Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand

Judgment 1By its summons, the applicant, Atlantis Holdings Pty Limited ("Atlantis"), seeks judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) ("the Act"). The Commissioner of Taxation ("the Commissioner") was served with a copy of the summons and the Commissioner challenges the appropriateness of the application for reasons I shall describe. 2Atlantis has filed a Statement of Facts ("SOF") and I draw from that document much of the facts set out below. 3Atlantis is the trustee of the Bruce James Lyon Family Trust ("the Trust"). The Trust was created by a Deed of Settlement on 14 June 1983 between Keobach Pty Limited as settlor and Atlantis as trustee ("Trust Deed"). A copy of the Trust Deed is contained in Exhibit A, Tab 1. 4There are many beneficiaries, some are specifically named in the Trust as individuals and some fall into categories identified, for example, as: "(xvii) The trustees of the Order of the Sisters of the Good Samaritan; (xviii) The trustees or parish priest of any parish of the Roman Catholic Church in Australia; ... (xx) Such persons or companies whether beneficially or in their capacity as trustee of any trust and subject to such conditions, if any, as the person having the power to appoint and remove trustees may by notice given either orally or in writing to the trustee from time to time appoint". 5Distribution of income is dealt with in clause 2 of the Trust Deed and clause 3 contains a default provision in the following terms: "In default of any determination having been made by the trustee as to the payment, application, accumulation or distribution of the whole or any part of the income of the trust fund (hereinafter called "undistributed income") for any financial year prior to midnight on 28 June of that year the trustee shall hold the undistributed income upon trust for the beneficiaries who shall then be living in equal shares." (emphasis added) 6The significant asset of the Trust consisted of all the units in the Glenhaven Road Unit Trust ("the Glenhaven Trust"). The Glenhaven Trust owned land in Glenhaven and the land was sold on 5 September 2003 for $7,500,000. On 13 February 2008 the unit-holders of the Glenhaven Trust resolved to wind up that trust and the capital profit reserves were distributed. Atlantis received on 12 August 2008 a distribution of $6,930,238, and the return of its $100 paid for the units. 7Atlantis earnt income of almost $200,000 in the 2007 income tax year and slightly less in the 2008 income tax year. 8The Australian Taxation Office ("ATO") conducted an audit of Mr Lyon, one of the beneficiaries of the Trust, and it concluded that the Trust had made a capital gain and earnt income, that no beneficiary was presently entitled to either the capital gain or ordinary income, and that Atlantis as trustee was liable to tax on assessable income, including the capital gain derived from the Glenhaven units. 9Atlantis disputes that it is liable for tax for reasons I will explain shortly, but subsequently the Commissioner issued notices of assessment to Atlantis which Atlantis has not paid. Atlantis lodged an objection, pursuant to s 175A of the Income Tax Assessment Act 1936 (Cth) ("ITAA"), in respect of each of the 2007 and 2008 assessments and the Commissioner has not yet determined whether or not to allow the objections. In the event that the objections are not dealt with within 60 days, the objections are deemed to be disallowed under s 14ZYA(3) of the Taxation Administration Act 1953 (Cth) ("TAA"). The fact that there is a review of the Commissioner's decision in the Administrative Review Tribunal or an appeal to the Federal Court pursuant to Part IVC of the TAA ("Part IVC proceedings") does not effect a stay of the assessments or prevent recovery proceedings being taken by the Commissioner: see ss 14ZZM and 14ZZR of the TAA . 10All of the individual beneficiaries who are members of the Lyon family were informed by Atlantis of their possible entitlement to a share of income of the Trust for each of the 2007 and 2008 income tax years. The trustee received letters from each of the family beneficiaries disclaiming his or her entitlement to any income of the Trust to which he or she might be entitled: see Exhibit A, Tab 16. 11There was correspondence between Atlantis' solicitors and the ATO by which Atlantis sought to persuade the ATO that tax was not payable by it: see Exhibit A, Tab 6. 12The principal area of contention between Atlantis and the ATO relates to the words "who shall then be living" in clause 3, set out above at paragraph 5. Atlantis claims that beneficiaries who are corporations or charitable institutions or parish priests of any parish of the Roman Catholic Church in Australia are also beneficiaries who are entitled to distribution of income in addition to the individuals who have been specifically named. The Commissioner takes the view that only identified family beneficiaries are entitled to a distribution by virtue of the operation of the default clause. 13A second identified issue is that not all of the family beneficiaries who have disclaimed have reached the age of 18 years of age. 14Another issue is that a portion of the assessment includes an amount for penalty. If the taxpayer is liable for tax, the imposition of a penalty and its amount are questions enlivening the exercise of a discretion by the Commissioner. 15The matters on which Atlantis seeks advice are listed in paragraph 92 of its SOF; as modified at the hearing on 9 February 2012, those matters are: "(a) Question 1: Whether the correct interpretation of the phrase "beneficiaries who shall then be living" in clause 3 of the Trust Deed includes the beneficiary named in clause 1(c)(xvii) of the Trust Deed; (b) Question 2: Whether the correct interpretation of the phrase "beneficiaries who shall then be living" in clause 3 of the Trust Deed includes the beneficiaries named in clause (1)(c)(xviii) of the Trust Deed; (c) Question 3: Whether the correct interpretation of the phrase "beneficiaries who shall then be living" in clause 3 of the Trust Deed includes the corporate beneficiaries nominated by the Trustee in about 23 October 2002 pursuant to clause (1)(c)(xx) of the Trust Deed; (d) Question 4: Whether disclaimers made by the minor beneficiaries of the Trust are effective to disclaim their respective entitlements to any income of the Trust to which they may be entitled as default beneficiary; (e) Question 5: Whether an effective disclaimer by a default beneficiary has the result that the non-disclaiming beneficiaries are deemed to have been entitled ab initio to the disclaimed part of the income of the Trust." 16Mr Richmond SC, together with Ms C Burnett, appears for Atlantis. Dr K Stern of counsel appears for the Commissioner. 17The matter came before Justice Ball on 6 February 2012 and his Honour suggested that the issue of whether judicial advice should be given be determined as a preliminary point. As I understand it the parties acceded to this approach and they have complied with a timetable for written submissions on this issue, which submissions I have found most helpful. 18Atlantis submits that: (1) The application for advice is made by it as a trustee; (2) The advice sought relates to that of interpretation of a trust deed; (3) The application involves issues that will impact on the distribution to be made to beneficiaries; (4) Question 4 involves an issue of concern to the trustee which stands alone from the "tax issues"; (5) By paragraph 30(d) of the Applicant's Written Outline of Submissions, it is asserted on behalf of Atlantis that: "Judicial advice from this Court on the questions the subject of the application is likely to lead to the resolution of the dispute with the Commissioner, without the need for Part IVC proceedings. The trust law issues are all that divides the Commissioner and the Trustee. The Australian Taxation Office has stated publicly that it takes alternative dispute resolution seriously (See, for example, "ATO law expertise: Evolution or revolution?" Speech by Jennie Granger, Second Commissioner of Taxation, to the 24 th Australasian Tax Teachers Association Conference 2012 on 17 January 2012, Section 3: "Alternative Dispute Resolution"), and it is to be expected that both the Trustee and the Commissioner will find the judicial advice highly persuasive in considering how they resolve the issues between them."; (6) The "advice" will be speedy and basically decided on limited materials. 19Dr Stern's submissions on behalf of the Commissioner involve a comprehensive assault on the applicant's approach, asserting that: (1) The matters on which Atlantis seeks advice are really the issues in the Part IVC proceedings, that is the objections, and the prospective appeal to the Federal Court from the disallowance of the objection or application for review before the Administrative Appeals Tribunal, should the objections be disallowed. Dr Stern invited a comparison of the SOF with the contents of the Notices of Objection (see Exhibit 3) and no issue was taken with her contention that each of the five matters on which advice is sought is found in the Notices of Objection. (2) By virtue of (1) it is not appropriate for this Court to provide advice on those matters. It is not the purpose of s 63 of the Act for advice to be given as to the result that should obtain on a contested hearing between a trustee and a beneficiary and a fortiori as against a third party. (3) Atlantis has not sought advice on what it should do - it has sought advice on questions of construction of the trust deed and a question of law (i.e. Question 4). It believes that answers favourable to it on Questions 1, 2, 3 and 5 will lead to acceptance by the Commissioner of its point of view. Question 4 is a corollary or consequence of the determination in respect of the other questions. (4) The Commissioner, although a person to whom notice has been given and hence bound in the terms of s 63(11) of the Act by the Court's advice, is not bound by any principle of res judicata or issue estoppel from not accepting this Court's conclusion if adverse to him. Mr Richmond conceded that this is so, and both he and Dr Stern agreed that the meaning of s 63(11) is that when advice is given that a trustee is entitled to take action that might otherwise be impugned as a breach of trust, that decision is binding, in the absence of an appeal. (5) The relevant legislation (TAA and ITAA) produces the result that: (1) The Notices of Assessment are effective and cannot be challenged in any court or tribunal other than by the processes set out in Part IVC of the TAA ; (2) The assessments can be acted on by the Commissioner even if there has been lodged an objection and even if Part IVC proceedings have been commenced. (6) By virtue of (4) and (5), there is no utility in this Court determining the answers to the questions posed since such advice as may be given is not binding on the Commissioner. I should note that Mr Richmond conceded that there is no utility in determining only Question 4, which relates to the ability of beneficiaries under a disability to disclaim and is of limited relevance to the dispute. 20Both parties called in aid Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 ("Macedonian Church"). Mr Richmond relied on that case in support of the proposition that no limitations on the jurisdictional basis for advice should be read into the section, and the fact that proceedings are on foot does not preclude a trustee from seeking advice. Dr Stern accepted that Macedonian Church establishes that no limitations are to be read into s 63 of the Act. She accepted that there is no jurisdictional impediment to an application for advice because taxation proceedings have been commenced. Rather she relies on Macedonian Church as explaining the intent and purpose of s 63: that it is "private advice" to the trustee the purpose of which is to give personal protection to the trustee. By virtue of s 63(2) a trustee who acts in accordance with the advice will not be held liable for breach of trust "in the event that in conventional proceedings it is later held that the legal position does not correspond with the advice given, so long as the proviso to s 63(2) is satisfied": see [65] per Gummow A-CJ, Kirby, Hayne and Heydon JJ; and at [74]: "A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings. But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding. The two steps are not to be elided. In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings. " (emphasis added) 21The High Court in Macedonian Church made it clear that a further aspect of protection of the trustee is that the availability of this protection promotes the interests of the trust because if the trustee does not step in and defend claims made out of a concern for a risk in respect of costs, there may be no contradictor to a third party's claims: see [71] - [73] per Gummow A-CJ, Kirby, Hayne and Heydon JJ. 22A trustee can seek judicial advice on the question of whether the trustee is justified in contesting the assessments (or not contesting the assessments), and the Court can consider whether the trustee is justified in so doing (or not doing), even if proceedings are on foot. The trustee, however, is not here seeking judicial advice as to what it should do, it is seeking a determination of key issues in its dispute with the Commissioner. That is not, in my view, a purpose within the purview of s 63 of the Act and I accept the submission of the Commissioner that it would be inappropriate to provide judicial advice on the matters on which advice is sought. 23In the light of this conclusion, it is not strictly necessary to consider the other matters which have been relied on by the Commissioner, but on the assumption, contrary to my view, that what is being sought is judicial advice within the meaning of s 63 of the Act, I do not think that the matter is suitable for the provision of advice for the following reasons: (1) It would be undesirable and inappropriate for this Court to express a view on the substantive issues that divide Atlantis and the Commissioner when the Commissioner is yet to determine the objections and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or to the Federal Court. The undesirability of such a situation was commented upon in Platypus Leasing Inc v Commissioner of Taxation (No 3) [2005] NSWSC 388; (2005) 189 FLR 441 ("Platypus Leasing"), in the context of a summons seeking declarations. Mr Richmond contended that Atlantis was not, by seeking judicial advice about the identified matters, seeking to avoid the consequences of the ITAA - the amount and the fact that the amounts were now due and payable were not in contest, rather what was in issue was the approach taken by the Commissioner in arriving at the Assessments. In Platypus Leasing , the Court rejected a similar argument advanced by the taxpayer, holding that no distinction is to be drawn between the amounts and particulars in the assessments and the ingredients going to make up the taxpayer's liability for the amounts assessed (see [77] - [78] per Gzell J) all of which are issues that are properly the province of Part IVC proceedings; see also the decision of the Court of Appeal rejecting the appeal: Platypus Leasing Inc & Ors v Commissioner of Taxation [2005] NSWCA 399; (2005) 61 ATR 239 at [1], [4], [5] and [10] per Handley JA, [12] per Tobias JA and [60], [62] and [64] per McClellan CJ at CL. (2) Judicial advice on the issues would not only not be binding on the Commissioner but would not be binding on Atlantis. (3) There is no utility whatsoever in the Court advising the trustee that a clause of the trust instrument means "x" or "y" when that question must necessarily be decided in the Part IVC proceedings. (4) Atlantis cannot realistically make any determination of what should be paid to beneficiaries until the taxation issues have been resolved or finalised - so the speed with which judicial advice could be provided is of no relevance. (5) The penalty issue would not be resolved by judicial advice. Conclusion 24It follows that the summons should be dismissed.