The challenge to the amended statement of claim
137 In this discussion of the amended statement of claim, references to numbers are references to paragraphs of the amended pleading and references to the applicants are references to the Lyons applicants.
138 At 1 to 12, the applicants plead the standing of the parties, the commencement of the audit in 2011, the Commissioner's decision to "impose" taxation liabilities on the applicants of an amount in excess of $1 million based on understatements of income of greater than $2.2 million, objections lodged, objection decisions reducing the liability to nil, and the Commissioner's conclusion that the Trust made losses. None of these paragraphs are challenged by the Commissioner.
139 At 13 and 14, the applicants plead that the Commissioner made admissions that his decisions "in relation to issuing the amended assessments and penalties 'were incorrect' from the outset and in their entirety"; that the Trust "did not earn net income"; and Mr and Mrs Lyons "never received 'deemed trust distributions'". The Commissioner challenges 13 and 14. If extracts from one or more objection decisions are a material fact or alternatively pleaded as a matter of context, the precise matter should be quoted properly, referenced to a particular decision (date, paragraph, etc) with reference to reliance on the decision according to its terms as produced.
140 At 15, the applicants plead that the Commissioner commenced, and refused to defer, garnishee action and recovery proceedings pending the making of objection decisions. There is no challenge to 15.
141 At 16, the applicants plead that the "relentless pursuit" of the applicants during the period of the pending objection decision "resulted in the disposal of the principle place of residence" of Mr and Mrs Lyons. The Commissioner challenges 16. The notion of a "relentless pursuit" assumes a collection of facts and amounts to a conclusion. The primary material facts must be pleaded.
142 At 17, the applicants plead that they sought compensation under the CDDA Scheme.
143 At 18, they plead that the Commissioner denied any instance of defective administration and "relied on his contention that the original decisions he made to issue the amended assessments and penalties were valid and 'open and reasonable' for him to make".
144 At 19, the applicants plead that the Commissioner's "contention, in his CDDA Decision, effectively required the elements of conscious maladministration to be present for defective administration to have occurred under the CDDA Scheme".
145 At 20, the applicants "contend that defective administration is admitted to have occurred as a result of the Respondent's admission that his original decisions to issue the amended assessments and penalties 'were incorrect' from the outset and in their entirety".
146 At 21, the applicants plead that as a result of the respondent "enlivening the issue of conscious maladministration, the Applicants have precisely outlined their position in this claim [so as] to address the elements of conscious maladministration as they apply to the questions of validity of the CDDA Decision as well as the validity of the original decisions to issue the amended assessments and penalties".
147 At 22, they plead that the CDDA Decision is "directly affected by the original decisions to issue the amended assessments and penalties to the Applicants".
148 At 23, they plead that the merits of all disputed issues emanating from the audit were resolved in their favour.
149 At 24, they plead that the Court is not being asked to conduct a further merits review of the audit.
150 At 25, they plead that the audit, objections, debt recovery and CDDA processes culminated in decisions "that were fully endorsed by the Respondent". They plead that, for the purposes of the proceeding, "the decisions made by the Respondent's Officers will be taken to have been made by the Respondent".
151 At 26, the applicants plead that there are five central questions to be resolved by the Court in the proceeding. They are said to be these:
1. Are the elements of conscious maladministration required to be present for defective administration to have occurred under the CDDA Scheme? If so, to what degree?
2. Is the finding of defective administration satisfied by the Respondent's admissions that his original decisions to issue the amended assessments and penalties "were incorrect" from the outset and in their entirety?
3. Did the Respondent make an invalid CDDA Decision?
4. Did the Respondent make invalid original decisions to issue amended assessments and impose penalties on amounts that he knew, or ought to have known, were "never earned"?
5. Should the Respondent compensate the Applicants for all losses incurred?
152 The Commissioner challenges 18 to 26 of the pleading.
153 These paragraphs introduce the CDDA Scheme into the proceeding and assert that the applicants' application for compensation was rejected because the Commissioner considered that his original decisions to issue the Amended Assessments and Penalties were "valid, open and reasonable". The applicants say that the "effect" of the decision is to import the notion of "conscious maladministration" into the concept of "defective administration" (for the purposes of the CDDA Scheme) and they say that this is inconsistent with the Commissioner's admission (which they contend for) that the original decisions to issue the Amended Assessments and penalties were incorrect from the outset and in their entirety. They say that due to the introduction, by the Commissioner, of this notion of "conscious maladministration" into the CDDA Scheme decision-making, the applicants have chosen to set out their position on the "elements of conscious maladministration" applying to the "validity" of the CDDA Decision, as well as the "validity" of the original decision to issue the Amended Assessments and penalties.
154 The proper approach is this.
155 The applicants ought to identify the Scheme correctly and identify the terms governing the Scheme and whether the source of the authority of the decision-maker is the Executive Power of the Commonwealth or whether the Scheme has any relevant relationship with an Act of the Commonwealth Parliament (the PSA, the PGPA Act or otherwise). They ought to identify the material elements of the decision under challenge and the basis on which error in that decision is said to arise with clear identification of all of the material matters. The contention seems to be that "jurisdictional error" has occurred in the decision-making process leading to the CDDA Decision. The applicants say that they have been drawn into identifying the elements of "conscious maladministration" in the decision under the CDDA Scheme because the Commissioner asserts, "in effect", that conscious maladministration is an element of what is required to establish a valid claim for compensation under the Scheme. The questions pleaded at 26 might be some of the "issues" to be resolved in a proceeding properly constituted and pleaded but they must arise out of a sequence of material facts supporting an identifiable claim to the relief sought in the proceeding.
156 The starting point is to identify the Scheme, its content, source of authority, the contended error, the character of the error and the relationship between all of those elements and the right to the asserted relief in the proceeding. In this respect, the pleading is wanting.
157 At 27-34, the applicants plead the commencement of the audit; the financial years under review, the provision of financial records by the applicants to their accountant to enable them to prepare outstanding taxation returns for the years 2006-2009; meetings with the Commissioner's representatives; the Interim Report issued to the trustee on 23 May 2011; the call for a response by 31 May 2011; the "escalation" of the matter concerning each applicant to the level of "Prosecution" on 24 May 2011; the issuing of the "Completion of Audit Report" on 7 June 2011 and the issue of "Notices of Amended BAS Assessments" and "Penalty Notices" to the third applicant as described at [33] of these reasons (resulting in a GST liability in the third applicant of $146,083.00 and penalties of $73,042.50).
158 Paragraphs 27 to 34 of the pleading are not challenged by the Commissioner.
159 At 35, the applicants plead that they are challenging the "validity" of the Commissioner's decision to attribute an amount of $115,389.00 of GST liability to the third applicant arising out of contended understatement of income in the audit years. The applicants say that they are also challenging the "validity" of the decision to impose administrative penalties of $73,042.50 on the third applicant for making contended false and misleading statements in relation to an alleged understatement of income in the relevant years under audit.
160 This part of the claim is said to engage the following additional matter.
161 The applicants say that at the audit stage, officers of the Commissioner "knew" that the applicants had made a "voluntary disclosure" on 1 March 2011 that Mr and Mrs Lyons had made cash drawings from takings (sales) in the restaurant business, as repayments of business loans made to the business (although the amount of the drawings were not fully identified until 22 March 2011 (para 46)), but had failed (they say inadvertently) to include those amounts in sales reported in the GST Business Activity Statements. They say that despite the "voluntary disclosure" of the matters said to have been disclosed, officers of the Commissioner "denied" that the disclosure had occurred and "reported" that the accounting records were unable to be reconciled with the lodgement of BAS documents by the applicants. As to the last point, the applicants seem to be saying that had officers of the Commissioner taken into account the matters voluntarily disclosed, there would have been no lack of reconciliation.
162 At 35, the applicants say that the attribution of a GST liability to the third applicant of $115,389.00 and penalties of $73,042.50 were reduced to nil at the objection stage.
163 Paragraph 35 is challenged by the Commissioner.
164 Paragraph 35 asserts a challenge to the "validity" of the BAS amendment and a challenge to the "validity" of the decision to impose penalties. No basis for that challenge is identified at 35 as matters of material fact identifying elements of conscious maladministration as earlier described supporting a ground of jurisdictional error. To the extent that the matters at 35 are cross-referenced to matters at 46, there is an assertion at 46 that, at the audit stage, officers of the Commissioner knew something and "denied" that they knew it and then "purported" to be "unable" to reconcile accounting records maintained by the applicants with lodgements made by them. It is not clear from the pleading what matters were disclosed or to whom; the circumstances of the denial and what was denied; and the content of that which was unable to be reconciled as between the accounting records and the lodgements. If the combination of paras 35 and 46 are said to give rise to matters of conscious maladministration leading to the issuing of the Amended Assessments, they would need to be pleaded more precisely.
165 At 36 to 39, the applicants plead that an Interim Report was issued on 9 June 2011 (by someone) to Mr and Mrs Lyons; a response to it was required by 21 June 2011; on 9 June 2011, the Commissioner prepared "Debt Recovery Referral documents" and "escalated" the matter to a modality of "Debt Recovery" although the time for a response had not by then elapsed. They plead that on 22 June 2011, a Completion of Audit Report issued to Mr and Mrs Lyons. They plead that on 21 July 2011 and 22 July 2011 Notices of Amended Assessments and Penalty Notices, respectively, were issued to Mr Lyons, as described at [37] of these reasons, giving rise to a liability of $357,903.22 in respect of tax, penalties and the general interest charge.
166 No challenge is made by the Commissioner to 36-39 of the pleading.
167 At 40, the applicants plead that Mr Lyons is challenging the "validity" of the Commissioner's decisions "to deem [Mr Lyons] to be presently entitled, pursuant to s 97 of the [36 Act], to understated taxable/net income of the Relevant Trust of $499,738 and to impose taxation liabilities (including penalties) of $357,903.22". The particulars of the challenge are that the "amounts of $499,738 and $357,903.22 were subsequently reduced to nil by the Respondent".
168 Paragraph 40 is challenged by the Commissioner.
169 Paragraph 40 suffers from the same defect as 35. A challenge to "validity" supporting relief in the form of the constitutional writs on the ground of jurisdictional error on the basis of "conscious maladministration" leading to the issuing of the Amended Assessments cannot be made good by pleading a decision to determine Mr Lyons as "presently entitled" to the net earnings of the Trust for the purpose of s 97 of the 36 Act and then a subsequent decision at the objection stage to reduce the net income of the Trust and the tax payable by Mr Lyons to nil. The material facts going to a claim of invalidity based on the conscious maladministration of a relevant officer must be pleaded.
170 At 41, the applicants plead the Notices of Amended Assessment and Penalty Notices issued to Mrs Lyons in the same amounts issued to Mr Lyons.
171 At 42, the applicants plead that a challenge is made to the "validity" of the decision to treat Mrs Lyons as presently entitled to the net income of the Trust for the purposes of s 97 of the 36 Act; to treat the Trust as having derived net income of $499,738; and to impose taxation liabilities (including penalties) on Mrs Lyons of $357,903.22.
172 Paragraph 42 suffers from the same difficulty as 40.
173 At 43, the applicants plead that at the audit stage, the Commissioner (although the relevant officer is not identified) "acted with reckless indifference and/or deliberate dishonesty when he made decisions to issue the Incorrect Amended Assessments and Penalties" to the applicants "without proper regard to the facts and for a collateral purpose" as described "at paras 44 to 48" of the pleading.
174 At 44, the applicants plead that the Commissioner "knew, or ought to have known", that the applicants kept records in compliance with s 262 of the 36 Act. They plead that, at the audit stage, the Commissioner determined that the applicants "have not retained income source documents to support the accounting records" which the applicants presented during the course of the audit. That paragraph is expanded upon by 10 subparagraphs of the pleading. Those subparagraphs address these matters.
175 First, the applicants plead that they provided the Commissioner with accurate records of source documents including Excel spreadsheets of sales revenue, MYOB records of all expenses, invoices, receipts and bank statements.
176 Second, the applicants plead that they reconciled their Z-totals (Z-readings) from the Z-tapes (the physical cash register records), for lunch and dinner, to a daily summary sheet specifying credit card transactions, gift vouchers, refunds, mistakes, overrings and taking into account cash taken from the register for business expenses and personal use.
177 Third, the applicants plead that the Z-totals, on the daily summary sheets, were reconciled with cash sales and recorded in Excel spreadsheets on a weekly basis.
178 Fourth, they plead that the Z-tapes and summary sheets had faded and subsequently ceased to be retained once they were reconciled.
179 Fifth, they plead that the Commissioner knew that the applicants were not required to keep Z-tapes after 30 days where they had correctly reconciled their Z-totals in conformity with ATO policies and procedures.
180 Sixth, they plead that documents of the Commissioner obtained by them in response to an FOI request "confirm" that, at the audit stage, the Commissioner "knew" that the applicants had "correctly reconciled" their records, including daily reconciliations of their Z-totals.
181 Seventh, they plead that the Commissioner "knew" that the applicants kept "accurate" MYOB records and that they had "diligently recorded MYOB records".
182 Eighth, they plead that the Commissioner "knew" that the applicants performed monthly bank reconciliations.
183 Ninth, they plead that the Commissioner "knew" that the MYOB and Excel records which contained the reconciliations of their Z-totals were retained for five years.
184 Tenth, they plead that the Commissioner, at the objection stage, "confirmed" that the Excel records of the applicants were "reliable and accurate" and that the applicants had "correctly reconciled their Z-totals". The applicants plead that the respondent was obliged, at the audit stage, to make the same finding as the Commissioner made at the objection stage but nevertheless the Commissioner "deliberately failed to do so".
185 As to the last matter of a "deliberate failure" to make a finding, at the audit stage, that an officer was "obliged" to make, three particulars are given. The first is that the applicants had complied with ATO Practice Statements Law Administration ("PSLA") requirements (and, in particular, PSLA 2007/24 and PSLA 2005/2). The second is that ATO Taxation Ruling 96/7 recognises that "a person may discard the rolls of tape after one month provided the person has reconciled the Z-totals with actual cash sales and banking for that period". The third particular is that FOI documents supporting the contention will be produced at the hearing.
186 At 45, the applicants plead that the Commissioner, at the audit stage, "knew" that the applicants had complied with the Commissioner's request to provide a representative sample of the Z-tapes and daily summary sheets for the period 28 February 2011 to 28 March 2011. The applicants plead that despite the Commissioner's request of them to produce that material, the respondent failed to carry out a reconciliation of the Z-tapes and the summary sheets for the period. The applicants describe the obligation of the Commissioner to do so having made the request for the material as a "mandatory reconciliation". The applicants, at 45, plead that, at the objection stage, the Commissioner "tested" the same representative sample (although the pleading recognises that the sample was extended from 28 February 2011 to 28 June 2011 rather than the earlier period ending 28 March 2011) and "confirmed" that the applicants Excel records were "accurate and reliable". The applicants say that as to the "mandatory" characterisation of the obligation: "It was mandatory for the Respondent to have made a similar finding during the audit [as that made during the objection phase], based on ATO policies and procedures, but he deliberately failed to do so".
187 The applicants plead that the Commissioner ought to have acted in accordance with ATO Taxation Ruling 96/7, para 13, which provides that: "we consider that it is necessary for the person to keep the one month representative sample so that ATO staff can verify that the summary record is an accurate summary of every individual transaction that relates to a person's income and expenditure".
188 At 46, the applicants plead that the Commissioner, at the audit stage, "knew" that the applicants had made the voluntary disclosure described at [161]. The pleaded matter is that despite knowledge of the elements of the disclosure on 1 March 2011 concerning the pleaded "cash drawings" (although not the amount), the Commissioner denied that the voluntary disclosure had occurred and notwithstanding the disclosure of the fact of cash withdrawals, the respondent "purported" to be unable to reconcile "accounting records to the lodgements made". As already mentioned, the applicants plead at 46 that the Commissioner, at the objection stage, "confirmed" that the applicants had made "a voluntary disclosure in relation to the cash drawings and that there were no understatements of income as the accounting records did reconcile with the lodgements".
189 At 47, the applicants plead that the Commissioner "knew, or ought to have known" that "he manipulated the calculations to arrive at his 'desired sales' figure exceeding $2 million using his illegitimate gross margin percentage of 60%". The applicants plead at 47 that "this constituted the collateral purpose of the Respondent, at the audit stage". As to those matters so pleaded, there are 15 subparagraphs which expand upon those matters. The pleaded factual sequence is set out at [190] to [197].
190 On 24 March 2011, at the request of the Commissioner, Mr Lyons provided a restaurant menu to the Commissioner's officers marked with the estimated cost of each item offered for sale (the "cost of goods", "COG"). On 12 April 2011, an officer of the Commissioner handed to Mr Lyons a worksheet headed "Lyons Trust Analysis" and told Mr Lyons that he had calculated the business gross margin percentage to be 60% and based on that margin percentage, there were significant understatements of sales amounting to $2.4 million. The applicants plead that that amount was adjusted, on the same day, by 1% to $2.2 million. On 12 April 2011, an officer of the Commissioner sent an email to the accountant acting for the applicants attaching a calculation of the gross profit margin percentage which consisted of "four additional excel worksheets ("Calculus 1", "Calculus 2", "Analysis of Margins" and "Workings")". The applicants plead that they, and their accountant, were "shocked" and "unable to verify" the contents of the additional Excel worksheets as those documents did not reveal the basis of the gross margin percentage calculation and did not reconcile with the applicants' records. The applicants plead that officers of the Commissioner used the term "desired sales" in the worksheets provided to the applicants "revealing an intention at wanting to achieve his arbitrary 60-40 split". They plead that documents obtained from the respondent pursuant to an FOI request "confirmed" that the respondent, early in the audit, stated that "60-40 is achievable" and made a specific calculation "comparing the correct gross margin percentage figures for each audit year with the 'desired sales' figures at the 60% gross margin percentage ('Desired Sales Calculation')". They plead that documents obtained by the applicants from the Commissioner as the result of an FOI request reveal that an Excel spreadsheet calculation entitled "Analysis of Menu" was undertaken which demonstrates "how the Respondent manipulated the gross margin percentage to arrive at his Desired Sales Calculation".
191 They plead that the "illegitimate gross margin percentage" was derived by calculating the individual gross margin percentage for "each item on the menu"; by then "adding" the individual gross margin percentages for each item together to derive a total; and by dividing that total by the number of "menu items".
192 They plead that this "illegitimate calculation" "also contained inexplicable errors and omissions". They plead that the Commissioner's calculation of the gross margin percentage "also significantly failed to exclude the GST from the selling price of all menu items which further exacerbated the illegitimate gross margin percentage calculation".
193 They then plead that the respondent's methodology "illegitimately averaged the gross margin percentages and included the GST, enabling the respondent to arrive at his Desired Sales Calculation that did not conform to any accounting methodology".
194 They plead that the correct accounting methodology for calculating the gross margin percentage would use the "total monetary gross margin percentage divided by the total monetary sales which was proved to be 49.93% or thereabouts". They plead that documents (described as "Accounting Practices") obtained from the Commissioner as a result of an FOI request "also confirmed that the respondent had tested the correct gross margin percentage to be 49.93% and agreed that it was 'in line with industry'".
195 They plead that the respondent, at the audit stage, "knew" that the correct gross margin percentage was 49.93%.
196 They plead that the "Desired Sales Calculation", the "Analysis of Menu" and the "Accounting Practices" (documents) were "deliberately withheld from the Applicants".
197 They plead that the Commissioner, at the objection stage, accepted "Error Reconciliation Spreadsheets" which determined the errors in the "Analysis of Menu". They plead that this information was provided to the Commissioner by an "Expert Tax Adviser" retained by the applicants. They plead that "this information", so provided, "proved that the Respondent knew, or ought to have known, that there were understatements of income of the Related Trust and that the Respondent had illegitimately overstated the gross margin percentage calculation to arrive at his Desired Sales Calculation". They plead that copies of the worksheets of officers of the respondent, documents produced by the Commissioner in response to FOI requests (including the Analysis of Menu, Desired Sales Calculation and Accounting Practices, documents) and the Error Reconciliation Spreadsheets will be produced in evidence at the hearing.
198 At 48, the applicants plead that the respondent "knew, or ought to have known that the 'desired sales' figure he arrived at, exceeding $2 million, did not exist by simply checking his calculations, complying with usual accounting practices and doing the mandatory testing required in cash economy audits by ATO policies, procedures and processes".
199 This pleaded matter is then supported by seven subparagraphs of the pleading which expand upon 48. Those elements are these.
200 First, the applicants plead that documents obtained from the Commissioner pursuant to an FOI request reveal that the Commissioner, at the audit stage, "tested and was satisfied with the ratio of cash takings to debit and credit card sales with cash takings being 21% ('the Credit/Cash Ratio')". The applicants plead that the Commissioner "deliberately disregarded his calculation".
201 Second, the applicants plead that in order for the respondent's postulated "desired sales" figures to be correct, "the cash takings would need to be approximately 50% of turnover which is clearly not achievable as most restaurant patrons paid with credit cards or Electronic Funds Transfer ('EFT')".
202 Third, the applicants plead that documents obtained from the Commissioner pursuant to an FOI request reveal that the Commissioner "tested the ratio of wages to turnover as being 13% ('the Wages/Turnover Ratio')". They plead that an increase of turnover "to the [desired sales] level would have made the wages to turnover ratio absurd". They plead that the respondent "deliberately disregarded this information".
203 Fourth, the applicants plead that the "desired sales" figures "significantly exceeded the Personal Living Expenditure and Asset Particulars provided by the Applicants to the Respondent, at the audit stage". They plead that the respondent "deliberately disregarded this information".
204 Fifth, the applicants plead that, at the audit stage, the respondent "deliberately failed to undertake any other proper form of comparative testing, including asset betterment or T-account analysis, to support his 'desired sales' figures as required by ATO procedures".
205 Sixth, they plead that the respondent, at the objection stage, accepted "an Asset Betterment Worksheet provided by the Applicants' Expert Tax Adviser, which proved the Applicants had no unexplained asset increases during the period under review".
206 Seventh, they plead that the Commissioner, at the objection stage, concluded that in each period of the audit, the business either made a net loss or had carried forward losses to offset net income. They plead that this finding should have been made by the Commissioner at the audit stage "before the decisions to issue the Incorrect Amended Assessments and Penalties were made, but he deliberately failed to do so". They plead that copies of the Commissioner's "Credit/Cash Ratio", "Wages/Turnover Ratio" and "ATO Cash Economy Audit processes and procedures" together with the "Asset Betterment Worksheet" in relation to the applicants will all be provided in evidence at the hearing.
207 The Commissioner challenges 43-48 of the pleading.
208 The Commissioner contends that these paragraphs are concerned with a claim for relief in relation to a decision which is not amenable to judicial review under s 39B of the Judiciary Act. They say that the paragraphs and the subordinate paragraphs which expand upon the principal matters do not plead material facts but rather plead matters of evidence. They say that to the extent that references are made to documents obtained as a result of FOI requests, the documents should be identified especially if findings are urged on the basis of things contained in the documents or the documents are to be relied upon to support inferences giving rise to findings.
209 The matters pleaded at 43-48 and the subordinate paragraphs within those paragraphs raise serious matters. The pleading at those paragraphs is directed to seeking to establish the proposition that the Amended Assessments issued to the applicants (and thus purporting to be "assessments" for the purposes of the Act) do not meet the statutory description of an "assessment" on the footing that officers of the Commissioner engaged in acts of "conscious maladministration" in the sense described earlier, that is to say, "deliberate failures" to administer the tax law of the Commonwealth "according to its terms": FCT v Futuris, the plurality at [25] and [55]-[60]. The question is whether the pleading at [43]-[48] properly pleads material facts which establish deliberate failures on the part of officers of the Commissioner to administer the tax law of the Commonwealth according to its terms leading to the issue of the assessments. The challenge must be to the issuing of the Amended Assessments. If that were to be so, as a matter of pleading, the paragraphs would support a claim for a declaration that the Amended Assessments do not meet the statutory description of an assessment, subject to the discretionary factors discussed earlier.
210 There are, however, quite a number of difficulties with the paragraphs as pleaded. For example, at 44, the applicants plead that the Commissioner "knew" or "ought to have known". This formulation appears a number of times. Under that formulation, two possibilities are being put forward. If the applicants contend that the Commissioner knew relevant facts and acted inconsistently with those known facts in a way which suggests a conclusion that a relevant officer deliberately failed to administer the tax law of the Commonwealth, according to its terms, that would be one thing. If, on the other hand, the contention is that officers of the Commissioner ought to have known certain things and acted in disregard of things they ought to have known or perhaps acted in reckless disregard of things they ought to have known, that is another thing.
211 If the pleading is that officers of the Commissioner knew things, those known things need to be pleaded and the basis for the state of knowledge of the relevant officer needs to be pleaded. If the pleading is that officers ought to have known things, the things they ought to have known needs to be pleaded and the basis upon which they ought to have known them ought to be pleaded. Conduct in the light of known things or things thought out to have been known needs to be pleaded.
212 The chronological sequence relating to allegations of this kind is important. Precision is important in pleading conduct of this kind going to a challenge under s 39B(1) to the issuing of the Amended Assessments. For example, at [180] of these reasons, reference is made to the pleading that documents obtained from the Commissioner in response to an FOI request confirm that at the audit stage the Commissioner knew that the applicants had correctly reconciled their records including daily reconciliations of Z-totals (having regard to the matters at [175]-[179]). What are the documents of the Commissioner relied upon by the applicants? What does the word "confirm" mean? What do the documents actually say on the relevant topic? At [181], what is the basis for the state of knowledge and what precisely was known? The same question arises in relation to [182] and [183]. At [184], what exactly was confirmed and in what terms and when? At [184], the pleading of the applicants that the Commissioner "deliberately failed" to make the particular finding is noted. What is the basis for the state of mind of the relevant officer which brings about the factual conclusion of a deliberate failure to do something which the officer, on behalf of the Commissioner, was required to do? At [188], there is a reference to the "voluntary disclosure". It is not clear exactly what was voluntarily disclosed. What was the content of the voluntary disclosure? How was it made? Was it in writing or orally and precisely what was it that was communicated? If there was a denial of a voluntary disclosure, what exactly was denied? Was there a difference of opinion about what was put? The pleading needs to avoid any ambiguity about that matter.
213 At [189], the applicants' pleading that the Commissioner "knew, or ought to have known" something is noted. That which he knew or ought to have known is described as a "manipulation". At [190], the applicants' pleading that four worksheets were provided by the Commissioner to the applicants is noted and the pleading that officers of the Commissioner used the term "desired sales" in worksheets is noted. The applicants say that this term reveals an "intention" to achieve an arbitrary "60-40 split". They say that the respondent "early in the audit" "stated" that "60-40 is achievable". They say that documents obtained in response to an FOI request revealed the "Analysis of Menu" document which demonstrates "how the Respondent manipulated the gross margin percentage". These matters of a deliberate and calculated decision to apply an "arbitrary" gross margin of 60% and support it independently of the facts as a matter of "manipulation" of the facts, needs to be pleaded with absolute precision. References to worksheets and FOI documents and "desired" sales is not sufficient. The precise chronological sequence of relevant material facts should be pleaded with specific reference to properly identified documents and the content of those documents which are said to give rise to a conclusion that pleaded things occurred which meet the description of deliberate failures to administer the tax law of the Commonwealth according to its terms.
214 Similarly, at [194], the applicants' plead that documents obtained from the Commissioner as a result of an FOI request also "confirmed" that officers of the respondent had "tested" the correct gross margin percentage to be 49.93% and confirm that this margin is in accordance with industry benchmarks. At [195], the pleading is noted of a "deliberate withholding" from the applicants of three classes of documents which presumably are said to reveal these serious matters. Again, the documents need to be identified. What do they say? When did the testing occur? What was tested? What exactly was revealed? What do the documents actually say? Who knew the relevant matters described at [195]? The same sequence of analysis needs to be applied to all of the matters noted at [197] to [206].
215 The same principles apply to the proposition that the decision to apply administrative penalties leading to Penalty Notices do not meet the statutory description of a Penalty Notice for the purposes of the Act on the footing that officers of the Commissioner imposed a penalty in circumstances where there was conscious maladministration of the tax laws of the Commonwealth.
216 At 49, the applicants plead that, at the audit stage, the respondent, acting with "reckless indifference and/or deliberate dishonesty, denied the Applicants procedural fairness, natural justice and reasonableness in his decisions to issue the Incorrect Amended Assessments and Penalties against the Applicants" as described in paras 50 to 60 of the amended pleading.
217 At 50, the applicants plead that the Commissioner insisted that the applicants "disprove his 'desired sales' calculation in the short time allowed when the Respondent would not reveal to the Applicants the basis of the gross margin percentage calculation, despite numerous requests from the Applicants to do so and before issuing the IR [Interim Report] to the Applicants". Paragraph 50 is supported by five subparagraphs and they address these matters.
218 First, the applicants plead that on 12 April 2011, the Commissioner insisted that the applicants provide their response simply by relying upon "worksheets" of the Commissioner "and in the absence of being issued a position paper or interim report that outlines the logical basis of the gross margin percentage calculation".
219 Second, the applicants plead that it was "an impossible task" for the applicants to "disprove something that did not exist having regard to a document that was not finalised".
220 Third, the applicants plead that the Commissioner "continued to refuse to reveal the basis of the gross margin percentage calculation in the Third Applicant's IR".
221 Fourth, the applicants plead that the Commissioner provided "unreasonable timeframes of response to the Third Applicant's IR being less than 7 business days".
222 Fifth, the applicants plead that the Commissioner acted in contravention of ATO policies and procedures. As to that matter, the applicants say that the ATO's audit processes provide: "During the latter stages of an audit it is our usual practice to provide you with a position paper that clearly explains our position and gives you an opportunity to respond before we finalise the audit". The applicants say that copies of the ATO's audit processes revealed on the ATO's website will be provided in evidence and that copies of correspondence revealing the applicants' requests for an explanation will also be provided in evidence.
223 At this point, it should be noted that the principal contention at 49 is that the Commissioner, in issuing the Amended Assessments and imposing administrative penalties, did things (denied the applicants procedural fairness, denied them natural justice and denied them reasonableness in decision-making and the exercise of powers conferred upon the Commissioner), with a certain state of mind, either, "reckless indifference" or "deliberate dishonesty", or both, as set out at 50-60 of the pleading (and most immediately at 50 of the pleading).
224 An allegation of a failure to provide procedural fairness, natural justice and reasonableness in decision-making as features of jurisdictional error would not give rise to relief under s 39B(1), at least in relation to the decisions now under challenge, for the reasons described at [75] to [79] of these reasons. However, if the Amended Assessments do not meet the "statutory description" of an "assessment" because officers of the Commissioner exercised the power to issue the assessments out of "deliberate dishonesty" or "reckless indifference" (if that be said to be sufficient to constitute "conscious maladministration"), the exercise of the power would, in that circumstance, be susceptible of relief under s 39B(1) of the Judiciary Act.
225 Taking 49 and 50 together, the pleaded contention is that the sequence of steps at [218] to [222] were undertaken with deliberate dishonesty or reckless indifference. This is a very serious contention. Of course, serious conduct does occur. However, allegations of this kind must be properly pleaded so as to identify every material fact relied upon, and to the extent that documents are called in aid of the various propositions of material fact, the documents need to be identified and their relevance to the matter asserted properly.
226 The matters described at [218] to [222] of these reasons are said to engage something put or said by someone, an officer or officers of the Commissioner (amounting to a matter of "insistence"), to the applicants on 12 April 2011. The relevant officer or officers are said to have "continued to refuse to reveal the basis of the calculation said to show the gross margin contended for by the Commissioner leading to the Commissioner's conclusion about understated income". The combination of 31, 49 and 50 is that the Interim Report issued to the third applicant on 23 May 2011, and the requirement of the Commissioner that the applicants provide a response by 31 May 2011 (less than seven business days later), ignoring the Commissioner's "usual practice" of providing a "position paper" to the taxpayer, is said to be the expression of unreasonableness, a lack of procedural fairness and a lack of natural justice undertaken with the pleaded mental element.
227 Again, the difficulty with 50 as an explanation of the contention at 49 is that both paragraphs represent a series of contentions or contentions integrated with some assertions of fact. In effect, the applicants, by these two paragraphs, are simply making assertions without properly identifying the material facts which give rise to the conclusions asserted. What is required of an allegation of this character is the pleading of all the material facts (which for the sake of a pleading question as currently in issue here, will be assumed to be true for the purposes of the pleading), which, if made good, would lead to a conclusion, either as a matter of primary fact, or as a finding based on inferences supported by findings of primary fact, that a person did things (that is to say, appropriately pleaded things) which resulted in, or at least contributed to, the exercise of the power to issue an "assessment" (in this case Amended Assessments which are treated as an assessment; and the same matters of principle apply to the exercise of the power to apply administrative penalties), as the expression of conscious maladministration, that is, the expression of a deliberate failure to apply the tax law of the Commonwealth according to its terms.
228 That case must be pleaded by reference to the sequence of material factual matters which, if established, give rise to a conclusion, as a matter of pleading, of the contention the applicants are trying to make.
229 At 51, the applicants plead that the Commissioner "made false allegations against the Applicants in the IR decisions and in the Prosecution Referral Templates ('PRTs')". This paragraph is supported by six subparagraphs which address the following matters.
230 First, the applicants plead that on 24 May 2011, the Commissioner "escalated the matter" to "Prosecutions" by completing PRTs for each of the applicants before interim reports were issued to Mr and Mrs Lyons; before a response was due from the third applicant to the interim report issued to it; before the completion of the audit; and before the Amended Assessments and Penalty Notices were issued to the applicants.
231 Second, the applicants plead that the interim report decisions and the "PRTs" contained "false allegations" against the applicants including, but not limited to allegations that a "voluntary disclosure" was "not made" by the applicants and that the applicants had made "false and misleading statements to him [the Commissioner's officers]".
232 Third, the applicants plead that the Commissioner "knew that the allegations he made against the Applicants were false".
233 Fourth, the applicants plead that the Commissioner "imposed severe penalties on the Applicants for failing to make a voluntary disclosure and making false and misleading statements to him".
234 Fifth, the applicants plead that the documents obtained by the applicants from the Commissioner in response to an FOI request, "reveal that the Respondent, at the audit stage, acknowledged that a voluntary disclosure was made to him by the Applicants and stated that: 'Mr Lyons has been very cooperative and has supplied answers to all our questions'".
235 Sixth, the applicants plead that the Commissioner acted in contravention of ATO policies and procedures. The particulars of that matter are these. First, the PRTs contained "other false allegations against the Applicants of failing to keep records, failing to report cash sales, incorrect use of till registers, making false statements, poor record keeping, lack of source documents, inability or unwillingness to explain accounts and report cash sales, evading statements of facts when presented with the Respondent's findings, and that personal income tax lodgements had not been made since 2003". Second, the applicants plead that copies of "FOI documents" and the relevant "audit processes" will be produced at the trial of the proceeding.
236 At 51 and the subordinate paragraphs, as noted, allegations are made of false and misleading statements and the making of false allegations by the Commissioner. These paragraphs suffer the same difficulty as that described at [223] to [228] of these reasons.
237 At 52, the applicants plead that the respondent "closed the audit on 7 June 2011, denying the third applicant an extension of time to provide a response to the [Interim Report]" and "knowing that [Interim Reports] had not been issued to [Mr and Mrs Lyons]", in respect of their affairs. Again, this assertion is said to be the expression of steps taken by an officer or officers of the Commissioner as steps along the way to the decision to issue the Amended Assessments and Penalties in circumstances where the steps are the expression of "reckless indifference and/or deliberate dishonesty" in the denial of procedural fairness, natural justice and reasonableness to the applicants. The pleading at 49 and 52 is supported by seven subordinate paragraphs. They address these matters.
238 First, the applicants plead that on 26 May 2011, the Commissioner refused a request for an extension of time by Mr Lyons, the Commissioner knowing that "he had yet to issue the IRs to the first and second applicants".
239 Second, the applicants plead that on 7 June 2011, the Commissioner dismissed the request of the applicants' "Expert Tax Adviser" to be provided with the Commissioner's gross margin percentage calculation and "stated that the audit was 'closed' before issuing the IRs to [Mr and Mrs Lyons]".
240 Third, the applicants plead that on 7 June 2011, the Commissioner closed the audit by issuing a "Completion of Audit Report" to the third applicant "knowing that the final decision for the Third Applicant would impact on [Mr and Mrs Lyons]".
241 Fourth, the applicants plead that documents obtained by them in response to an FOI request of the Commissioner "reveal" that the Commissioner's "Audit Approving Officer, Ms Lynda Vietheer, made a decision to approve the issuing of the Incorrect Amended Assessments and Penalties against [Mr and Mrs Lyons] before their IR response was due".
242 Fifth, the applicants plead that Ms Vietheer "approved the use of the illegitimate gross margin percentage without reviewing its accuracy and reliability". This matter, although not pleaded in this way, might be a matter said to arise out of an examination of the documents referred to at [241].
243 Sixth, the applicants plead that on 9 June 2011, the Commissioner referred matters related to Mr and Mrs Lyons "to Debt Strategy Recovery before their IRs and Incorrect Amended Assessments and Penalties were issued".
244 Seventh, the applicants plead that the Commissioner acted (presumably in undertaking each of the steps pleaded as discussed at [238] to [243]) "in contravention of ATO policies and procedures" (to be produced in evidence in the principal proceeding).
245 The sequence of matters pleaded at 52 and the subordinate paragraphs provides a little more detail than the earlier paragraphs. For example, the applicants, for the first time, identify an officer who took a step. That officer is, by the pleading, said to have taken the pleaded step with the relevant pleaded mental element. Again, the documents relied upon by the applicants of the Commissioner, said to have been produced as a result of an FOI request, need to be identified and the material content relied upon, pleaded. At 52 and the subordinate paragraphs, the applicants make assertions mixed with some fact. The sequence of material facts need to be pleaded with precision such that the pleaded facts relevant to the matters, the subject of 52 and the subordinate paragraphs, lead to a conclusion, if made good, of findings of primary fact or inferences drawn from primary fact, that an officer or officers of the Commissioner, took pleaded steps bearing the character described at 49 with the mental element pleaded, said to constitute the element of "conscious maladministration" leading to the issuing of the Amended Assessments and Penalties.
246 At 53, the applicants plead that the Commissioner "failed to consider any of the information provided by the Applicants in their IR response, dated 21 June 2011, before the decisions to issue the Incorrect Amended Assessments and Penalties were made". Again, that failure is said to be the expression of reckless indifference and/or deliberate dishonesty. At 53, the applicants also plead that their "Expert Tax Adviser … contacted the Respondent but he was immediately dismissed and told that the IR Response would not be considered and the 'case is now closed'". The applicants plead that in giving that response, the Commissioner acted in contravention of ATO policies and procedures. As to that last matter, the applicants give these particulars. First, the ATO's audit processes provide: "We will give you an opportunity to comment and we will consider your comments before making our final decision, including request for an independent review". Second, FOI documents obtained by the applicants "confirmed" that the Commissioner did not consider the applicants' IR response dated 21 June 2011. Third, copies of contemporaneous notes made by the applicants' Expert Tax Adviser "of all conversations with the Respondent's auditor will be provided in evidence". Fourth, copies of ATO processes contained on the ATO website will be provided in evidence.
247 Again, the pleading at 53 is inadequate. A sequence of material facts (no doubt carefully identifying the relevant chronology, steps in the chronology and material documents relevant to the chronology) need to be pleaded. If the proposition is that the Commissioner (by an officer) had an obligation under the tax law of the Commonwealth (for example, as a matter of the exercise of the Commissioner's administration of the tax law in the conduct of an audit), to consider the IR response of the applicants dated 21 June 2011 and the Commissioner failed to consider the document as a matter of a deliberate failure to discharge the obligation thus arising, all the material facts said to give rise to the obligation and the mental element informing the conduct need to be pleaded. If there are material documents which are said to "reveal" things or said to "confirm" things, the underlying things need to be pleaded.
248 At 54, the applicants plead that the Commissioner made "false statements" that the applicants had "not lodged tax returns since 2003". The applicants plead that before the commencement of the audit, the applicant had furnished their returns up to and including the 2005 financial year.
249 Again, the pleading is that an officer of the Commissioner made "false statements" as a step along the way to the issue of the Amended Assessments and Penalties with "reckless indifference" and/or "deliberate dishonesty". It may be that an officer of the Commissioner made a statement somewhere, or in a document, to the effect that the applicants had not lodged tax returns since 2003 which is capable of being shown to be incorrect because, objectively viewed, the applicants had lodged tax returns up to and including the 2005 financial year. The pleading needs to demonstrate not that an incorrect statement or false statement was made but that, in the conduct of the audit, in the exercise of powers, an officer of the Commissioner made a false statement as a matter of "deliberate dishonesty" which bears a relationship with the issuing of the Amended Assessments. No facts are pleaded which support the pleading at 54 taken in conjunction with 49.
250 At 55, the applicants plead that the Commissioner "did not comprehend the Applicant's record keeping methodology and failed to carry out basic reconciliations". Again, this simply amounts to a contention and is not supported by any pleading of any fact, let alone material fact. Moreover, the matters of material fact need to make good the proposition that whatever 55 means, it was something done with the relevant mental element pleaded at 49.
251 At 56, the applicants plead that the Commissioner "astonishingly intimidated and bullied the Applicants, who were in their 60's, over the course of the audit". This matter, which is not supported by any pleading of material fact, is said to be supported by three particulars. First, the applicants plead that the Commissioner's auditor made "bullying remarks" to Mr and Mrs Lyons throughout the audit process by making statements to the effect of a statement which is specifically pleaded. Second, the applicants plead that in response to their having expressed "deep shock" at the suggestion of the Commissioner's auditor that they had understated income by $2.4 million, the Commissioner's auditor threatened them with words to the effect as set out at 56(ii). Third, the applicants plead that the Commissioner's auditor also threatened them to the effect that they would need to sell their house; that he would be recommending prosecution against them; and that penalties of 200% would be imposed.
252 It may be, having regard to the standards of conduct governing the behaviour of officers of the Commissioner, taken in conjunction with the Taxpayers' Charter, the Code of Conduct and statutory obligations arising under the PSA at the relevant time, that it goes without saying that in the conduct of an audit, an officer of the Commissioner cannot engage in conduct characterised as "intimidating" or "bullying". Whether conduct bears that character requires a factual examination of the conduct and context. However, let it be assumed for present purposes that the matters pleaded at 56(i), 56(ii) and 56(iii) fall into that category (and I note that at the hearing of the applications counsel for the Commissioner observed that these allegations are strongly contested). Let it also be assumed that an officer of the Commissioner charged with the important responsibility of conducting an audit is taken to know and understand the elements of the Code of Conduct and the elements of the Taxpayers' Charter. It would follow, as a matter of inference, that if such a person engaged in the pleaded conduct (if made good and found to bear the characterisation pleaded), that such a person would do so in circumstances where they "deliberately" did so, and thus deliberately failed to comply with obligations sufficiently related to obligations of the Commissioner (as part of the exercise of the power of administration of the Act) and thus obligations arising in the exercise of the tax law of the Commonwealth leading to the issue of the Amended Assessments.
253 However, the pleading at 56 remains inadequate. The pleading is expressed in terms of conduct which "astonished" the applicants. The applicants need to plead that on a certain date, at a particular place, a particular officer said something (the pleading refers to remarks to Mr and Mrs Lyons). A particular sentence is pleaded (and I have not reproduced the pleaded sentences in these reasons as these matters are contested). However, that sentence ought to be put in the context of whatever was occurring which gave rise to the pleaded remark. Similarly, the events at 56(ii) need to be pleaded as matters of material fact in the same way as already mentioned in respect of 56(i). The matters at 56(iii) need to be pleaded properly.
254 At 57, the applicants plead that the Commissioner "sacrificed natural justice and procedural fairness" to finalise "his decisions before the Respondent's auditor went on Long Service Leave". The applicants plead that the respondent's auditor commenced long service leave on 24 June 2011 (until 3 October 2011), two days after the applicants submitted their response to the Interim Report.
255 Again, the pleading is inadequate. If what is being said is that the Commissioner's auditor was under an obligation (however arising, whether under guidelines, policies and procedures or other instruments) to do something and rather than do that thing, the auditor took a step reflecting a deliberate failure to comply with the obligation so arising, as the expression of the pleaded mental element of acting out of "reckless indifference and/or deliberate dishonesty", all of the material facts to support the pleading arising out of 49, taken together with 57, need to be pleaded. It seems to be suggested that there was a denial of an obligation and an inference can be drawn that a step was taken by the Commissioner's auditor motivated by a desire to deny compliance with the obligation because compliance with the obligation would get in the way of the Commissioner's auditor commencing long service leave on 24 June 2011.
256 The pleading as it stands is inadequate.
257 At 58, the applicants plead that the Commissioner "deliberately failed to consider the relevant circumstances of the Applicants". Eight relevant circumstances which the Commissioner deliberately failed to consider are identified. Taken with 49, the proposition must be that the Commissioner deliberately failed to consider the identified matters in reaching the decision to issue the Amended Assessments and the Penalty Notices. The eight relevant circumstances are directed to the trading circumstances of the restaurant and might be thought to go to the question of the revenue, costs and net profit of the restaurant undertaking and the question of the gross margin contended for by the Commissioner and whether or not understated taxable income was derived in the course of the restaurant business. The Commissioner is said to have deliberately failed to consider the eight relevant circumstances, but the failure is not limited to eight circumstances and there may be others. The eight circumstances are these: the larger portion sizes provided to customers to compete and retain customers; the higher food wastage as a result of the type of food (seafood); the inability to achieve a reasonable profit margin on all seafood, especially shellfish; the highly competitive price environment in which the applicants operated; the poor economic climate with less people dining out; the circumstance that more than 20 adjunct restaurants in the building and adjoining premises had gone out of business during the periods under review; the location of the restaurant did not expose it to local foot traffic; and the necessity to offer half-price menu items for lunch and dinner to maintain viability.
258 As particulars of this matter, the applicants say documents obtained by them from the Commissioner in response to FOI requests "reveal" that the Commissioner was "aware of the relevant circumstances of the Applicants but deliberately failed to consider those circumstances in his decisions to issue the Incorrect Amended Assessments and Penalties".
259 Again, material facts need to be pleaded which lead to a conclusion that an officer of the Commissioner, as a matter of conscious and deliberate failure to discharge an obligation, elected to refuse to consider matters relevant to the question of whether the third respondent had derived taxable income and net earnings not disclosed by the applicants. All of the material facts which support that conclusion need to be pleaded and if documents are called in aid which are said to establish the fact that the relevant circumstances were not considered and that an officer of the Commissioner deliberately chose not to consider the relevant matters, the precise content and sequence of those things needs to be pleaded properly. Moreover, the matters at 58 are said to be the expression of "reckless indifference and/or deliberate dishonesty". The reference at 58 in the "Particulars" to "deliberate failure" might be thought to take up the notion at 49. However, a question of deliberate failure and questions of "deliberate dishonesty" and "reckless indifference", are not matters of particulars but are fundamental matters of material fact. All of the facts material to the conclusion need to be identified.
260 At 59, the applicants plead that the Commissioner instituted garnishee notices and debt recovery action against them and their associates "without regard to their financial positions and [without] consideration of any concurrent appeal and objection processes". Five subordinate matters are relied upon to support that pleading. Again, the matters at 59 are the expression of the pleaded mental element at 49 and thus these steps are said to have been taken as a matter of "deliberate dishonesty and/or reckless indifference".
261 First, the applicants plead that on 24 June 2011, the Commissioner issued garnishee notices to St. George Bank in respect of the third applicant's tax liability.
262 Second, the applicants plead that on 27 June 2011, the Commissioner issued garnishee notices against Mr and Mrs Lyons to "IAG" in respect of the personal tax liability of Mr Lyons and to the Bank of Queensland in respect of the personal tax liability of Mrs Lyons.
263 Third, the applicants plead that as a result of the garnishee notices, the Bank of Queensland Bank Manager advising the applicants, told them that the Bank would no longer offer any further financial support through further borrowings and that if there were any defaults, the Bank of Queensland might call in loans made to the applicants.
264 Fourth, the applicants plead that on 25 July 2011, the Commissioner issued a creditor's statutory demand against D & S Lyons Holdings Pty Ltd (an associate company of the applicants).
265 Fifth, the applicants plead that the Commissioner acted in contravention of ATO policies and procedures and, in particular, PSLA 2011/18 when issuing garnishee notices against the applicants. The applicants say that copies of the garnishee notices and debt recovery demands and PSLA 2011/18 will be relied upon in the proceeding.
266 No challenge is made to 59 of the pleading.
267 At 60, the applicants plead that the Commissioner "knew, or ought to have known", that a determination was made on 5 August 2011 by the third applicant that Mr and Mrs Lyons had disclaimed any present entitlement to income pursuant to clause 3.2 of the Lyons Discretionary Trust Deed. The applicants plead that despite this contended state of knowledge, or knowledge the Commissioner ought to have known, the Commissioner "continued to deem [Mr and Mrs Lyons] to be presently entitled to a share of the net income of the Related Trust". Four matters are relied upon to support this pleading.
268 First, the applicants plead that on 5 August 2011, a Deed of Disclaimer for each of Mr and Mrs Lyons was prepared as a Deed Poll to operate "ab initio i.e. from the date of the establishment of the Trust Deed".
269 Second, the applicants plead that on 5 August 2011, a determination was made by the third applicant that Mr and Mrs Lyons had disclaimed any present entitlement to net income.
270 Third, the applicants plead that the effect of the Deeds of Disclaimer was that Mr and Mrs Lyons had disclaimed any interest they had (or had ever had) under the default distribution clause and were never presently entitled to any share of the net income of the Trust.
271 Fourth, the applicants plead that on or before 10 August 2011, the Commissioner was notified and provided with a copy of the Deeds of Disclaimer for each applicant and the third applicant's determination. The applicants plead that the Commissioner did not provide a response to, or act on, "this information".
272 No challenge is made by the Commissioner to 60.
273 At 61, the applicants plead the lodging of objections to the Amended Assessments and Penalty Notices on 9 August 2011 and 19 September 2011 respectively.
274 At 62, the applicants plead that as early as 27 September 2011, the Commissioner's Objection Officer advised the debt area that the objections of the applicants would likely be allowed in full. Recovery action was temporarily suspended against the applicants.
275 At 63, the applicants plead that having regard to the temporary suspension of recovery action, they removed their principal place of residence at Paradise Point from sale (whether by private sale or auction).
276 At 64, the applicants plead that a number of different objection officers were assigned to the role of deciding the objections made by the applicants and decisions on the objections took a protracted period of time to be made.
277 At 65, the applicants plead that during January 2012, Mr Lyons received a series of threatening phone calls from the Commissioner's "Recovery Officer", Ms Sandra Oo. The applicants plead that Ms Oo told Mr Lyons that a summons would be filed commencing court action against the applicants to recover the full amount payable to the Commissioner "irrespective of the ongoing Objection process".
278 At 66, the applicants plead that they were "shocked" by Ms Oo's statement.
279 At 66, the applicants plead that the Commissioner refused to enter into a payment deferral arrangement pending the objection decisions being made.
280 At 67, the applicants plead that Mr and Mrs Lyons "were forced" to place their Paradise Point property and the third applicant's property at Burleigh Waters, on the market for sale. Three matters are pleaded as the reasons for those steps.
281 First, the applicants plead the "Respondent's intimidation, threats and demands (particularly the Recovery Officer's threatening phone calls)".
282 Second, the applicants plead the increasing pressure to meet living expenses and find funds for legal and accounting and other expert assistance in contesting the Commissioner's assessments.
283 Third, the applicants plead the Bank of Queensland's refusal to extend any further finance to the applicants "caused directly by the garnishee notices issued by the Respondent".
284 At 68, the applicants plead that on 4 March 2012 they placed their properties on the market for sale.
285 At 69 to 78, the applicants plead a sequence of steps in relation to the sale and disposal of the properties, the sale price and related matters. One of those matters at 71 is a pleading that the applicants, "under duress" from the Commissioner's "intense pressure", were compelled to accept a bid for the Paradise Point property at $1.675 million, significantly below market price.
286 The Commissioner objects to the matters pleaded at 65 to 67 and 71. If the matters at 65 to 67 and 71 are said to be material facts which support a claim under s 39B(1) for the relief claimed in the principal proceeding, it would be necessary for the applicants to plead facts which demonstrate that the pleaded steps involve a deliberate failure to apply the tax law of the Commonwealth relating to recovery according to their terms. The steps taken by Ms Oo to issue a summons or take steps to prepare to issue a summons or give notice to Mr and Mrs Lyons that a summons was to be issued would need to be the subject of a pleading which demonstrates material facts making good a claim that the Commissioner, by Ms Oo, deliberately failed to apply the tax law of the Commonwealth according to its terms. At 71, the applicants plead a step taken by them due to "intense pressure" from the Commissioner. Again, if this matter of intense pressure to do something is said to be a matter which engages a claim that an officer of the Commissioner did something which constitutes a deliberate failure to apply the tax law of the Commonwealth according to its terms and thus conscious maladministration of the tax law, all of the material facts need to be pleaded.
287 At 79, the applicants plead that on 22 January 2013, the Commissioner finalised objection decisions for the Trust.
288 At 80, the applicants plead that in relation to the Amended Assessments and Penalties issued to the third applicant, the Commissioner admitted (presumably in the objection decision relating to the third applicant) that "the Related Trust 'did not earn' any net income and that there was 'error' and 'deficiencies' in the gross margin percentage calculation". The applicants plead a statement of the Commissioner (again, presumably drawn from the objection decision concerning the third applicant) in these terms: "The use of an overstated cost of sales figure would have compounded any error caused by deficiencies in the gross profit percentage calculation".
289 At 81, the applicants plead that the Commissioner also "verified the reporting methodology used by the Applicants in their business, specifically, confirming that the use of the Excel spreadsheets to record their sales figures was a reliable and accurate mechanism". They plead a statement of the Commissioner in these terms: "The Respondent tested a sample, for the period 28 February 2011 to 28 June 2011, from the 2011 sales spreadsheet to the Z tapes and found those records to be accurate".
290 At 82 to 84, the applicants plead the objection decisions relating to Mr and Mrs Lyons and the consequence that the Amended Assessments and Penalties were allowed in full, reducing their combined tax liabilities from $715,806.44 to nil.
291 The Commissioner objects to the matters pleaded at 80 and 81. The ground of objection is that the paragraphs are simply a matter of evidence and that they refer to quotes from an unidentified document. It seems clear enough that the quoted statements seem to come from the objection decision of the Commissioner concerning the third applicant. If the statements are material to relief claimed or even if they are contextual, the Commissioner rightly says that the source of the statement should be pleaded and the document identified in a precise way.
292 At 89, the applicants plead that, in relation to the topic of the Part IVC proceedings and other matters, that it "appeared to [them]" that the Commissioner was "unjustifiably pursuing this small issue to avoid embarrassment and reputational risk associated with the incorrect position he has taken in relation to the alleged understatements of income". This paragraph suffers from the difficulty that the appearance or thinking or views of the applicants, as stated at 89, are ultimately neither here nor there. The question is whether the Amended Assessments and Penalty Notices do not meet the statutory description because of reasons of conscious maladministration.
293 At 91, the applicants plead that "by that stage" (that is, 28 October 2013 being the date on which Part IVC proceedings were terminated), the applicants "felt exhausted, completely demoralised by the conduct of the Respondent against them and had no more finances to pursue the matter". Although these matters may reflect the position of the applicants as at 28 October 2013 and their view of the Commissioner's conduct, these matters as pleaded are not material facts going to a ground of relief under s 39B(1) referable to conscious maladministration in the issuing of the Amended Assessments and Penalty Notices.
294 From 93, the applicants address matters in relation to the CDDA claim.
295 At 98, the applicants plead that at a meeting (on 17 June 2016), the Commissioner admitted that the applicants suffered loss as a result of defective administration. The particulars of that matter do not expose the foundation facts about which the admission is said to have been made. The pleading at 98 uses the term "defective administration" in a conclusionary sense. The pleading ought to set up the material facts relating to the CDDA claim as earlier described and ought to plead the material facts which give rise to a conclusion that the Statutory Agency in the form of the Commissioner engaged in conduct which meets the description "defective administration". The pleading might then logically plead, as a conclusion, that the applicants suffered loss directly caused by conduct constituting defective administration. It might be relevant to plead a formal admission made to that set of circumstances if the admission is responsive to that set of circumstances.
296 At 101, the applicants plead the decision of Ms Ferry of 31 August 2018.
297 At 102, 103 and 104, the applicants plead that the Commissioner did things "in excess of legislative powers" under the 36 Act, the 97 Act and the Administration Act "with reckless indifference and/or deliberate dishonesty". At 102, the act is treating Mr and Mrs Lyons as presently entitled to net income of the Trust when the Commissioner "knew, or ought to have known" that net income was never earned by the Trust during the periods under review.
298 At 103, the same formulation and language is employed but the act is one of attributing a GST shortfall to the third applicant on net income of the Trust that the Commissioner knew, or ought to have known, was never earned during the periods under review.
299 At 104, the same language is employed but the act is one of imposing administrative penalties on the applicants on amounts the Commissioner knew, or ought to have known, were never earned during the periods under review.
300 The pleading at 102, 103 and 104 might be intended to be conclusionary of earlier matters in the pleading. If that is so, these paragraphs fail for the reasons that earlier paragraphs fail. If they are intended to be conclusions arising out of other matters, they are not cross-referenced to earlier parts of the pleading and, in any event, the cross-referenced paragraphs would need to be sustainable to support these paragraphs. If they are intended to be assertions that stand on their own feet, they rise no higher than contentions unsupported by the relevant facts.
301 At 105, the applicants plead that the Commissioner admitted, in his objection decisions, that the related Trust did not earn any net income for the purposes of the 36 Act during the period under review and that the applicants ought not to have been deemed to be presently entitled under s 97 of the 36 Act to net income of the Trust (which, in any event, was never earned). Particulars of the admission are given. The objection decisions may contain the statements set out in the particulars. However, in a pleading, the document should be identified properly and the relevant paragraphs or sentences relied upon ought to be quoted in the proper way and referenced correctly. Again, 105 pleads an admission. However, the foundation facts ought to be identified to which the admission is said to be responsive and the relevant matters as pleaded need to bear relation to a remedy as sought under s 39B(1).
302 At 106, the applicants plead that, at the objection stage, the Commissioner did not rely on any new information or require the provision of any new information for the purpose of "overturning his original decisions". The applicants plead that all information was already available to the Commissioner, at the audit stage, "but he deliberately failed to rely on it". The applicants plead that "the Respondent, in effect, accepted that he had failed to make a proper determination of income on which he could raise a valid assessment". This paragraph pleads a "deliberate failure" and pleads an "effect". Neither of those matters are able to be pleaded in that way. The foundation facts making good a contention of a deliberate failure to do something need to be pleaded and the specific matter said to have been accepted by the Commissioner ought to be identified.
303 At 107, the applicants plead that the Commissioner cannot take any one of four steps under the relevant legislation "on amounts that he knew, or ought to have known, were incorrectly calculated using non-existent facts". This pleading might be thought to be a conclusion arising out of earlier paragraphs in the pleading. It is not expressed that way. In any event, if it is intended to operate in that way, it can rise no higher than earlier paragraphs of the pleading, properly pleaded. The pleading at 107 says that the Commissioner cannot issue amended assessments, or deem a beneficiary to be presently entitled or raise amended BAS assessments or impose penalties on amounts that he knew, or ought to have known, were incorrectly calculated using non-existent facts. If this pleading is intended to contend that those steps engage conscious maladministration because officers of the Commissioner deliberately failed to discharge or perform an obligation arising under a tax law of the Commonwealth, material facts to support that matter need to be pleaded. As it stands, 107 is simply a contention.
304 At 108, the applicants plead that the Commissioner was not authorised under the 36 Act, the 97 Act or the Administration Act "to make such decisions as he did not have [a] proper basis to do so and by doing so deliberately disregarded the proper scope of those powers". Paragraph 108 is a conclusion and it can rise no higher than the foundation facts pleaded to support it.
305 At 109, the applicants plead that the Commissioner cannot be protected under s 175 of the 36 Act "because he deliberately failed to comply with the provisions of the [36 Act, 97 Act and the Administration Act].
306 Again, 109 is conclusionary and rises no higher than the material facts pleaded to support it.
307 At 119, the applicants plead matters relating to the topic of "Challenge to validity of CDDA Decision under section 39B of the Judiciary Act 1903". That matter is addressed at 119 to 135.
308 At 122, the applicants plead that the Commissioner "with reckless indifference and/or deliberate dishonesty, distorted the facts and evidence, in his CDDA Decision, found by the Respondent to be incorrect in his Objection Decisions". They plead that it was "neither 'open' nor 'reasonable' for the Respondent to engage in the process of reasoning he did".
309 At 123, the applicants plead that the "CDDA Decision" is contradictory, illogical and irrational.
310 At 124, the applicants plead that the Commissioner "in his adverse CDDA Decision, was recklessly indifferent and/or deliberately dishonest when he distorted all the facts and evidence to deny defective administration had ever occurred, as set out in [particular paragraphs]".
311 At 125, 126, 127, 128, 129, 130, 131, 132, 133 and 134, the applicants plead that the Commissioner made false statements about particular matters.
312 At 135, the applicants plead that the Commissioner denied them procedural fairness during the course of the decision-making process for the CDDA claim.
313 At 144 to 150, the applicants assert a claim to the relief set out in the originating application.
314 The difficulty with all of these paragraphs is that they rely upon matters which are said to demonstrate an excess or want of authority on the part of the decision-maker. To the extent that some of the paragraphs rely upon statements which are "false", a question arises about whether the decision-maker has fallen into error about particular matters and whether that error takes the decision-maker beyond the scope of the authority to decide the question before the decision-maker. Is the error an error within jurisdiction or an error going to jurisdiction? If the error goes to jurisdiction because the decision-maker acted "with reckless indifference and/or deliberate dishonesty", that matter would need to be pleaded by reference to all of the material facts which would lead to such a conclusion.
315 If errors (the contended various false matters) occurred which go to an excess or want of jurisdiction, the applicants would need to identify the precise foundation for the authority to decide matters under the CDDA Scheme and the basis upon which decisions under that Scheme are susceptible of a remedy under s 39B(1) of the Judiciary Act. If the Scheme operates under an Act or is relevantly engaged by an Act conferring a source of authority, it must be identified. If the Scheme rests on an exercise of the Executive Power of the Commonwealth, the applicants will need to plead facts which demonstrate that the Executive Power of the Commonwealth, so far as the CDDA Scheme is concerned, is to be exercised within particular limits or bounds and the decision-maker has exceeded those limits so as to engage the constitutional writs and thus the original jurisdiction of this Court under s 39B(1).
316 The pleading does not do that.
317 Throughout these reasons in discussing the challenge to the amended statement of claim, I have indicated my view about the various paragraphs. Those paragraphs are to be struck out. The more coherent resolution of the application is to strike out the amended statement of claim in its entirety with leave being given to the applicants to file a further amended pleading which seeks to address the criticisms of the current pleading reflected in these reasons.
318 Having regard to the current circumstances in relation to COVID-19, a little more time than usual will be afforded to the applicants to file and serve a further amended pleading. The further amended pleading is to be filed within six weeks.
319 The costs will be reserved.
320 The question of the interlocutory application by the applicants will be adjourned generally.
321 No procedural directions will be made. For present purposes, it is sufficient to order that the amended statement of claim filed on 20 June 2019 is dismissed with leave being given to the applicants to file a further amended statement of claim within six weeks of the orders.
I certify that the preceding three hundred and twenty-one (321) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.