gummow, Hayne and Callinan JJ) said: "Section 14ZZF(1)(a)(v) of the Administration Act required the Commissioner to lodge with the AAT copies of documents in his possession or under his control which he "considered … to be necessary to the review of the [AAT] decision concerned" (emphasis added). It has not been shown that the Commissioner considered the Determination to be necessary in the sense required by subpara (v) of s 14ZZF(1)(a)." 21 The Commissioner says in this case that the key documents are those which relate to the application of the ITAA to the "taxable facts" for each year of income in dispute. In Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 217, Barwick CJ, speaking of "taxable facts", said: "…the process of assessment requires the application of the [ITAA] to the facts as known to and accepted by the Commissioner. He must of necessity, as part of that process, adopt a view of the relevant facts. They must be facts which disclose a taxable income." (Emphasis added.) It is not disputed in this case that the Commissioner did not rely on any of the additional documents listed in the Schedule to the Presidential Member's reasons for judgment and sought by Mr Kennedy when making the assessments or disallowing the objections, and that the Commissioner has otherwise produced all of the documents considered necessary to the "taxable facts".

Reasoning on appeal 22 Mr Kennedy's challenge in the Tribunal to the validity of the Commissioner's assessments, based on the contentions that they were made in bad faith or the Commissioner's view as to fraud and evasion was incorrect, must fail. The Tribunal has jurisdiction to hear and determine the present review under Part IVC of the TAA because each assessment purports to have been made in exercise of powers conferred by that enactment. Whether or not the assessments were, as a matter of law, validly made does not attenuate this finding. There is a long line of authorities which supports this proposition, starting with Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307. More recently, in Minister for Immigration v Ahmed (2005) 143 FCR 314 at 323, the Full Federal Court observed that the judgment as to the validity of a Minister's actions is for the courts, not for an administrative body such as a Tribunal: see also Zubair v Minister for Immigration and Multicultural and Indigenous Affairs(2004) 139 FCR 344. 23 Accordingly, if the Tribunal in this case were to make an administrative ruling that the Commissioner's assessments were valid, this would not take effect as a binding determination of law, and the Commissioner would remain entitled to collect tax pursuant to the assessments subject to any determination by a court that those assessments were not valid. In this case, Mr Kennedy has elected to have the objection decisions referred to the Tribunal, yet he complains that the Tribunal cannot decide whether the assessments were correctly and validly made and does not have the jurisdiction which he has invoked. In these circumstances, the Court would lean against finding that the jurisdiction can be challenged: see Kim v Minister for Immigration and Citizenship [2008] FCAFC 73 at [21]-[29] (per Tamberlin J) and [37]-[39] (per Gyles J). 24 In F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360, the issue before High Court was whether, in an appeal against a decision of the Commissioner disallowing an objection or in a proceeding seeking declaratory relief, the Court had jurisdiction to determine that an assessment of payable income tax was invalid, notwithstanding that a notice of assessment had been produced. The Court held that it did not have jurisdiction to determine the matter. 25 Mason and Wilson JJ at 375 and 378 said: "The effect of this policy is that, once the Commissioner takes advantage of s 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V. … In our opinion, it must follow that a notice in proper form of an assessment necessarily compels the conclusion that there was an assessment made in fact. … Its production will put beyond contention the due making of the assessment so that the [Supreme] Court cannot find that no assessment was made or that, if made, it was made for an inadmissible purpose." 26 In Richard Walter 183 CLR at 187, Mason CJ stated that on a tax appeal under Part IVC of the TAA: "… it is for the taxpayer to show that the assessment is excessive. In that context, the existence of an inadmissible purpose on the part of the Commissioner plays no part." 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. 29 In any event, the application in this case to obtain additional documents which go to the provenance or authenticity of the documents already provided is premature. Those additional documents may or may not be eventually admitted into evidence. Given that Mr Kennedy has not explained how the documents sought would relate to the issues of authenticity or provenance (or any other matter), the content and relevance of those documents is the subject of mere speculation at this stage. 30 The final observation to be made relates to the submission that Mr Kennedy will suffer procedural unfairness if the Commissioner is not required to lodge the additional documents. To establish this, Mr Kennedy must first explain how the right to a fair hearing is affected by the non-production of the documents sought or the Tribunal's exercise of the process of disclosure contemplated by s 37 of the AAT Act. There is no evidence as to how any particular document or class of documents yet to be produced will bear on the issue of the authenticity or reliability of the documents already provided by the Commissioner. Mr Kennedy makes no specific allegations; does not identify any particular document which is inauthentic, unreliable or lacking in probative value; and frames his allegations as to relevance only in a vague and unsubstantiated way. In light of these deficiencies, there is no basis on which the Tribunal is required to exercise its power under s 37(2) of the AAT Act.

Conclusion 31 The appeal is dismissed with costs. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices French, Tamberlin and Mansfield.

Associate: Dated: 4 July 2008 Counsel for the Appellant: Mr A. Myers QC, Ms J. Davies SC and Dr S. McNicol

Solicitor for the Appellant: Arnold Bloch Leibler

Counsel for the Respondents: Mr J. de Wijn QC and Mr S. Steward

Solicitor for the Respondents: Australian Government Solicitor

Taxation Administration Act 1953(Cth)s 14ZZF(1)(b), Pt

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