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[2002] FCAFC 271
respondent. The application for leave to appeal was refused, the appeal was dismissed as incompetent, and the applicant was ordered to pay the costs of the leave application and appeal, to be taxed if not...
The Full Court held that the tax determinations Meredith challenged were part of the process of assessing tax, even though amended assessments followed. They were therefore excluded from ADJR Act review. The amended notices of assessment also meant the determinations were treated as duly made in the s 39B proceeding as it had been framed. Since other tax-review avenues remained available, the primary judge’s dismissal was interlocutory, leave to appeal was required, and the Court refused leave and dismissed the appeal as incompetent.
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Meredith brought a representative proceeding for himself and a defined group of Satcom franchisees. The group consisted of franchisees who had agreed to share the costs of the proceeding with him, as described in the amended application: [5]. The dispute concerned income-tax deductions claimed in relation to Satcom electronic-commerce franchises and the Commissioner’s use of Part IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA).
The factual setting was the Satcom Electronic Commerce Services franchise, which marketed business-to-business electronic-commerce services to corporate and government organisations. Each franchisee was allocated a group of potential users and was responsible for marketing the service, either personally or through an accredited sales agent: [6]. Meredith said he applied for one franchise in 1997 and three more in 1998. His account included paying some franchise and administration fees in cash, borrowing the balance of the first year’s fees, appointing a sales agent and seeking subscriptions from prospective clients: [7].
On 3 July 2000, the Australian Taxation Office notified Meredith that it considered the deductions he had claimed were not deductible, including because the arrangement was said to have the dominant purpose of obtaining a tax benefit and Part IVA applied. The ATO said it proposed to amend his assessments: [8]. The record before the Full Court also described notices issued on or about 7 November 2000, headed “Determination made pursuant to s 177F of Pt IVA”, concerning tax benefits referable to deductions for the 1997 and 1998 income years: [11], [13].
Meredith sought review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) and, alternatively, under s 39B of the Judiciary Act 1903 (Cth): [1], [9]. His grounds included alleged denial of natural justice, failure to observe required procedures, lack of jurisdiction, improper exercise of power, error of law, inflexible policy and unreasonableness: [12]. French J dismissed the application with costs on 16 August 2001: [3].
The Full Court, comprising Lee, Cooper and Nicholson JJ, dealt with two connected questions. First, did Meredith need leave to appeal, or was French J’s order final? Second, were the s 177F determinations reviewable under the ADJR Act or challengeable under s 39B in the face of amended notices of assessment? The Full Court refused leave, dismissed the appeal as incompetent and ordered Meredith to pay the costs: orders and [47].
The Court first considered appeal finality. It stated that the relevant test is whether the judgment or order, by its legal effect, finally disposes of the parties’ rights concerning the issues presented for decision. Practical effect alone is not determinative: [24]. Although French J had dismissed the entire proceeding in the Federal Court, the Full Court considered that this did not finally determine the validity of the s 177F decisions. Meredith had rights of objection and review under the tax legislation, including Part IVC of the Taxation Administration Act 1953 (Cth), and had exercised those rights. The Court also identified a possible s 39B route if the applicant could invoke the Hickman principle to avoid the evidentiary effect of the assessment notices: [27].
The Full Court therefore held that French J’s judgment was interlocutory for the purposes of s 24(1A) of the Federal Court of Australia Act 1976 (Cth), so leave was required: [28]. This conclusion depends on the continuing legal pathways identified by the Court, not simply on the fact that the proceeding before French J had ended.
The Court next addressed clause (e) of Schedule 1 to the ADJR Act. The central interpretive question was whether a determination under s 177F was a decision “making, or forming part of the process of making, or leading up to the making of” an assessment, where it led to an amended assessment. The Court adopted a characterisation approach: the decision must be assessed by reference to the statutory function it performs and its connection with assessment: [38]–[42].
The Court distinguished between tax decisions that are administrative in character and decisions sufficiently connected with the assessment function. It discussed the earlier line of authority distinguishing the Commissioner’s administrative functions from assessment functions, and treated that distinction as relevant to the reach of clause (e): [35]–[39]. It explained that Intervest did not establish that decisions connected with an amended assessment were always outside clause (e). The observations in Intervest had to be read in their full context, including the point that a decision not connected directly or indirectly with assessment did not become excluded merely because later business dealings affected tax liability: [40]–[41].
For the Full Court, s 177F determinations were part of the assessment process. The legislation contemplated that a determination might require action affecting an existing assessment, and the Court relied on Deputy Commissioner of Taxation v Richard Walter Pty Ltd for the treatment of s 177F determinations as falling within the assessment process: [43]. It concluded that the determinations in Meredith’s case fell within clause (e) and were excluded from ADJR Act review: [44].
The s 39B issue turned on ss 175 and 177 of the ITAA. The Court noted that s 177(1) makes production of a notice of assessment conclusive evidence of due making of the assessment, while s 175 addresses the effect of non-compliance with provisions of the ITAA: [18]. Since the amended notices were in evidence, and the s 177F determinations were part of the process of making the assessments, the Court held that it had to treat the determinations as duly made for the purpose of this proceeding: [45]. The grounds pleaded did not allege bad faith, which the earlier reasons had identified as relevant to a possible Hickman-based challenge: [20]. On the case as presented, the s 39B proceeding was bound to fail: [45].
Finally, the Court rejected the contention that refusal of leave would cause significant prejudice or injustice. It noted that Part IVC review and appeal rights remained available and that Meredith had availed himself of them: [46]. The result was refusal of leave, dismissal of the appeal as incompetent and costs against the applicant: [47].
The judgment does not purport to set out a complete “before and after” account of tax judicial review, nor does it claim to change the statutory text. It resolves the specific issue of how clause (e) applied to s 177F determinations in the circumstances before the Court.
The earlier authorities discussed in the judgment established a method of distinguishing assessment decisions from administrative decisions. The Full Court referred to Intervest and Hadfield Finance, together with Clarke and Kann, Tooheys and other authorities, as supporting the need to characterise the decision and consider its connection to the process of assessment: [35]–[39]. The Court did not reject Intervest. It explained that its observations had to be read in context and did not establish that a decision sufficiently connected with assessment was excluded from clause (e) merely because an amended assessment resulted: [40]–[41].
The outcome in Meredith is that a s 177F determination was within the clause (e) exclusion because it was part of, and sufficiently connected with, the assessment process: [42]–[44]. That conclusion applied even though the relevant notices were amended assessments. The Court relied on the ITAA’s treatment of assessments and on the statutory connection between a s 177F determination and subsequent assessment action: [43].
Nicholson J supplied additional interpretive reasons. He considered the ordinary meaning of “assessment” and “calculation”, the explanatory memorandum’s stated purpose of channelling tax challenges through statutory review procedures, and the variety of ways tax statutes treated amended assessments: [51]–[55]. He concluded that those considerations did not support the applicant’s proposed reading of clause (e): [56]. Those are supplementary reasons in this judgment, not a substitute for reading the statutory provisions themselves.
The judgment also confirms a procedural consequence of the tax assessment evidentiary provisions. Where the notice of assessment is produced, s 177(1) has an effect on a judicial review proceeding that challenges a determination forming part of the assessment process: [45]. The Court’s conclusion was specific to the proceeding as framed and to the evidence before French J. It did not decide every possible challenge to a Part IVA determination.
At [24], the Court stated: “The test of finality is whether the judgment or order as made finally disposes of the rights of the parties to the proceedings in relation to the issues presented for decision in them.” In plain English, an order is not necessarily final just because it ends the case in that court. The legal question is whether it finally resolves the relevant rights, taking account of any remaining legal avenues.
At [27], the Court said that the dismissal “did not have the effect of finally determining the issue of the validity” of the s 177F decisions, referring to Part IVC review and a possible s 39B proceeding if the Hickman principle could be invoked. This explains why the decision was treated as interlocutory for the appeal rules, despite the summary dismissal.
At [38], the Court said: “It is necessary therefore to properly characterise the decision in question in terms of the Act under which it was made.” In plain English, the label attached to an ATO decision is not enough. The court examines what the decision does within the statutory scheme.
At [41], the Court clarified that Intervest should not be read as excluding a decision that is sufficiently connected with assessment simply because the assessment leads to an amendment. The significance is that “amended” does not, by itself, take a decision outside clause (e).
At [44], the Court concluded that the s 177F(1)(a) decisions “fell within cl (e) of First Schedule to the ADJR Act and were thereby excluded from judicial review under that Act.” This is the direct holding on ADJR Act review in Meredith.
At [45], the Court reasoned that the amended notices were conclusive evidence of due making, and that the s 177F determination was part of the assessment process. In plain English, the assessment notices had statutory evidentiary force that prevented the particular s 39B challenge from succeeding on the pleaded case.
Nicholson J’s explanation at [53] was that the public policy reflected in clause (e), and ss 175 and 177, was to channel challenges through Part IVC procedures rather than short-circuit them through ADJR Act proceedings. That passage explains the statutory-review rationale advanced in his additional reasons.
The judgment is most directly relevant where a taxpayer seeks judicial review of a decision under s 177F of the ITAA and the challenged determination is part of the process of assessing or amending tax. In Meredith, the determinations concerned tax benefits referable to deductions and were followed by amended notices of assessment: [13], [43]–[45]. The Court treated that relationship as sufficient to bring the determinations within clause (e) of Schedule 1 to the ADJR Act.
The precedent also matters where an appeal is proposed after a proceeding has been summarily dismissed, but the underlying tax decision remains open to challenge through statutory tax-review mechanisms. The Court’s finality analysis focused on legal avenues still available, including Part IVC proceedings and the limited possibility of s 39B proceedings identified in the reasons: [27]–[28].
The judgment’s reasoning is not a blanket statement that every ATO decision, or every administrative decision connected in some broad way with tax, is excluded from ADJR Act review. The Court emphasised characterisation and the degree of connection to the assessment process: [38]–[42]. It also discussed Intervest’s distinction between decisions directly connected with assessment and decisions that merely have later consequences for a taxpayer’s tax position: [40]–[41]. The actual statutory function and the relevant provisions therefore mattered to the result.
The s 39B aspect is likewise tied to the specific evidentiary setting. The amended notices of assessment were produced, and the determination was treated as part of the process of making those assessments: [45]. The Court noted that the grounds in this case did not raise bad faith: [20]. The reasons identify that point as relevant to the possible Hickman route, but do not determine the outcome of a hypothetical case in which such an allegation is properly raised and supported.
The judgment itself contains no account of later judicial treatment of Meredith. It was delivered on 28 August 2002, and the provided text refers to earlier authorities rather than subsequent cases. It would therefore be unsupported to state from this source alone whether later courts followed, distinguished, limited or reconsidered Meredith.
The earlier authorities that Meredith discusses are not “later treatment”. In particular, the Full Court explains Intervest and Hadfield Finance in deciding how to construe clause (e): [35]–[41]. It also applies reasoning from Deputy Commissioner of Taxation v Richard Walter Pty Ltd concerning the relationship between s 177F determinations and assessment: [43]–[45]. These are part of Meredith’s reasoning, not later judicial responses to it.
A professional research assessment of subsequent treatment would require sources beyond the judgment supplied here. On the material in this judgment alone, the safe account is limited to its holding, its cited authorities and its expressed statutory reasoning.
The Court did not decide the merits of the deductions claimed by Meredith or the substantive application of Part IVA to the Satcom arrangements. Those matters were not resolved by the appeal. The judgment addresses reviewability, assessment evidence and appeal procedure, not whether the franchise expenditure was deductible or whether the tax-benefit determinations were substantively correct.
The Court did not decide what would happen in a s 39B proceeding that properly raised and established bad faith. It referred to the Hickman principle and the possibility of avoiding the evidentiary effect of the assessment notices in such circumstances, but observed that bad faith was not raised by Meredith’s pleaded grounds: [20], [27]. The scope and application of that possibility therefore remain outside the decision actually made.
The judgment also does not determine the reach of clause (e) for every decision made by the Commissioner. Its reasoning depends on the character of the particular s 177F determination and its connection with assessment: [38]–[44]. It leaves open how the clause would apply to decisions performing different administrative functions or to a decision lacking the necessary connection with the process of assessment.
Finally, this source does not establish whether the reasoning has since been adopted or modified by later courts. Nor does it provide the outcome of Meredith’s Part IVC proceedings. Those matters cannot be inferred from the judgment’s conclusion that such avenues remained available: [27], [46].
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WHERE MADE: PERTH (DELIVERED BY VIDEO LINK FROM BRISBANE)
THE COURT ORDERS THAT: 1. The application for leave to appeal be refused and the appeal be dismissed as incompetent. 2. The costs of the application for leave to appeal and of the appeal be taxed if not agreed and be paid by the applicant. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
AND: THE COMMISSIONER OF TAXATION THE COMMONWEALTH OF AUSTRALIA
PLACE: PERTH (DELIVERED BY VIDEO LINK FROM BRISBANE)
background 1 The applicant applied on 25 May 2001 by amended application, for an order for review under s 16 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act") and s 39B of the Judiciary Act 1903 (Cth) ("the JA") of certain decisions made by the respondents, or some of them, under s 177F of the Income Tax Assessment Act 1936 (Cth) ("the ITAA"). The respondents moved to have the application dismissed, and additionally filed an amended notice of objection to competency of this Court to hear and determine the application. 2 The motion for dismissal sought summary dismissal under O 20r 2(1) of the Federal Court rules ("the Rules") as modified by O 54 r 6. The notice of objection to competency was brought on the ground that no reviewable decision under the ADJR Act was identified in the application or supporting material. 3 On 16 August 2001, French J dismissed the applicant's application with costs. 4 The applicant filed a notice of appeal on 6 September 2001 seeking to set aside the orders of French J, and in lieu thereof seeking that the respondents' motion and objection to competency be dismissed with costs. In consequence of a challenge to the competency of the appeal, the applicant, whilst maintaining that the order of French J was a final order from which leave to appeal was not necessary, nonetheless filed a notice of motion seeking leave to appeal from the orders made by French J on 16 August 2001.
Nature of application 5 The application for judicial review was brought in respect of certain decisions of the first respondent made by his delegates, the second and third respondents. The application was brought as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The applicant is the representative party. The application as amended identifies a group of persons on whose behalf the proceeding was commenced as: "… the applicant and each franchisee, under a franchise agreement with Satcom Electronic Commerce Services Pty Ltd …, with whom Electramail Pty Ltd has reached by 30 May 2001 an agreement for the sharing by that franchisee of the costs incurred, and as may be incurred, by the applicant of proceeding with this Application (together the "Satcom Franchisees")" 6 As the reasons of French J explain, the Satcom Electronic Commerce Services ("SECS") franchise was an arrangement to provide business to business electronic commerce services to corporate and government organisations throughout Australia. It used software and infrastructure developed by Satcom which allowed organisations to link buyers and sellers of products and services via the Internet. Participants were invited to enter into a franchise business entitling them to market the service to a group of organisations. The franchisor identified eight hundred and ten thousand potential organisational users of the service and each franchisee was allocated the maximum of two hundred and fifty users from this base. It was said to be the responsibility of each franchisee to market the SECS service to their allocated organisations. Each franchisee was entitled to conduct the marketing operation personally or to contract an accredited sales agent to perform the marketing duties on the franchisee's behalf. 7 The applicant's evidence was that he made an application for an SECS franchise in 1997 and another three in 1998. In respect of each of them he says he: "4.1 agreed to pay annual franchise fees for the provision, maintenance and ongoing servicing of facilities for subscribers; 4.2 agreed to pay administration fees; 4.3 elected to pay one-third of the first years annual franchise fee in cash and to borrow two-thirds of the first years annual franchise fee from the franchisor; 4.4 entered into a loan agreement for two-thirds of the first years annual franchise fees; 4.5 paid one-third of the first years annual franchise fees and the administration fees in cash; 4.6 elected to appoint a sales agent (approved by the franchisor) to perform marketing duties on my behalf; 4.7 agreed to pay an additional portion of profits from my franchise business to the accredited sales agent; 4.8 executed the franchise agreement and the accredited sales agent agreement; 4.9 received a list of 250 CGO's allocated to me; 4.10 provided my list of CGO's to the accredited sales agent I had appointed which operated from the same premises as I did; 4.11 through my accredited sales agent, offered 12 months free subscription to CGO's as a marketing strategy to populate my client data base; and 4.12 made regular (at least weekly) contact with the accredited sales agent to ascertain subscriptions and levels of interest from prospective clients until about May 1998 and thereafter made frequent but irregular contact." The acronym "CGO" refers to corporate and government organisations. 8 On 3 July 2000 the applicant received a letter from the second respondent notifying him that the Australian Taxation Office ("ATO") had formed the view that certain income tax deductions he had claimed in connection with his involvement as a franchisee were not deductible on the grounds, amongst others, that the participation in the "arrangement" was for the dominant purpose of obtaining a tax benefit and that Pt IVA of the ITAA applied to disallow the deductions. The letter notified him that he had been selected for audit in respect of his participation in the franchise and that the ATO proposed to amend his assessments to disallow the relevant deductions. His evidence was that at no time had any of the respondents or any other officers of the ATO made any approach to him to ascertain his personal financial circumstances and those of persons connected to him for the purposes of s 177D or to ascertain his view of the SECS franchise documentation and business arrangements. He had not been interviewed or questioned nor had his comments been invited with respect to whether or not his 1997 and 1998 assessments ought to be amended. 9 It was against this background of circumstances that the applicant brought the amended application under s 16 of the ADJR Act and alternatively in reliance on s 39B of the JA. The application sought to quash or have set aside four specified decisions. The First Decision was one said to have been made on or about 3 July 2000 by the first respondent through his delegate, the second respondent that a determination should be made under Pt IVA of the ITAA pursuant to s 177F(1)(b) purportedly cancelling the tax benefit arising from every Satcom Franchise, including the applicant's, purportedly referable to a deduction being allowable under the ITAA to each Satcom Franchisee in respect of their activity as such. The Fourth Decision was one said to have been made by the second respondent, alternatively the third respondent, on or about 3 July 2000 that the income tax assessment for each Satcom Franchisee for each year in which that franchisee had claimed a deduction with respect to outgoings incurred by them in relation to a franchise arrangement with Satcom should be amended to disallow the deductions. 10 In his reasons French J found that the First Decision and the Fourth Decision were at best the formation of an opinion or intention. Consequently, each was not a decision covered by the ADJR Act and was not amenable to being quashed or set aside under that Act or pursuant to s 39B of the JA. No appeal is sought to be brought against this aspect of the decision of French J. 11 The application in respect of the Second and Third Decisions described them in the following terms: "… 3.2 the decision of the first respondent by his delegate the second respondent, purportedly in the exercise of the powers and functions delegated to him by the first respondent, alternatively purportedly by the third respondent purportedly exercising power granted to him as an officer authorised by the first respondent in the further alternative by another officer within the ATO, being the decision comprised in the purported determination with respect to each Satcom Franchisee purportedly under Part IVA of the ITAA being the decision referred to in the written notices headed 'Determination made pursuant to section 177F of Part IVA of the ITAA' which issued to each Satcom Franchisee in respect of deductions claimed in respect of their activity as a Satcom Franchisee and being a decision made on or about 7 November 2000 ('the Second Decision') 3.3 the decision of the first respondent by his delegate the second respondent, purportedly in the exercise of the powers and functions delegated to him by the first respondent, alternatively purportedly by the third respondent purportedly exercising power granted to him as an officer authorised by the first respondent, to, in the case of each of the Satcom Franchisees, including the applicant, issue to that particular taxpayer a notice purportedly pursuant to section 177F(1)(b) of the ITAA stating that the second respondent, purportedly in the exercise of the powers and functions delegated to him by the first respondent, had determined that a specific amount was a tax benefit referrable to a deduction allowable to the Satcom Franchisee, and that the amount of that tax benefit shall not be allowable to the Satcom Franchisee in a particular year of income being a decision made on or about 7 November 2000 ('the Third Decision'); …" 12 The grounds on which review of those decisions was sought are as follows: "1. The … Second Decision and/or the Third Decision … were made in circumstances that a breach of the rules of natural justice occurred in connection with the making of the decision. 2. Procedures that were required by law to be observed in connection with the making of … the Second and/or the Third Decision were not observed. 3. That the Second and/or the Third Decision was made by a person who did not have jurisdiction to make the decision. 4. … 5. That the making of each of … the Second, [and] the Third … Decisions was an improper exercise of power conferred by the ITAA 1936 or the ITAA 1997 in pursuance of which it was purportedly made. 6. That the Third Decision involved an error of law appearing on the record of the decision. 7. With respect to each of …, the Second, [and] the Third … Decisions, the respondents exercised a discretionary power in accordance with a rule of policy without regard to the merits of the particular case. 8. The ... Second and/or the Third Decision each constituted an exercise of a power that was so unreasonable that no reasonable person could have so exercised the power."
Reasons of primary judge 13 Justice French accepted that the Second and Third Decisions referred to different characterisations of the same decision. He took each of the descriptions in the application in that respect to refer to the making of determinations under s 177F of the ITAA. They were evidenced by the enclosures to a letter of 7 November 2000 entitled "Determination made pursuant to s 177F of Pt IVA of the Income Tax Assessment Act 1936". Each involved a determination that a tax benefit, referable to a deduction being allowable to the applicant in the year of income specified, should not be allowable to him in relation to that year of income being the years ended 30 June 1997 and 30 June 1998. His Honour accepted that the description of the determination decisions in the application indicated it was intended to cover all such determinations made on or about 7 November 2000 in respect of each member of the group of persons on whose behalf the proceeding was commenced.
ADJR Act relief 14 So far as the ADJR Act relief was concerned French J considered that the matter was controlled by s 3(1) and Sch 1 to the ADJR Act which provided that a decision included in any classes of decisions set out in Sch 1 was not a decision to which the ADJR Act applied. His Honour was of the view that the decisions under s 177F of the ITAA fell within cl (e) of that Schedule. 15 Counsel for the applicant argued before French J that cl (e) of Sch 1 does not apply to exclude from the application of the ADJR Act a decision forming part of the process of making or leading up to the making of an amended assessment. This argument was founded (as it was on this application) on the reference in the paragraph to "… decisions amending, or refusing to amend, assessments …". It is contrasted with the opening words of the paragraph which speak of "decisions making, or forming part of the process of making, or leading up to the making of, assessments …". Counsel for the applicant supported this proposition by reference to the observation of Smithers J in Intervest Corporation Pty Ltd v Federal Commissioner of Taxation (1984) 3 FCR 591 at 594, where his Honour said : "… a decision leading up to the making of an amended assessment is not a decision within the scope of cl (e) of the First Schedule to the ADJR Act. In so far as that clause refers to decisions which lead up to assessments or calculations of tax, they are decisions 'leading up to the making of assessments or calculations of tax' and not 'decisions amending or refusing to amend assessments or calculations of tax'." 16 Justice French was of the view that the dictum of Smithers J should not be followed. His Honour considered the better view was that cl (e) applies to decisions making or forming part of the process of making or leading up to the making of amended assessments. His Honour said that the term "assessment" is used generically as it applies to a variety of taxing statutes set out in cl (e) to the Schedule. The ITAA itself contemplates that amended assessment is to be treated as an assessment for the purposes of the Act (s 173). Therefore, his Honour considered there was no reason why the generic use in cl (e) should exclude an amended assessment. In his Honour's view the express reference to amended assessments in the paragraph may be seen as included out of an abundance of caution.
Amended assessments as conclusive evidence 17 It was contended before French J by the respondents that the amended assessments produced to the Court attracted the provisions of s 177 so that they were conclusive evidence of their due making. Accordingly, the amended assessments precluded a challenge in judicial review proceedings to the validity of Pt IVA determinations because those determinations are part of the process of making the amended assessments. 18 Section 177 provides : "177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct." The section is to be read for present purposes with s 175 to the effect that the validity of any assessment shall not be affected by reason that any of the provisions of the ITAA have not been complied with. 19 In relation to ss 175 and 177 French J said they were privative clauses to be construed in accordance with the principles relating to such clauses generally and enunciated by Dixon J in R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 at 615 where his Honour said : "Such a clause is interpreted as meaning that no decision which is in fact given by the body concerned shall be invalidated on the ground that it has not conformed to the requirements governing its proceedings or the exercise of its authority or has not confined its acts within the limits laid down by the instrument giving it authority, provided always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body." 20 His Honour referred to the decisions in Kordan Pty Ltd v Commissioner of Taxation [2000] FCA 1807 and of Lindgren J in Dan v Federal Commissioner of Taxation (2000) 44 ATR 338. On the basis of these decisions his Honour concluded that the making of a determination under s 177F was part of the making of the assessment and thus gained the protection of s 177(1) of the ITAA. That is to say, it was open to be challenged in an appeal under Pt IVC of the Taxation Administration Act 1953 (Cth), but not otherwise. This was subject to the principle in R v Hickman; Ex parte Fox and Clinton, enabling a taxpayer to seek a declaration that the determination and assessment made pursuant to it was void, if the taxpayer could show that they were made in bad faith: Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168. His Honour noted that none of the grounds upon which review was sought in this present case raised the issue of bad faith. 21 His Honour concluded by stating : "The applicant says that in this application it does not challenge the validity of any assessment nor its due making. In my opinion that is precisely what it does in relation to the second and third decision. Relevantly for present purposes, the application relates to decisions to make determinations pursuant to s 177F and to determine that a specific amount was a tax benefit. These decisions, it is submitted, are not part of the making of an assessment or an amended assessment. I have already held that the determination in this case was a decision, for which the statute expressly provides, making or forming part of the process of making or leading up to the making of amended assessments. That being so, its validity cannot be challenged without impugning the amended assessment which is founded upon it. There is a statutory link from the determination to the amended assessment. That link is the obligation on the Commissioner to take such action as he considers necessary to give effect to the determination. In the circumstances, the relief claimed under s 39B in respect of the second and third decisions is not available." 22 Accordingly, French J dismissed the application.
is leave to appeal required? 23 The first issue which arises is whether the decision of French J is a final judgment from which an appeal may be brought as of right, or, an interlocutory judgment in respect of which leave to appeal is necessary: s 24(1) and (1A) of the Federal Court of Australia Act 1976 (Cth). 24 The test of finality is whether the judgment or order as made finally disposes of the rights of the parties to the proceedings in relation to the issues presented for decision in them: Licul v Corney (1976) 180 CLR 213 at 225 - 227; Port of Melbourne Authority v Anshun Pty Ltd (No 1) (1980) 147 CLR 35 at 38; Brouwer v Titan Corporation Ltd (1997) 73 FCR 241 (FC) at 242, 244. It is the legal effect of the order, and not its practical effect, which is relevant to the issue of whether or not proceedings are finally determined between the parties: Carr v Finance Corp of Australia Ltd (No 1) (1981) 147 CLR 246 at 248; Malouf v Malouf (1999) 86 FCR 134 (FC) at 137 - 143; National Mutual Life Association of Australasia Ltd v Grosvenor Hill (Qld) Pty Ltd (2001) 183 ALR 700 (FC) at 702 - 703. 25 As has been stated earlier in these reasons, the amended application of the applicant was brought as a representative party pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth), the group being franchisees under a franchise agreement pleaded in paragraph 2 of the amended application. The application seeks to have the decisions pleaded in paragraph 3 quashed or set aside on the grounds pleaded in paragraphs 5.1 to 5.8 inclusive of the amended application. The question of law or fact common to the claim of the group members as pleaded in paragraph 7 is "whether the First and/or the Second and/or the Third and/or the Fourth Decision involved one or more breaches of law specified in paragraphs 5.1 to 5.8 above". The issue raised between the parties in the proceeding is the validity of the decisions pleaded in paragraph 3 as decisions made under and in exercise of powers contained in s 177F(1) of the ITAA. 26 The order of French J, against which the applicant seeks to appeal, dismissed the amended application of the applicant with costs. The order had the effect of disposing, in a summary way, of the proceedings in this Court. The notice of motion seeking summary dismissal was brought in reliance upon O 20 r 2(1) as modified by O 54 r 6 of the Rules. The basis of the application is to be found in the notice of objection to competency given pursuant to O 54 r 4 of the Rules and the notice of assessments exhibited to the affidavit of Martin Thomas McCoy filed in support of the motion for summary dismissal. French J in his reasons, dealt with the objection to competency as it related to relief claimed under the ADJR Act and the evidentiary effect of the notices of assessments and how they foreclosed the applicant's case under s 39B of the JA. 27 The summary disposal of the proceedings in this Court did not have the effect of finally determining the issue of the validity of the decisions made under s 177F(1) of the ITAA. The applicant has rights of objection against the decisions made under s 177F: see s 177F(2G) and s 177F(7). He also has rights of review in respect of the decisions complained of. Those rights are provided under Part IVC of the Taxation Administration Act 1953 (Cth) and he has exercised them. Finally, proceedings under s 39B of the JA may be further litigated in respect of the decisions, if the applicant can invoke the principle in R v Hickman; Ex parte Fox and Clinton to avoid the evidentiary effect of the notices of assessment: Deputy Commissioner of Taxation v Richard Walter Pty Ltd. 28 It follows in our view that the judgment of French J was interlocutory for the purposes of s 24(1A) of the Federal Court of Australia Act 1976 (Cth) and that the applicant requires leave to appeal in order to prosecute such an appeal.
conclusion on application for leave 29 The applicant submits that the decision of French J is attended by sufficient doubt to warrant reconsideration on appeal, and, that significant prejudice or injustice would result to him if leave were refused supposing the decision to be wrong: Décor Corp Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398 - 399. 30 The applicant submits that there is sufficient doubt attending the decision of French J because there is conflict between the decisions of French J in the present case, and of Smithers J in Intervest Corporation Pty Ltd v Federal Commissioner of Taxation at 594, as to the proper construction and operation of cl (e) of the First Schedule to the ADJR Act. Further, the applicant submits, there is doubt because there has been conflicting academic comment as to the proper construction of the clause; see for example "Restricting the Judicial Review of Income Tax Assessments: The Scope and Purpose of Schedule 1(e) of the ADJR Act" by Morabito and Barkoczy in (1999) Syd L Rev 36 and "Statutory Judicial Review of the Administration of the Income Tax Assessment Act 1936" by Carbone in (1996) 6 Revenue LJ 104. 31 In Intervest Corporation, the taxpayer sought judicial review under the ADJR Act of a decision of the Commissioner to refuse a request of the taxpayer that there be determined a further period within which the company might make a sufficient distribution of dividends within the meaning of s 105A(1) of the ITAA pending determination of the taxpayer's objection to the assessments of tax and additional tax made by the Commissioner. The Commissioner challenged the competency of the application for review, contending that the decisions were not decisions to which the ADJR Act applied because the decisions were included in a class of decisions set out in the First Schedule to the ADJR Act. 32 Clause (e) of the First Schedule stated : "... decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty, or decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts: ..." The list of Acts included the ITAA. 33 The Commissioner submitted that the decisions in issue were decisions making or forming part of the process of making, or leading up to the making, of an assessment or calculation of tax or decisions amending or refusing to amend an assessment or calculation of tax within the meaning of cl (e). 34 Smithers J rejected the submissions of the Commissioner and in his reasons made the following observations (at 593 - 594) : "A refusal of a request made under s 105AA after service of a notice of assessment is relevant to the liability of the applicant to pay the tax demanded in the notice of assessment which has been issued. If the request is granted a reduction in liability may result. If it is refused the chance of any such reduction is eliminated. But there is no sense in which a decision to refuse the request is a decision making an assessment or calculation of tax, or a decision forming part of the process of making an assessment or calculation of tax. A decision refusing a request denies to the taxpayer making the request an opportunity to change the basis of fact by reference to which an assessment, or an amended assessment, depending upon appropriate calculations, might be made. Also, a decision granting or rejecting a request is not, in my opinion, a decision leading up to the making of an assessment or calculation of tax. Of course a refusal of a request made after the notice of assessment has been given does not in any sense lead up to an assessment. In that case the only assessment ever made is the one already made. Also, the grant of a request which is made after service of a notice of an assessment cannot lead up to an assessment. If it leads up to anything in the nature of an assessment it could only, putting the matter at best for the taxpayer, lead up to the making of an amended assessment. But a decision leading up to the making of an amended assessment is not a decision within the scope of cl (e) of the First Schedule to the ADJR Act. In so far as that clause refers to decisions which lead up to assessments or calculations of tax, they are decisions 'leading up to the making of assessments or calculations of tax' and not 'decisions amending or refusing to amend assessments or calculations of tax'." (Emphasis added) 35 His Honour, after reference to the decision of a Full Court of this Court (Bowen CJ, Lockhart and Fitzgerald JJ) in Deputy Commissioner of Taxation (Qld) v Clarke and Kann (1984) 1 FCR 322 continued, (at 595) : "The distinction between the Commissioner's assessment function and his administrative function is relevant in this case. It is in his administrative function that he may or may not sanction the taking of steps by a taxpayer which, if taken by him, may produce a state of facts by reference to which an amended assessment may be made which might differ from that upon which the assessment already made was made. When he approaches the task of making an assessment with reference to the facts before him and makes the necessary calculations for that purpose he is exercising his assessment function. But however widely the net is cast by the words of cl (e) it does not cover a decision not being part of the process of assessment and which relates only to the question whether a taxpayer shall be permitted to carry out transactions which may reduce the amount of income upon which he is liable to pay tax. It may result in the making of an amended assessment. But it is so far removed from the assessment process that it does not, in the relevant sense, lead up to the making of an assessment. It provides an opportunity for the taxpayer to make payments the making of which will introduce new elements into his financial affairs by reference to which the amount of income on which he is liable to pay tax may be reduced and the amount of his taxable income may be ascertained. Decisions making or forming part of the process of making an assessment or calculation of tax are clearly made in the process of assessing tax. Decisions leading up to the making of an assessment may not necessarily be so confined. But, in my view, a decision not being connected directly or indirectly with the process of the making of an assessment is not within the category specified in cl (e) of the schedule merely because the making of an assessment or a particular assessment thereafter was a consequence of business dealings which flowed from the decision and affected its income position and tax liability but did not otherwise operate upon or have any other significance in respect of the assessment." 36 The correctness of the decision in Intervest Corporation came up for consideration in a Full Court of this Court (Woodward, Jenkinson and Foster JJ) in Hadfield Finance Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 249. The case also involved a decision of the Commissioner to refuse a request made by the taxpayer under s 105AA of the ITAA for a determination of a further period in which it might pay dividends for the purpose of making a sufficient distribution. In the judgment of Foster J, agreed in by the other members of the Court, his Honour declined to find that the decision in Intervest Corporation was wrongly decided, and found that it was correct and in accord with the reasoning of the Full Court in Clarke and Kann, and of Ellicott J at first instance in Tooheys Ltd v Minister for Business and Consumer Affairs (1981) 54 FLR 421, and on appeal to a Full Court of this Court in Minister for Industry and Commerce v Tooheys Ltd (1982) 60 FLR 325. The reasoning adopted by the Full Court in Hadfield Finance to hold that the decision in Intervest Corporation was correct, involved the drawing by the Full Court of a clear distinction between the Commissioner's administrative functions and his assessment functions, with the latter category only being subject to the exclusion from review rendered by the operation of s 3(1) of the ADJR Act and cl (e) of the First Schedule to it. 37 There is a consistent body of authority which supports the maintenance of such a distinction and the consequence of the distinction in terms of the operation of cl (e): see for example Clarke and Kann at 325; Bennett Honda Pty Ltd v Deputy Commissioner of Taxation (1984) 4 FCR 99 at 104 - 105; Re O'Reilly; Ex parte Bayford Wholesale Pty Ltd (1983) 151 CLR 557; Mercantile Credits Ltd v Commissioner of Taxation (No 1) (1985) 8 FCR 510 at 514 - 516; Balnaves v Commissioner of Taxation (1985) 8 FCR 589 (FC) at 593; Domaine Finance Pty Ltd v Commissioner of Taxation (1985) 8 FCR 538 at 544 - 545; Constable Holdings Pty Ltd v Commissioner of Taxation (1986) 11 FCR 136 at 138 - 139. 38 It is necessary therefore to properly characterise the decision in question in terms of the Act under which it was made: Tooheys v Minister for Business and Consumer Affairs (1981) 54 FLR 421 at 434 - 435; Domaine Finance at 545; Mercantile Credits at 514 - 515. 39 When a decision is characterised for the purposes of cl (e) of the First Schedule as not one forming part of the process of making, or leading up to the making of an assessment or calculation of tax because it is not connected or related directly or indirectly with the process of the making an assessment, the decision is not within cl (e): Clarke and Kann at 325; Domaine Finance at 544; Intervest Corporation at 595; Hadfield Finance at 255. A decision which does not have a sufficient connection with, or is not sufficiently related to, the process of assessment, even if it leads to a decision to amend an existing assessment or calculation of tax, is not a decision within cl (e). 40 In our view, the comments of Smithers J in Intervest Finance (at pp 593 - 594) upon which the applicant relies, are to be read in the light of his Honour's later observation (at 595) : "... a decision not being connected directly or indirectly with the process of the making of an assessment is not within the category specified in cl (e) of the schedule merely because the making of an assessment or a particular assessment thereafter was a consequence of business dealings with flowed from the decision and affected its income position and tax liability but did not otherwise operate upon or have any other significance in respect of the assessment." 41 His Honour did not say, and should not be interpreted as saying, that a decision which is sufficiently connected or related to the process of making, or leading to the making, of an assessment or calculation of tax, is thereby excluded from the operation of cl (e) because the assessment or calculation leads to the amendment of an assessment already made under the relevant Act. 42 For present purposes, the question is whether or not the making of a determination under s 177F(1) or (2A) of the ITAA is sufficiently connected or related to the making of an assessment of tax under the ITAA to come within the exception in cl (e) of the First Schedule to the ADJR Act. 43 The making of determinations under ss 177(1) and (2A) of the ITAA are part of the process of assessment and give rights of objection and appeal under Part IVC of the Taxation Administration Act 1953 (Cth): Deputy Commissioner of Taxation v Richard Walter Pty Ltd at 178, 183 - 184, 199, 203. For the purpose of Pt IVA of the ITAA, no distinction is drawn in respect of the exercise of the power under s 177F(1) as to whether or not there is an existing assessment. Section 177F(2A), which requires the Commissioner to do what is necessary to give effect to a determination under s 177(F)(1), and s 177G which permits the amendment of assessments, contemplate that in some cases there will be an existing assessment which will require amendment following a further assessment consequent upon a determination under s 177F(1)(a) of the ITAA. In Deputy Commissioner of Taxation v Richard Walter Pty Ltd, some of the assessments in issue were assessments amended in consequence of a determination under s 177F(1)(a). All determinations were held to be within the "due making of the assessment" provision for the purposes of the operation of s 177(1) of the ITAA. 44 It follows, in our view, that the decisions made under s 177F(1)(a) of the ITAA in the present case fell within cl (e) of First Schedule to the ADJR Act and were thereby excluded from judicial review under that Act. 45 The argument in respect of judicial review under s 39B of the JA can be quickly disposed of. The amended notices of assessment which issued following the determination under s 177F(1)(a) of the ITAA were in evidence before French J. Section 177(1) of the ITAA operated to make the amended notices of assessment conclusive evidence of the due making of the assessment. As the making of the determination under s 177F(1)(a) was part of the process of making the assessment to which the notice related, French J was obliged to find that the determination under s 177(F)(1)(a) had been duly made: Deputy Commissioner of Taxation v Richard Walter Pty Ltd at 188, 203, 223, 234, 243. Accordingly, the proceedings seeking to invoke the jurisdiction of this Court under s 39B of the JA were bound to fail and for that reason liable to be struck out under O 20 r 2(1) of the Rules. 46 The orders of French J were correct in our view. The applicant fails to make out a ground for leave to appeal on this account. Further, the applicant has rights of review and appeal under Part IVC of the Taxation Administration Act 1953 (Cth), which he has availed himself of, and in which he may challenge the validity of the determination made under s 177F(1)(a) of the ITAA. To refuse leave does not therefore result in significant prejudice or injustice to the applicant. 47 The application for leave to appeal should be refused and the appeal dismissed as incompetent. The costs of the application for leave to appeal, and of the purported appeal should follow the event and be paid by the applicant. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lee and Cooper.
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
AND: THE COMMISSIONER OF TAXATION THE COMMONWEALTH OF AUSTRALIA
REASONS FOR JUDGMENT RD NICHOLSON J: 48 I agree with the reasons for judgment of Lee and Cooper JJ. 49 However, in the light of the way in which the matter was resolved by French J as the primary judge and the arguments addressed on the hearing of the application, I wish to add the following. 50 I consider that there was no error of law in the conclusion reached by French J from an examination of the words in par (e) of Sch 1 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the ADJR Act"). The applicant contended that examination of the plain wording of par (e) demonstrates that it falls into three neat portions so that it can be read as follows: "(e) [first limb] decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or [second limb] decisions disallowing objections to assessments or calculations of tax, charge or duty, or [third limb] decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts…" Based on that analysis, it was contended for the applicant that Parliament had plainly distinguished between an assessment on the one hand and an amended assessment on the other. It was further submitted that such distinction was supported by a sound public policy consideration namely, the potential adverse impact of an amended assessment on a taxpayer who has ordered his or her financial affairs in reliance upon the original assessment. French J, after distinguishing the observation of Smithers J in Intervest Corporation Pty Ltd v Federal Commissioner of Taxation (1984) 3 FCR 591 at 594 (considered in detail in the reasons of Lee and Cooper JJ), concluded from an examination of the language of par (e) that the term "assessment" used in that paragraph did not exclude an amended assessment. I agree with French J that an examination of the language of par (e), irrespective of the application of the reasoning in Intervest, supports the conclusion which he reached. My reasons for that view are as follows. 51 Firstly, The Shorter Oxford English Dictionary, vol 1 at p 118 defines "assessment" as "the action of assessing"… "the determination of the amount of taxation…"… "the amount of charge so determined upon". It is of no materiality to the definition whether the determination is made on a primary occasion or a subsequent occasion. There is therefore support in the dictionary definition for the generic approach to the understanding of the word "assessment" in the first limb of par (e). 52 The Shorter Oxford English Dictionary, vol 1 at p 267 defines "calculation" as "the action of reckoning; computation". Again, there is no temporal requirement: a calculation may occur both on a primary and subsequent occasion. 53 Secondly, in relation to public policy considerations, I agree with submissions for the respondents that the evident public policy in the case of par (e), as in the case of the operation of ss 175 and 177 of the Income Tax Assessment Act 1936 (Cth) ("ITAA"), is to channel challenges through the objection and appeal process of Pt IVC of the ITAA and equivalent provisions in the other Acts referred to in the particularisation of par (e). That this was the Parliamentary intention is supported by reference to the explanatory memorandum to the Administrative Decisions (Judicial Review) Amendment Bill 1980 which introduced the new Schedule 1 including par (e). There it was stated the purpose of par (e) was to leave decisions affecting the assessment or calculation of taxation: "subject only to the ordinary procedures for review or appeal provided in the relevant legislation under which the tax or duty is assessed or calculated, and to prevent these procedures being short-circuited by applications of the Federal Court for judicial review." (See the article by Morabito and Barkoczy (1999) Syd L Rev 36 at p 67 for reference to this portion of the explanatory memorandum). That statement does not support the applicant's principal contention and the alleged public policy foundation on which it is based. 54 Thirdly, par (e) applies to a very wide range of statutes. Some, such as the ITAA but also the Australian Capital Territory Taxation (Administration) Act 1969 (Cth) in s 4(1) provide for "assessment" to include an amended assessment. Some define "assessment" to mean the ascertainment of the primary amount and of the tax payable on that amount and the ascertainment of additional tax: for example, the Petroleum Resource Rent Tax Assessment Act (1987) (Cth) s 2 and the Debits Tax Administration Act (1982) (Cth) s 3 as well as the Superannuation Guarantee (Administration) Act 1990 (Cth) s 6 and the Training Guarantee (Administration) Act 1990 (Cth) s 4. Some do not define "assessment" but make provision for assessments to be made: Wool Tax (Administration) Act 1964 (Cth) s 39. It is said in the article by Morabito and Barkoczy at 57 that "in drafting par (e) Parliament was required to act on the premise that, at any particular point in time, some of the Acts listed in par (e) would not confer on amended assessments the status of original assessments". This is supported by examination of the provisions in the Acts particularised in par (e). The necessity for par (e) to be expressed in ambulatory terms negates the public policy argument advanced on behalf of the applicant. 55 Fourthly, there is a view (advanced by the authors Morabito and Barkoczy at 57) that the option chosen by the Commonwealth Parliament was that decisions leading up to the making of amended assessments would be caught by par (e), through the phrase 'leading up to the making of assessments', only where they were made pursuant to those Acts mentioned in par (e) which treated amended assessments as original assessments. This contention constitutes a third view not contended for by either the present applicant or respondents. It does, however, direct attention to the need to read par (e) in its entirety. When this is done it is apparent that it is arguably open for the "decisions" referred to in the opening words of the paragraph to take their colour from the particular enactments because of the words "under any of the following Acts". That is, one takes the description "assessments" from the first limb of par (e) and looks to see whether "under any of the following Acts" there is an assessment. It is necessary therefore on that view to read the provisions of the enactment in each case closely with the general words of the paragraph. 56 I therefore conclude that as between the contentions made for the applicant and for the respondents the generic wording of the par (e) and the public policy consideration referred to do not favour acceptance of the submissions for the applicant. On the basis of the contentions for the respondents, the decision of the primary judge must therefore be upheld. On the view of the learned authors, that is also the position because under the provisions of the ITAA an amended assessment is an assessment for the purposes of that Act. I therefore do not consider the applicant can establish the decision of the primary judge was in error of law in the conclusion that he reached concerning the construction of par (e) independently of the effect of the decision in Intervest. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice RD Nicholson.
Counsel for the Applicant: Mr MJ Buss QC and Mr PF Fletcher Solicitor for the Applicant: Solomon Brothers Solicitors
Counsel for the Respondent: Ms S Gazele SC and Ms LB Price Solicitor for the Respondent: Australian Government Solicitor
Date of Hearing: 21 February 2002 Date of Judgment: 28 August 2002
Meredith
Commissioner of Taxation
(1984) 3 FCR 591
(1945) 70 CLR 598
(1995) 183 CLR 168
(1976) 180 CLR 213
(1980) 147 CLR 35
(1997) 73 FCR 241
(1981) 147 CLR 246
The application for leave to appeal was refused, the appeal was dismissed as incompetent, and the applicant was ordered to pay the costs of the leave application and appeal, to be taxed if not agreed.
(1999) 86 FCR 134
(2001) 183 ALR 700
(1991) 33 FCR 397
(1984) 1 FCR 322
(1988) 79 ALR 249
(1981) 54 FLR 421
(1982) 60 FLR 325
(1984) 4 FCR 99
(1983) 151 CLR 557
(1985) 8 FCR 510
(1985) 8 FCR 589
(1985) 8 FCR 538
(1986) 11 FCR 136