MLC Investments Ltd v Commissioner of Taxation

BACKGROUND FACTS 3 MLC has been involved in 'funds management' businesses for many decades. It is the responsible entity (pursuant to Pt 5C.2 of the Corporations Act 2001 (Cth)) for approximately 135 trusts. Many of these are organised into related groups. They include: (a) the MasterKey Unit Trusts (MUTs); (b) the MasterKey Approved Deposit Funds (ADFs); (c) the Cash Management Trust (CMT); and (d) the MLC Investment Trusts (MLCITs). 4 This proceeding concerns the following four new MUTs ('the new MUTs'): · the MLC MasterKey Unit Trust Share Portfolio; · the MLC MasterKey Unit Trust Conservative Growth Portfolio; · the MLC MasterKey Unit Trust National Balanced Fund; and · the MLC MasterKey Unit Trust National Capital Stable Fund. 5 MLC's MasterKey Unit Trust Prospectus No 23, issued on 5 June 2002 with an expiry date of 1 July 2003, shows that 'the MLC MasterKey Unit Trust' consists of thirteen MUTs which pre-existed the establishment of the new MUTs, and the new MUTs - a total of seventeen MUTs. (I will call the MUTs which pre-existed the establishment of the new MUTs 'the existing MUTs', but there are discrepancies in the evidence, unimportant for present purposes, as to the number of the existing MUTs (there are suggestions variously of 13, 15 and 16). 6 The ADFs are a suite of ten related trusts designed for the investment of superannuation roll-overs, but they are now 'closed', in the sense that they are not issuing new units, although existing investors have the capacity to switch between the ADFs. 7 The CMT is a single fund which enables investors, rather like the holder of a savings bank account, to invest and withdraw cash. 8 The MLCITs are a suite of eleven related 'mezzanine trusts' which provide platforms through which MLC's various investment vehicles can access MUTs at a wholesale level. 9 Prior to the Decision, the Commissioner had granted leave for the existing MUTs, the ADFs and the CMT ('the existing Funds') to adopt SAPs ending on 31 May. The accounts of those entities have been, and continue to be, prepared accordingly. 10 The SAPs were granted progressively from the early 1980s as the various trusts were established. Copies of the applications in the 1990s for SAPs and the corresponding letters of approval are in evidence. The most recent successful application for a SAP was made in 1995, the approval having been communicated by letter dated 16 May 1995 from the Australian Taxation Office ('the ATO') to MLC's advisers, Greenwoods and Freehills ('G&F'). 11 On 4 July 2001 G&F wrote to the Commissioner advising that the new MUTs were settled on 14 June 2001 and were due to accept subscriptions for units from 1 July 2001. On behalf of MLC, G&F applied for a SAP ending 31 May in lieu of the following 30 June. The letter informed the Commissioner that MLC was the trustee of 26 named trusts, comprising the existing MUTs, the CMF and the ten ADFs. The letter said that the existing MUTs and the new MUTs came under the umbrella of 'MLC MasterKey Unit Trusts'. It pointed out that the existing Funds all returned their income based on a SAP ending 31 May. The letter claimed that the granting of approval for the new MUTs to do likewise 'would accordingly be broadly consistent with the policy of having all entities within a group balancing on the same date for tax purposes'. The letter stated that new MUTs would use the same computer system as the existing MUTs and the ADFs. The letter further stated: 'We are advised that it would require an enormous and largely inefficient amount of programming work to enable the system to calculate the income of different trusts should those trusts be required, for taxation purposes, to return income for different periods. On the above grounds, we request that the Commissioner grant approval for the New Funds to adopt a substituted accounting period ending 31 May in lieu of the succeeding 30 June. We note that approval was granted in your letter of 16 May 1995 ... to a similar request for a 31 May SAP made by us on 28 March 1994 ... in respect of MLC Emerging Markets Fund (now MLC Capital International Global Share Fund) and MLC Platinum Global Fund. A number of earlier approvals to adopt the year ended 31 May in lieu of the following 30 June have been granted in relation to the other MLC MasterKey Unit Trusts. We enclose a copy of your letter of approval dated 16 May 1995.' 12 MLC accepted subscriptions to the new MUTs from 1 July 2001. 13 Manuel Thaler had the carriage of the matter at the ATO. He telephoned Jacinta Oner, who had the carriage of the matter at G&F, on 6 September 2001 and 12 September 2001, advising her of his intention not to grant approval, but inviting her to lodge any further information she wished in support of the application. Ms Oner asked Mr Thaler not to give a formal refusal pending receipt of further correspondence from G&F. Mr Thaler agreed to this request. 14 Some six months later, by letter dated 5 March 2002, G&F wrote again to the ATO making a supplementary submission. 15 On 26 April 2002 Mr Thaler telephoned Ms Oner advising her that he still proposed to refuse MLC's application. Ms Oner asked him to delay formalising the refusal to allow her time to obtain instructions from MLC Again Mr Thaler agreed to her request. 16 On 21 May 2002, during a telephone conversation with Tony Watson of G&F, Mr Thaler advised Mr Watson that he was going to issue a letter that day formally refusing MLC's application. Later that day, Mr Thaler sent the letter of refusal to G&F. 17 The letter of refusal referred to two Taxation Rulings which have assumed some importance in the case: IT 2360 ('Income Tax: Substituted Accounting Periods') and IT 2497 ('Income Tax: Substituted Accounting Periods: Large Investment or Property (Unit) Trusts') (see [20] and [21] below). By reference to the language of the two Taxation Rulings, the ATO's letter stated that it was considered that 'exceptional circumstances' were not present, and that the evidence provided on behalf of MLC did not support 'a substantial business need', but, rather, related to 'the convenience of the manager of the trusts' and 'the gaining of a competitive edge over managers of other large unit trusts'. 18 On 24 May 2002, MLC made a request, under s 13 of the ADJR Act, for a statement of the reasons for the Decision. On 28 June 2002 the ATO provided a 13-page statement signed by Mr Thaler of his reasons for the Decision ('Statement of Reasons'). I have found the Statement of Reasons helpfully detailed.

GROUNDS OF THE PRESENT APPLICATION 19 MLC relies on the following grounds recognised in ss 5(1) of the ADJR Act: '(e) that the making of the decision was an improper exercise of the power conferred by the enactment in pursuance of which it was purported to be made; (f) ... ; (g) … ; (h) that there was no evidence or other material to justify the making of the decision; …' Grounds (e) and (h) are to be read in the light of subss (2) and (3) of s 5 of the ADJR Act which are, relevantly, as follows: '(2) The reference in paragraph (1)(e) to an improper exercise of a power shall be construed as including a reference to: (a) taking an irrelevant consideration into account in the exercise of a power; (b) failing to take a relevant consideration into account in the exercise of a power; (c) ... ; (d) ... ; (e) ... ; (f) an exercise of a discretionary power in accordance with a rule or policy without regard to the merits of the particular case; …' (3) The ground specified in paragraph (1)(h) shall not be taken to be made out unless: (a) the person who made the decision was required by law to reach that decision only if a particular matter was established, and there was no evidence or other material (including facts of which he or she was entitled to take notice) from which he or she could reasonably be satisfied that the matter was established; or (b) the person who made the decision based the decision on the existence of a particular fact, and that fact did not exist.'

IT 2360 AND IT 2497 20 Taxation Ruling IT 2360 was issued on 12 September 1986. The relevant paragraphs in it are as follows: '10. It is expected that the circumstances in which leave is granted to adopt an accounting period other than 30 June will be rare. Furthermore it is expected that applications under sub-section 18(1) will be restricted to taxpayers carrying on business, particularly company taxpayers. It is difficult to imagine any circumstances in which leave under sub-section 18(1) should be granted to taxpayers deriving income by way of salary and wages, pensions, etc. and/or rents, dividends and interest. 11. A change in the accounting period of a business taxpayer should only be approved where there is a substantial business need for making the change. In this context a substantial business need does not mean savings in tax or the gaining of a competitive edge over other taxpayers. It means that there must be some factor or element peculiar to the particular business or class of business which makes a 30 June year wholly inappropriate or impractical as a measure for determining taxable income. 12. A substantial business need may exist where it is found that the taking of stock on hand at 30 June is a practical impossibility. The counting of live-stock on the vast cattle stations in the far north of Australia is an example. It is understood this is a process which can extend over several months and its timing is dependent upon the cattle season which extends from April to November. There may also be other isolated instances where, by the nature of a business, the income from the business activity is received up front before the incurring of the bulk of the expenditure and a 30 June year seriously distorts the calculation of taxable income. 13. Convenience of the taxpayer is not sufficient reason for a change in accounting period. Nor is it sufficient to say that a 30 June year does not permit a proper matching of income and expenditure. This is a claim which may be made in relation to businesses which are of a seasonal nature. It has not been established that any period ending other than 30 June generally enables an accurate matching of income and expenditure. In any event it must be taken for granted that successive Governments have not been unaware of this feature - the fact that there has not been any amendment to the income tax law to deal with it is tacit recognition that it is not a matter of sufficient substance to warrant change of accounting period. … 16. The more usual situation where leave may be granted is in a resident company group situation. It has been the practice for many years to grant leave to companies in a group to balance on the same date as the parent i.e. so that all companies in the one group share the same accounting period for income tax purposes. Many of the parent companies have been in existence prior to the introduction of Commonwealth income tax in 1915 and they have been permitted to lodge income tax returns on the same accounting period as they used prior to 1915. Some banks in existence prior to 1915, for example, have always lodged income tax returns on a 30 September year end. So have their subsidiaries. The practice has not been restricted to resident companies. Subsidiaries and branches of overseas companies are also permitted to lodge returns of income for the same year as the parent is required to lodge returns under the relevant income tax legislation or by the relevant income tax authorities. These long standing practices may continue to enable all companies in the group to balance on the same day. … Partnerships 33. What has been said in this Ruling in relation to the granting of leave to adopt accounting periods other than 30 June in the case of individual and company taxpayers applies also in the cases of partnerships. …. Trusts 37. It is not unusual for some business ventures to be structured as unit trusts rather than as partnerships. It is said that the unit trust structure provides greater flexibility. Essentially, however, the arrangements reflect the wishes of the participants to carry on the venture jointly. Applications by unit trusts of this nature for leave to adopt accounting periods other than 30 June should be dealt with in the same manner as partnerships. 38. Another trust situation which may give rise to application for leave to adopt accounting periods other than 30 June is the large investment or property trust which may have thousands of investor/beneficiaries. This matter is currently under consideration and will be the subject of a further Ruling.' (my emphasis in text - headings emphasised in original) 21 As foreshadowed in par 38 of IT 2360, the Commissioner issued a further Taxation Ruling relating specifically to large investment or property trusts. This was IT 2497 which was issued on 6 October 1988. The relevant paragraphs from it are as follows: '4. Only in the most exceptional circumstances will leave be granted to trusts to adopt substituted accounting periods. Paragraph 10 of Taxation Ruling No IT 2360 states that it is expected that the circumstances where leave is granted to adopt an accounting period other than 30 June will be rare. That Ruling stresses that there must be a substantial business need for making the change and this means that there must be some factor or element peculiar to the particular business or class of business which makes a 30 June balance date wholly inappropriate or impractical as a measure for determining taxable income. Paragraph 13 of that Ruling states that convenience of the taxpayer is not sufficient reason for a change in an accounting period. … 6. The reasons given by the large investment or property trusts to support their applications for leave under subsection 18(1) centre on the proposition that the balance dates sought to be adopted will enable the trusts to issue advices of income entitlements to unit holders before 30 June. This is not considered to amount to the sort of real business need envisaged in the earlier Ruling. It is not a matter that makes a 30 June balance wholly inappropriate or impracticable as a measure for determining net income of the trusts. It is simply a matter of giving trustees and managers of the trusts concerned more time to issue to unit holders advice of income entitlements. These reasons are not viewed as sufficient to warrant the granting of leave under sub-section 18(1). 7. There would be a substantial impact on the revenue if substituted accounting periods were to be granted generally to large investment or property trusts. This is because if, say, a balance date of 30 April in lieu of the subsequent 30 June were granted, there would be a continual deferral of tax on the income of the trust derived during the period between 30 April and 30 June. This, of course, is a factor which must be taken into account in the general administration of the income tax law. 8. Where large investment or property trusts have already been granted a substituted accounting period those trusts will not be required to revert to a 30 June balance date. They will be allowed to continue to balance on the substituted accounting period date unless any circumstances arise which warrant a change being made.' (my emphasis)

REASONING

1. Improper exercise of power - exercise of discretionary power in accordance with rule or policy and without regard to merits of particular case 22 MLC submits that the ground of review recognised in ss 5(1)(e) and 5(2)(f) of the ADJR Act (see [19] above) is made out. The present submission has two interrelated limbs: first, that the two Taxation Rulings, IT 2360 and IT 2497, express a rule or policy, the terms of which suggest that it is to be applied without regard to the merits of a particular case; and, secondly, that by the Decision, Mr Thaler in fact implemented those Taxation Rulings without proper regard to the merits of MLC's case. 23 Upon analysis, it is only the second limb which constitutes the present ground of review. The question is whether the decision-maker decided in accordance with a rule or policy and without regard to the merits of the particular case. The terms of the rule or policy are important background material which might predispose the decision-maker to decide in the manner described. Indeed, if inappropriately expressed, a rule or policy may, with other circumstances, contribute to the arising of an inference that the decision-maker did decide in accordance with it and without regard to the merits of the particular case. 24 The general principles in relation to the present ground of review are well recognised: it is their application in the particular case which is apt to give rise to difficulty. 25 The essence of the form of improper exercise of power recognised in s 5(2)(f) of the ADJR Act is that the decision-maker has concentrated attention on implementing a rule or policy to such an extent that he or she has been caused not to give proper consideration to the merits of the particular case. Indeed, it has been suggested that facts which constitute this ground will also constitute 'failing to take a relevant consideration into account in the exercise of a power' (see s 5(2)(b) of the ADJR Act), the 'relevant consideration' being 'the merits of the particular case': see, for example, Hindi v Minister for Immigration and Ethnic Affairs (1988) 20 FCR 1 (Sheppard J) ('Hindi') at 13. 26 The present ground of review has been discussed in many cases in this Court; see, for example, Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 per Brennan J at 640; Howells v Nagrad Nominees Pty Ltd (1982) 66 FLR 169 at 194-195 per Fox and Franki JJ; Chumbairux v Minister for Immigration and Ethnic Affairs (1986) 74 ALR 480 per Burchett J at 492-493; Brelin v Minister for Immigration and Ethnic Affairs (unreported, Federal Court of Australia, Wilcox J, 14 May 1987) at 8-10; Khan v Minister for Immigration and Ethnic Affairs (unreported, Federal Court of Australia, Gummow J, 11 December 1987) at 11-12; Hindi at 12-15; Eskaya v Minister for Immigration, Local Government and Ethnic Affairs (1989) 18 ALD 217 per Lee J at 222; Dahlan v Minister for Immigration, Local Government and Ethnic Affairs (unreported, Federal Court of Australia, Hill J, 12 December 1989) at 34-35; Surinakova v Minister for Immigration, Local Government and Ethnic Affairs (1991) 33 FCR 87 per Hill J at 98; Sacharowitz v Minister for Immigration, Local Government and Ethnic Affairs (1992) 33 FCR 480 ('Sacharowitz') per Burchett J at 485-487; Elias v Federal Commissioner of Taxation (2002) 50 ADR 253('Elias') per Hely J at [35]-[40]. 27 It would be wrong to treat the discussions in these cases as a substitute for the terms of ss 5(1)(e) and 5(2)(f). To do so would be to fall into an error akin to that which the ground of review itself recognises. The question is one as to the state of mind of the decision-maker in the particular case. 28 Where, as in the case of subs 18(1), a discretionary power is not confined by the statute conferring it, the considerations which may be taken into account and the weight to be given to them are matters for the decision-maker, except to the extent that implied limitations may be found in the subject matter, scope and purpose of the statute: see, for example, Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 at 40 - 41, per Mason J. In the present case, the decision-maker was Mr Thaler. The general principle just enunciated required that he take into account considerations he considered relevant and give them the weighting he thought appropriate. 29 Elias concerned an application by a taxpayer under s 255-10 of Sch 1 of the Taxation Administration Act 1953 (Cth) for a deferral of the time at which an amount of a tax-related liability was, or was to become, due and payable, and consequential deferral of the accrual of any general interest charge. The Commissioner had an 'ATO Receivables Policy'. Clause 9.4.1 of an earlier version of this Policy commenced as follows: 'The Commissioner will only defer the time for payment where debtors can demonstrate: …' (my emphasis) Clause 9.4.1 of a revised form of the Policy, however, commenced as follows: 'Without limiting the Commissioner's discretion in relation to any particular case, the time for payment will not normally be deferred unless the debtor can demonstrate: …' (my emphasis) Hely J thought that the earlier form of the Policy, if taken at face value, was not consistent with the principles established in this area of the law, because it provided that the Commissioner 'would only defer the time for payment if a particular set of circumstances involving blameless and temporary financial difficulty were established' (at [35]). His Honour thought that the revision saved the Policy, stating (at [37]) of the revised form: 'Deferment will not "normally" be granted unless the set of circumstances which previously provided the "only" basis for deferment are established, but without prejudice to the exercise of the Commissioner's discretion in relation to any particular case.' His Honour noted also 'and perhaps more importantly' that 'the decision-maker did not regard himself as being confined in determining the application for deferment' (at [39]), and that it was 'evident on the face of the report that the decision-maker regarded himself as the repository of a general discretion' (at [40]). 30 It has been accepted in other cases too, that where there is a grant of a broad discretionary power, an understanding by a decision-maker that the power is to be exercised, or exercised in a certain manner, only in special or exceptional circumstances, or only sparingly, is apt to render decisions made in exercise of the power liable to be set aside: see, for example, Sacharowitz at 484 - 485; Otter Gold Mines Ltd v Australian Securities Commission (1997) 25 ACSR 382 at 388 - 389; Westpac Banking Corporation v Australian Securities Commission (1997) 72 FCR 318 ('Westpac') per Cooper J at 334; Brown v Federal Commissioner of Taxation (1998) 42 ATR 118 ('Brown') per Hill J at [47]. Counsel for the Commissioner submits that Westpac and Brown are distinguishable on their facts, but they support the general proposition stated in the preceding sentence. 31 I turn now to apply these principles. The relevant terms of IT 2360 and IT 2497 were set out at, respectively, [20] and [21] above, and will not be repeated here. 32 IT 2360 and IT 2497 would predispose a decision-maker within the ATO against granting leave in the circumstances of the present case. At [20] and [21] I have emphasised the most important passages in those Taxation Rulings supportive of the present ground of review. I will not repeat all those passages here, and will treat them as read. 33 The first sentence in par 13 of IT 2360 required considerations of convenience (or inconvenience) to be left out of account. The degree of inconvenience did not matter. No matter how little or much it might cost MLC to adapt its computer program to utilise 30 June accounting periods for the new MUTs, IT 2360 required that the matter be ignored because it fell into the 'convenience/inconvenience' category of consideration, not the 'substantial business need' category. The latter was defined to mean 'some factor or element peculiar to the particular business or class of business which makes a 30 June year wholly inappropriate or impractical as a measure for determining taxable income'. By 'the particular business or class of business', IT 2360 was referring to the nature of a business activity in general, such as cattle raising or managing large unit trusts. It is true that by the use of the singular, 'the particular business', IT 2360 allowed for the possibility that circumstances unique to the business of the particular taxpayer might warrant the granting of leave, but those circumstances had to relate to the nature of the taxpayer's 'business', and excluded convenience/inconvenience considerations. 34 There is no support in the ITA Act for such a limitation on the discretion given by subs 18(1) of that Act. 35 In my opinion, the passages in the Taxation Rulings emphasised in [20] and [21] above show that they purport to fetter the discretion of the decision-maker in the exercise of the discretion given by s 18(1) of the ITA Act. 36 I turn now to the terms of the Statement of Reasons. 37 In recounting his conversation with Warwick Johns, Mr Thaler recorded: 'He [Mr Johns] said ... IT 2497 clearly precluded entities such as these from being granted SAPs except in cases where exceptional circumstances existed and he was of the opinion that the information which I had given him suggested administrative convenience as the dominant reason for the application.' Although, in terms, at this point in the Statement of Reasons, Mr Thaler was only recounting what he was told, I think it clear that he accepted Mr Johns' advice. 38 Similarly, Mr Thaler recorded that Mr Walmsley had indicated that 'the ATO should follow IT 2497'. Mr Thaler thought he had to choose between following Mr Walmsley's precedent in granting leave in 1995, and following the Taxation Rulings. In their letter of 4 July 2001, G & F had referred the ATO to the earlier grant of approvals. Mr Thaler stated: 'I felt that I was faced with a significant dilemma regarding ATO consistency of decision making. If I granted the SAPs, my decision would be inconsistent with my preliminary conclusions and with current ATO policy and practice; however if I refused the SAPs my decision would appear to be inconsistent with Mr Walmsley's 1995 decision.' I am of the opinion that Mr Thaler accepted the soundness of Mr Walmsley's advice, even though, in terms, at that point in the Statement of Reasons, he was only recording Ms Burney's account of what Mr Walmsley had told her. 39 Mr Thaler began by satisfying himself that there was no substantial business need for SAPs in 'the funds management industry'. He did so because it was concerns expressed by the industry which had led to the issue of IT 2497 in 1988. 40 Mr Thaler's initial decision to refuse MLC's request, communicated orally to Ms Oner in September 2001, was clearly based on the application of IT 2360 and IT 2497. 41 G&F's supplementary submission of 5 March 2002 attempted to bring MLC's case within the 'substantial business need' category of the Taxation Rulings as explained in pars 11 - 13 of IT 2360 (see [20] above), even though its case was broader. 42 Mr Thaler summarised, and responded to, G&F's submissions under the following headings: · New trusts are akin to subsidiaries · Impact upon investors · Facilitation of investment choice · Business cost · Consistency of decision making by the ATO. 43 In relation to the first ('New trusts are akin to subsidiaries'), Mr Thaler decided that since the MTUs were trusts, not companies in a group, IT 2497 did not authorise him to grant MLC's request. He began by stating: 'The Commissioner's guidelines relating to grouping of entities in IT 2360 and TD 95/32 [not presently relevant] are only concerned with groupings of companies and do not contemplate groupings of trusts.' Mr Thaler stated: 'The guidelines [IT 2497] state that a SAP should only be granted where the most exceptional circumstances exist and there must be a substantial business need for making the change. G&F acknowledged that the funds did not prepare consolidated financial statements for the purposes of the Corporations Law as would a corporate group. I noted that MLC did provide consolidated reporting of income and tax information (to the extent that is possible) for investors with units in different MasterKey Trusts.' (my emphasis) Mr Thaler did not address the nature and extent of any inconvenience which would arise from 'the consolidated reporting of income and tax information' if the new MUTs were required to use accounting periods ending 30 June. Why? Apparently only because the MUTs did not form part of 'a resident company group situation' as referred to in par 16 of IT 2360. 44 Mr Thaler's final paragraph under the heading 'New trusts akin to subsidiaries', was as follows: 'While I have accepted that a common denominator for the MasterKey trusts is that they have the same trustee/manager and I have also accepted that all investments in units in the MasterKey Trusts were offered under the one prospectus, this does not justify granting leave in accordance with the guidelines contained in the rulings.' (my emphasis) While it is possible to regard this paragraph as no more than a statement that the special 'resident company group' case referred to in par 16 of IT 2360 does not apply, I think it has greater significance: if the circumstances of MLC's application do not fit the Taxation Rulings, it should be refused. 45 In relation to 'Facilitation of investment choice', Mr Thaler thought IT 2497 dictated a refusal of MLC's application. He stated: '... I have given weight to the fact that since the late 1980s at least (when IT 2497 was released) the clear policy has been that trustees of large unit trusts would not be granted leave to adopt a SAP unless there was a substantial business need.' (my emphasis) 46 Mr Thaler thought that IT 2497 prohibited the grant of leave in the case of a group of large unit trusts, or, at least, that it did so unless the nature of any underlying business activity carried on made an accounting period ending 30 June 'wholly inappropriate or impractical as a measure for determining taxable income'. 47 In relation to 'Business cost', Mr Thaler thought that IT 2497 required a decision that such costs were not a sufficient basis on which to allow a SAP. He began by saying: 'Costs and certain practical difficulties for trustees and unit trust managers were recognised in IT 2497 as reasons given to support SAP applications but were not accepted as a sufficient basis for allowing a SAP.' The words 'were not accepted' mean 'were not accepted according to IT 2360 and IT 2497'. Mr Thaler thought that 'costs' and 'certain practical difficulties' as grounds were dealt with and authoritatively rejected in IT 2497. It is true that Mr Thaler also later said he was not satisfied that MLC's claim that it would have to perform 'an enormous…amount of programming and other work related to computer and other systems' (my emphasis) if leave to use SAPs were not granted, was justified. But then he returned to IT 2497: 'Additionally, there was no suggestion in IT 2497 that leave would be granted for trustees in the circumstances outlined by G&F.' 48 Over all, Mr Thaler's consideration of the issue of 'Business cost' was so much shaped by the Taxation Rulings, and, in particular, their insistence upon the existence of 'a substantial business need', that he was prevented from paying due regard to the merits of MLC's case on that issue. 49 Finally, under the heading, 'Consistency of decision making by the ATO', Mr Thaler thought he should be faithful to the Taxation Rulings even though Mr Walmsley had not been. He said: 'I considered that the ATO should apply the Commissioner's Rulings consistently. The guidelines provided in IT 2497 and associated Rulings should be applied consistently across trustees of all large unit trusts with reference to the facts of each particular case.' and 'I considered that it would be bad administrative policy for the ATO to follow a decision which is not supported by current policy, merely because it would be inconsistent not to do so. I considered that it would be preferable to ensure that taxpayers were treated consistently as between each other rather than to achieve consistency by knowingly repeating unsupportable or doubtful or wrong decisions.' I do not think the words 'with reference to the facts of each case' show that Mr Thaler was prepared to depart in the least from IT 2497. It was the Taxation Rulings that were to be applied to the facts of each case. 50 It will be recalled that G&F referred to the earlier approvals of SAPs in their initial letter of application dated 4 July 2001. Mr Thaler seems not to have considered two results of deciding consistently with the Taxation Rulings and inconsistently with the earlier approvals. First, there would be inconsistent treatment of investors in the existing MUTs, on the one hand, and investors in the new MUTs on the other. Second, there would be inconsistency of treatment of MLC on the one hand, and the trustees and managers of the other large unit trusts on the other, in this respect: it may be assumed that all other funds used the same accounting periods, presumably ending on 30 June, but MLC would have four funds using accounting periods ending on 30 June and the remainder using SAPs ending on 31 May - a competitive disadvantage at least to some extent. Perhaps Mr Thaler would have appreciated these matters if he had given due regard to the merits of MLC's particular case, rather than applying the Taxation Rulings. 51 In sum, the Statement of Reasons shows throughout that Mr Thaler thought he was required to apply the Taxation Rulings and that he tried diligently to do so, but, as a result, that he failed to give proper and genuine regard to the merits of MLC's application. It may be that if he had not erred in that way, he would have arrived at the same conclusion. It may be that he would have found some of the ideas expressed in the Taxation Rulings, or ideas similar to them, persuasive in any event. But this is beside the point. MLC was entitled to the benefit of a decision-maker who was prepared to depart from the Taxation Rulings in the course of giving genuine consideration to the particular merits of its case. 52 I turn now to consider two particular submissions made by MLC and five made by the Commissioner. 53 First, in support of its submission that Mr Thaler regarded himself as bound to exercise his discretionary power in accordance with the Taxation Rulings, MLC referred to the consultations which he had with other officers of the ATO as recounted in the Statement of Reasons. As noted at [37] above, Mr Thaler recorded that Mr Johns told him: 'IT 2497 clearly precluded entities such as these from being granted SAPs except in cases where exceptional circumstances existed and he was of the opinion that the information which I had given him suggested administrative convenience as the dominant reason for the application.' 54 Troubled by the earlier grant of SAPs by Mr Walmsley in 1995, which Mr Thaler considered to be contrary to the Taxation Rulings, Mr Thaler spoke to Ms Dianne Burney who spoke to Mr Walmsley and reported back to Mr Thaler that Mr Walmsley had: 'indicated to her that the ATO should follow IT 2497.' Mr Thaler said that as a result of Ms Burney's conversation with Mr Walmsley, he (Mr Thaler): 'decided to determine the matter on the information before [him], rather than to speculate on the nature of any additional information which may or may not have been provided to Mr Walmsley in a separate application on behalf of other entities more than six years earlier.' 55 These passages are at least consistent with Mr Thaler's having regarded himself as bound to apply IT 2360 and IT 2497. With the exception of the last, they are in terms only a recounting of conversations - a fact emphasised by the Commissioner in submissions. By the last passage, read in context, Mr Thaler meant that he would apply IT 2497 to the information before him without troubling himself further with the apparently inconsistent approvals granted by Mr Walmsley, apparently inconsistently with IT 2497, in 1995. 56 Nowhere did Mr Thaler suggest that he understood he could depart from the Taxation Rulings. If that had been his understanding, he would not have simply acquiesced in what the other ATO officers told him, and would not have repeatedly turned to the Taxation Rulings throughout the Statement of Reasons. He accepted the correctness of what he was told. 57 Second, MLC submits that the legislative background to the enactment of subs 18(1) shows that convenience was a factor which the Commissioner was intended by Parliament to take into account. I disagree. 58 Prior to the ITA Act, the predecessors of subs 18(1) provided that where a person's income could not be 'conveniently' returned for a year ending on 30 June, the Commissioner had a discretion to 'accept' returns made to a different date: see Income Tax Assessment Act 1915 (Cth) subs 28(3); Income Tax Assessment Act 1922 (Cth) subs 32(3); Income Tax Assessment Act 1928 subs 4(a) (which amended the Income Tax Assessment Act 1992-1927 by adding a proviso to subs 13(1) of that Act); and cf the Income Tax (Management) Act 1928 (NSW) subs 38(3). 59 The ITA Act was, according to its long title, '[a]n Act to consolidate and amend the law relating to the imposition assessment and collection of tax upon incomes'. The omission of any reference to convenience in the new subs 18(1) is not explained in the Explanatory Memorandum, in the speeches in Parliament on the Bill for the ITA Act, or in the report of the Royal Commission on Taxation chaired by Sir David Ferguson which preceded the introduction of that Bill. 60 To my mind, the legislative background does not indicate that convenience either was or was not to be taken into account by the Commissioner in dealing with applications for leave under subs 18(1). 61 Third, the Commissioner relies on the discussion by Wilcox J of the expression 'only in exceptional circumstances' in par 4 of the then Government's 'Criminal Deportation Policy' in Nikac v Minister for Immigration and Ethnic Affairs (1988) 20 FCR 65 ('Nikac') at 81. That paragraph stated that it was the policy of the Australian Government that recommendations of the Administrative Appeals Tribunal 'should be overturned by the Minister only in exceptional circumstances'. The Minister decided to order the deportation of certain persons despite recommendations of the Tribunal against deportation. In a statement of reasons furnished under s 13 of the ADJR Act, the Minister stated that he accepted generally the Tribunal's findings of fact, but did not accept its characterisation or weighting of them. After referring to certain particular considerations, the Minister said he took the view that exceptional circumstances existed which justified a departure from the Tribunal's recommendation. 62 Wilcox J said that 'the term 'exceptional circumstances' postulates a criterion which is both vague and subjective'; that although his Honour thought the circumstances 'not exceptional', it was 'impossible to categorise a different view as being devoid of plausible justification'; and that '[l]ike beauty, 'exceptional circumstances' lies in the eye of the beholder' (all at 81). This passage was referred to with approval by a Full Court in Hicks v Aboriginal and Torres Strait Islander Commission (2001) 110 FCR 582 at 586-587. 63 Nikac is to be distinguished. The applicants were contending that the Minister's decision was 'an exercise of a power that [was] so unreasonable that no reasonable person could have so exercised the power' within s 5(2)(g) of the ADJR Act. Far from attacking the reference to 'exceptional circumstances' in the Criminal Deportation Policy, the applicants relied on it. They submitted that the Minister's decision to deport them was so unreasonable that no reasonable person could have made it, calling in aid that the circumstances of their cases did not, according to their submission, reach the level of being 'exceptional'. It is understandable that his Honour referred to the difficulty facing the applicants in establishing that proposition. In the present case, on the other hand, MLC submits that the Taxation Rulings were expressed in terms apt to cause a decision-maker, such as Mr Thaler, to regard the discretion available to him as being more narrow that it was. Nikac does not establish that the expression 'exceptional circumstances' refers to a matter so subjective that it is devoid of meaning, or that the use of it in a rule or policy cannot contribute to producing the unacceptable result found by me above. 64 Fourth, the Commissioner submits that the references in the Statement of Reasons to the Taxation Rulings, and the use in the Statement of Reasons of expressions which occur in those Rulings, are to be explained by the fact that Mr Thaler was responding to the case put by MLC, which was itself framed by reference to the Rulings. 65 G&F's relatively brief original letter of application dated 4 July 2001 gave two grounds for the application, neither of which was referable to the Taxation Rulings:

• the new MUTs formed part of a group of funds, the other members of which were the CMT, the MUTs and the ADFs; MLC returned income in respect of all the existing Funds based on SAPs ending on 31 May as previously approved; and the approving of SAPs for the new MUTs would be 'broadly consistent with the policy of having all entities within a group balancing on the same date for tax purposes';
• '... it would require an enormous and largely inefficient amount of programming work to enable the [computer] system to calculate the income of different trusts should those trusts be required, for taxation purposes, to return income for different periods.' (The letter contained some elaboration on both grounds, particularly the second.) 66 I do not regard the reference to 'the policy of having all entities within a group balancing on the same date for tax purposes' as a reference to IT 2360 or IT 2497. It could just as well have been intended as a reference to MLC's internal policy, but was more likely intended as a reference to the Commissioner's previous practice of approving SAPs for all the existing Funds, to which the letter had just referred. 67 Unlike their initial application, G&F's supplementary submission referred to the two Taxation Rulings, and did so frequently. The supplementary submission had been prompted by telephone conversations on 6 and 12 September 2001 between Mr Thaler and Ms Oner of G&F in which Mr Thaler told Ms Oner of his decision to refuse approval. Otherwise there is no direct evidence of what was said in those conversations. 68 In their letter of 5 March 2002, G&F stated: 'We understand that the guidelines to be applied by the Commissioner in deciding whether to grant leave to adopt a substituted accounting period are contained in the following documents: · IT 2360 (issued 12 September 1986); · IT 2497 (issued 6 October 1988); ...' 69 Apparently G&F did not understand this to be the case when they wrote their original letter of application. Perhaps Mr Thaler directed Ms Oner to IT 2360 or IT 2497 in the telephone conversations of September 2001. Then again, she may have acquired the 'understanding' of their relevance, to which she referred in her letter, as a result of her own researches. We do not know. 70 Either way, once she read the Taxation Rulings, she would have appreciated their forcefulness and the necessity of accommodating her submissions to them if her client was to have any chance of success. In these circumstances it lies ill in the mouth of the Commissioner to justify the fidelity of the Statement of Reasons to the Taxation Rulings by characterising it as nothing more than a response prompted by the manner in which Ms Oner had 'chosen' to frame her supplementary submission. 71 The Statement of Reasons itself is structured broadly as a chronological account. Accordingly, Mr Thaler first summarises G&F's initial letter of application of 4 July 2001. He states that he referred to IT 2360 and IT 2497, had discussions with various ATO officers, and had the telephone conversations with Ms Oner in September 2001. He next summarises, over some four pages, the supplementary submission itself. Over the remaining 4-5 pages he details how he responded to the submission. For example, he states: 'Following the receipt of the submission on 5 March 2002 I reconsidered IT 2360 and IT 2497.' and 'After receiving the submission I again spoke to Mr Gannon ... and requested him to provide me with his written analysis of the SAP requests in terms of IT 2497.' 72 In my opinion a fair reading of the Statement of Reasons shows that Mr Thaler did not refer to IT 2360 and IT 2497 because he was responding to MLC's having done so. Rather, spontaneously, and unprompted by anything said by MLC, he referred to them as his lodestar upon receipt of both the initial application and the supplementary submission. 73 Even apart from this, I would not accept the Commissioner's present submission for a reason adverted to earlier. Having been the cause, through the Taxation Rulings, of MLC's having framed its supplementary submission in conformity with them, the Commissioner cannot be heard to say that he was doing no more than responding to MLC's having done so. 74 Fifth, the Commissioner submits that the word 'exceptional' is used in the Taxation Rulings and the Statement of Reasons in an innocuous sense. 75 It is common ground that the Parliament intended that ordinarily the accounting period of taxpayers for the purposes of the ITA Act is required to be 12 months ending on 30 June. It follows, so the Commissioner's submission goes, that it must be common ground also that it is only in an 'exceptional' case that leave to adopt a SAP was intended to be granted. 76 In my opinion, however, the word 'exceptional' is not used in the Taxation Rulings or the Statement of Reasons merely with the literal and neutral dictionary meaning of 'pertaining to an exception', as the Commissioner's submission suggests. The significance of the use of the word 'exceptional' must be assessed in the context in which it is used. IT 2360 used the word 'rare' (par 10) (see [20] above) and IT 2497 uses the expression 'the most exceptional circumstances' (par 4) (see [21] above). This last expression shows that the word 'exceptional' was being used in a qualitative sense which admits of degrees of exceptionality. I suggest that the expression 'most exceptional' bears a meaning akin to 'very rare'. 77 In the Statement of Reasons Mr Thaler referred to both Taxation Rulings. In my opinion, when he used the word 'exceptional' in the Statement of Reasons, he was using it in the sense similar to that of 'rare'. A particular illustration is his statement that IT 2497 'clearly precluded entities such as these from being granted SAPs except in cases where exceptional circumstances existed'. The category of taxpayers, 'large investment or property (unit) trusts' is being addressed. Mr Thaler notes that this particular category of taxpayer has already been determined by IT 2497 not to be allowed to adopt an SAP unless the circumstances of a particular trust make it 'exceptional'. An exception to the firm determination that has previously been made in respect of such a class of taxpayers can be properly described as a 'rare' case. 78 Sixth, the Commissioner relies on Legal Services Commission of New South Wales v Stephens [1981] 2 NSWLR 697 (CA). Section 12 of the Legal Services Commission Act 1979 (NSW) provided that the Commission must ensure that legal aid was provided in the most effective, efficient and economical manner; and that, so far as was reasonably practicable, a legally assisted person obtained the services of the lawyer of his choice. The Court upheld the validity of a general policy formulated by the Commission that the conduct of criminal proceedings in respect of which it had granted an application for legal aid would not, unless there were 'exceptional' circumstances, be assigned to solicitors in private practice unless the Public Solicitor was unable to conduct the proceedings. 79 In my opinion, the case is distinguishable. The section gave the Commission nine broadly described responsibilities, two of which are noted above (all nine are listed at [1981] 2 NSWLR at 703-704). There is a tension between some of them. The Commission would have limited funds and therefore would be able to grant only a limited number of approvals. Applications for grants of legal aid are numerous but are classifiable in that they seek funding for any one of several well-known categories of litigation. In all these circumstances it is understandable that the Court held that the Commission was entitled to formulate the policy it did. 80 In the present case, however, the Commissioner's discretion is not confined or guided by the section. There is no question of resolving a tension between competing specified statutory responsibilities. There is no limit on the number of approvals of SAPs that can be granted. Although all applicants will have in common that they are seeking leave to adopt a SAP, there are no other inherent categories of applications likely to be made. 81 Seventh, the Commissioner points to the fact that Mr Thaler gave anxious consideration to MLC's submission that the Commission should decide consistently with his previous approvals of SAPs - a matter not touched on in IT 2360 or IT 2497. I do not accept that this shows that the present 'rule or policy' ground of review is not established. Indeed, Mr Thaler decided that the desirability of consistency in decision-making must yield to fidelity to the Taxation Rulings. 82 Since MLC succeeds on the first grounds of review on which it relies, I will address the remaining grounds more briefly. But I will deal with the 'no evidence' ground at greater length than the others, in view of the attention which was given to it in submissions.

No evidence - particular fact that did not exist - flexibility in computer system 83 MLC relies on several passages in the Statement of Reasons to the effect that Mr Thaler was satisfied that MLC's computer system had sufficient flexibility to cope with some MUTs having an accounting period ending 30 June, and others, an accounting period ending 31 May. Accordingly, Mr Thaler was not satisfied that a refusal of MLC's application would require 'an enormous and largely inefficient amount of programming and other work' to enable the computer and other systems to cope with the obligation imposed. 84 On the hearing, senior counsel for MLC read, most of it over objection, a lengthy affidavit of Louise Suffield, Head of Investment Control, Finance, of MLC. Ms Suffield's affidavit was directed showing that, without reprogramming at considerable cost, MLC's computer system was not able to cope with the new MUTs having an accounting period ending on 30 June. Her affidavit contained evidence of a 'business review' conducted between late October and mid December 2002 MLC staff at her instigation, for purposes which included: (a) ascertaining which areas of MLC's business would be affected by the Decision; (b) what changes would be required to address the effects of the Decision; and (c) the cost of implementing those changes. The material in Ms Suffield's affidavit was not before the decision-maker. Indeed, the business review post-dated the Decision. 85 MLC submitted that Ms Suffield's evidence was nonetheless admissible on two bases: first, as supporting the ground 'that there was no evidence or other material to justify the making of the decision' provided for in s 5(1)(h) of the ADJR Act, and, in particular, as showing that Mr Thaler had 'based the decision on the existence of a particular fact, and that fact did not exist' within s 5(3)(b) of that Act. The 'particular fact' was, in substance, that MLC's existing computer system had sufficient flexibility to cope if the new MUTs were required to operate on an accounting period ending on 30 June. 86 Similarly, MLC relied on Ms Suffield's affidavit as supporting the ground that the making of the decision was an improper exercise of power (s 5(1)(e) of the ADJR Act), and, in particular, that the decision-maker had taken an irrelevant consideration into account (s 5(2)(a) of the ADJR Act). The suggested 'irrelevant consideration' was, again, the non-existent fact that MLC's existing computer system had sufficient flexibility to cope if the new MUTs were required to operate on an accounting period ending 30 June. 87 I allowed the parts of Ms Suffield's affidavit which were objected to, to be read subject to the objection on grounds of relevance and subject to an order which I made under s 136 of the Evidence Act 1995 (Cth) that the use to which those parts might be put was limited to supporting the non-existence of the supposed fact mentioned. 88 There is no substance in MLC's submission that the evidence supports the second ground, the 'improper exercise of power - irrelevant consideration - flexibility of computer system' ground. MLC does not dispute that it would be one consideration relevant to the exercise of the Commissioner's discretion that MLC's existing computer system had sufficient flexibility to cope with the new MUTs having accounting periods ending on 30 June. A consideration which is relevant does not become irrelevant because it is shown not to be supported in fact. 89 I pass on now to consider the attack made by MLC based on the first ground mentioned - the 'no evidence' ground. 90 In its written submissions, MLC sets out the following extracts from the Statement of Reasons: 'On page 1 of the Profile Statement it was stated that a feature of the unit trust was that there would be 'quarterly distributions by most funds …' … I inferred from that statement that not all of the funds made quarterly distributions in those months. … It seemed to me after considering the document that the MLC computer system already had sufficient flexibility to cope with some MasterKey Funds making distributions to unit holders at different times and/or for different periods than other MasterKey funds.' 'MLC asserted that they would have to perform an enormous and largely inefficient amount of programming and other work related to computer and other systems as a consequence of the trustee of the new trusts not being granted a SAP. I was not satisfied that this assertion was justified. I carefully considered the points made in relation to the business [costs], and I did not accept that the case was sufficiently strong to suggest that there was a substantial business need that warranted the granting of leave to adopt SAPs.' 'I also obtained a copy of a document issued by MLC Limited entitled MLC MasterKey Allocated Pension Customer Information Brochure. … The document then listed 21 funds …from which a maximum of 8 funds could be selected by an investor. … At page 7 under the heading 'Features at a glance' it was stated that the income payment can be 'monthly, quarterly, half-yearly or yearly'. These factors persuaded me that MLC's computer system had some flexibility.' (my emphasis) 91 Under the heading 'Features of the Trust' on page 1 of the Profile Statement relating to the MasterKey Unit Trust, was the following: 'h quarterly distributions by most Funds: February, May, August and November.' Immediately following the quotation of this passage in the Statement of Reasons appears a passage from which MLC, in its submissions, took the first extract set out in [90] above. But the extract is just that - an extract, not the whole of the paragraph. The whole of the relevant paragraph, as it appears in the Statement of Reasons, is as follows: 'I inferred from that statement that not all of the Funds made quarterly distributions in those months. That may have meant that some funds did not distribute quarterly, or it may have meant that some funds did not distribute in those months but in other months. It seemed to me after considering the document that the MLC computer system already had sufficient flexibility to cope with some MasterKey funds making distribution to unit holders at different times and/or for different periods than other MasterKey funds.' (my emphasis) It transpires that all the existing MUTs make distributions in respect of an accounting period ending 31 May, four of them on an annual basis and the remainder on a quarterly basis. Mr Thaler allowed for this possibility when he said: 'That may have meant that some funds did not distribute quarterly, …' - a passage omitted from the quotation in MLC's written submissions.

92 The 'no evidence' ground in the context of the former ss 476(1)(g) and 476(4)(b) of the Migration Act 1958 (Cth) was discussed by a Full Court of this Court in Minister for Immigration and Multicultural Affairs v Indatissa (2001) 64 ALD 1 ('Indatissa') and more recently by the High Court in Minister for Immigration and Multicultural Affairs v Rajamanikkam (2002) 210 CLR 222 ('Rajamanikkam'). These cases show that: · the no evidence ground in s 5(1)(h) of the ADJR Act is limited by s 5(3)(b); and · even if the latter is satisfied, the former remains to be, that is, one cannot say that there is no evidence or other material to justify the making of a decision just because the decision was based on the existence of a particular fact which did not exist; and · if there is some evidence or other material to justify the making of the decision, neither question posed by subs 5(3) arises: see Indatissa at [27] - [32]; and Rajamanikkam at [40] - [43] per Gleeson CJ. 93 In order to succeed on the 'no evidence' ground under s 5(1)(h), in the light of s 5(3)(b), MLC must establish that: (a) there was no evidence or other material to justify the making of the Decision; (b) Mr Thaler based the Decision on the existence of a particular fact; and (c) that particular fact did not exist. 94 The proposition that there was no evidence or other material to justify the making of the Decision is insupportable. The Decision was a decision not to grant leave to adopt SAPs. It could only be said that there was no evidence or other material to justify the making of the Decision if, on the evidence and other material before the decision-maker, the only decision properly available was one to grant the leave. MLC does not, and could not reasonably, make a submission to that effect. 95 The second reason why the present ground is not established is that Mr Thaler did not base the Decision on the existence of the 'particular fact' proposed by MLC, namely, that MLC's existing computer system had sufficient flexibility to cope if the new MUTs were required to operate on accounting periods ending on 30 June (see the first sentence emphasized in the passage from the Statement of Reasons quoted in [90] above, being also the sentence emphasised in the passage quoted in [91] above). The provision found in s 5(3)(b) of the ADJR Act is directed to the 'proof of the non-existence of a fact critical to the making of [a] decision': Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 357-358 per Mason CJ (my emphasis); Rajamanikkam at [56] per Gaudron and McHugh JJ, [157] per Callinan J. One cannot say that the Decision would not have been made if Mr Thaler had not found that the MLC computer system had sufficient flexibility to cope with if the new MUTs were required to return income on the basis of an accounting period ending on 30 June. That finding was one strand of the many making up a net, rather than a link in a chain or fork in a road, on which the Decision depended: see Curragh Queensland Mining Ltd v Daniel (1992) 34 FCR 212 at 220-221 per Black CJ, with whom Spender J and Gummow J agreed; Fernando v Minister for Immigration and Multicultural Affairs [1999] FCA 962 per Heerey J at [26]; Vichlenkova v Minister for Immigration and Multicultural Affairs [1999] FCA 1338 at [17]. Mr Thaler's inability to accommodate the kind of case put by MLC to the Taxation Rulings was, to say the least, and to continue to simile, one further strand in the net. 96 Finally, there is the question whether the particular fact did not exist. Mr Thaler was entitled to infer from the Profile Statement that there was some flexibility in MLC's computer program. By the evidence led before me, MLC has provided a considerable body of additional evidence relating to this issue. It may well be that Mr Thaler would now consider the cost and difficulty of accommodating an accounting period ending on 30 June for the new MUTs much greater than he previously understood them to be, but this is an irrelevancy for present purposes. 97 In the light of my conclusions expressed on the first and second issues in relation to the present ground of review, I do not find it necessary to make a finding as to whether the supposed 'particular fact' did not exist, that is, as to whether it was not true that MLC's computer system had sufficient flexibility to cope if the new MUTs were required to return income on the basis of an accounting period ending 30 June. For this reason I need not rule on the admissibility of these parts of Ms Suffield's evidence that were admitted subject to relevance.

Improper exercise of power - irrelevant consideration - competitive advantage 98 IT 2360 states that the 'substantial business need' required for the granting of leave under s 18 of the ITA Act 'does not mean ... the gaining of a competitive advantage over other taxpayers' (par 11). In addition, under the heading 'General Considerations', IT 2360 states: 'As far as it permit, the income tax law must be administered to operate fairly over the whole range of taxpayers so that no one taxpayer is advantaged … in relation to other taxpayers.' (my emphasis) 99 In the Statement of Reasons, Mr Thaler referred in the following terms to advice given to him by Jim Gannon of ATO about MLC's application: 'Mr Gannon explained that investors holding units in unit trusts which have a balancing date prior to June are able to receive their annual distribution statements earlier than investors holding units in June balancing trusts and that if MLC were able to obtain SAPs they would obtain a competitive advantage over other trustees who, apart from the SAP, were in similar circumstances. I accepted Mr Gannon's comments.' 100 Mr Thaler seems to have accepted that investors would find it an advantage to receive their distribution notices following 31 May rather than following 30 June, no doubt because this would bring forward their ability to furnish their own income tax returns in respect of the year ending 30 June. 101 MLC submits that the way in which Mr Thaler dealt with the competitive advantage issue gives rise to the 'improper exercise of power' ground of review recognised in s 5(1)(e) of the ADJR Act. MLC submits that this ground is established by reference to the following paragraphs of subs 5(2) of that Act: '(a) Taking an irrelevant consideration into account in the exercise of a power.' '(e) An exercise of a personal discretionary power at the direction or behest of another person.' 102 In support of a submission that the present consideration is irrelevant, MLC relies on a passage from the judgment of Hill J in Brown at [47] and [59]. 103 In Brown, a taxpayer sought an extension of time in which to object to an assessment. The Commissioner refused the application and the Administrative Appeals Tribunal affirmed that decision on two bases: that the Tribunal had found that documentary evidence was against the merits of the taxpayer's case; and that the Tribunal had concluded that the taxpayer could not be believed. The taxpayer appealed to this Court, submitting that the Tribunal had erred in law in relying on those two grounds. Hill J accepted the taxpayer's submission and set aside the Tribunal's decision. 104 His Honour thought that the merits of the taxpayer's case were irrelevant to the exercise of the discretion whether to extend time granted by subs 14ZW (2) of the Taxation Administration Act 1953 (Cth), although it was a permissible ground of refusal that the objection was not arguable at all. 105 At [57], Hill J stated: 'The sixth matter raised by Wilcox J [in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348 - 50] concerns considerations of fairness as between the applicants and other persons in a like position. That is clearly a relevant matter when a public law issue is involved. It will seldom have any significance in the context of income tax assessments. In the present case the Tribunal appears to have considered that it should take into account persons who decided not to object to assessments. But there can here be no question of fairness arising so far as other taxpayers are concerned. They are entitled to lodge objections and if out of time to seek an extension of time in which to lodge their objections, just as Mr Brown is. If the tax is collected at the time it becomes due Mr Brown gains no advantage over other taxpayers. If it has not been collected, that is not a matter which is within Mr Brown's control.' 106 It is common ground that the ITA Act reflects a broad policy that ordinarily a taxpayer's accounting period for the purposes of that Act is to be a period of twelve months ending on 30 June, and that an applicant for leave to use a SAP must demonstrate that its circumstances take it out of the 'ordinary' category. If the Commissioner thinks an applicant for leave has demonstrated this, and that the circumstances otherwise support a granting of leave, it is difficult to see why leave should be refused only because it would give the taxpayer an advantage over its competitors. It is, after all, open to them to apply for a SAP. That they have not done so should not tell against a taxpayer who has. With respect, I agree with Hill J in Brown in this regard. 107 Paragraph 11 of IT 2360 states only that 'a substantial business need does not mean … the gaining of a competitive edge over other taxpayers.' I accept that if a taxpayer could show nothing more than that the granting of leave would give it a competitive edge over other taxpayers in the same industry, that would not be a proper basis on which to grant leave. Exercising the discretionary power given by subs 18(1) of the ITA Act for the purpose of giving a particular taxpayer a competitive advantage over others is foreign to the subject matter, scope and purpose of that Act. 108 Mr Thaler did rely on the competitive advantage which adoption of the SAPs would give MLC as a ground for refusing its application. His reasoning was: · that the performance of managers of unit trusts was regularly scrutinised by ratings organisations which publish the rankings of the managers; · that one measure of performance is the timeliness of production of the annual distribution statements to unit holders; · that investors holding units in trusts which have a balancing date earlier than 30 June are able to receive their distribution statements earlier than the holders of units in other trusts; and · that if MLC were granted leave to adopt SAPs for the new MUTs, it would obtain a competitive advantage over other trustees which were otherwise similarly placed to it. 109 In my opinion Mr Thaler did not simply note that the gaining of a competitive advantage was not a permissible positive basis on which to grant MLC the leave it sought. Rather, he took it into account as a disqualifying factor. In doing so, he had regard to an irrelevant consideration. 110 The Commissioner relies on Bellinz v Commission of Taxation (1998) 84 FCR 154. The Full Court stated (at 167): 'There is little difficulty in accepting that where a decision-maker, including the Commissioner of Taxation, has a discretion, a principle of fairness will require that that discretion be exercised in a way that does not discriminate against taxpayers.' But the principle which the Full Court was recognising in this passage is that, where there are multiple applications for the exercise of a discretion, the decision-maker should not discriminate unfairly between them. In the present case, there were not multiple applicants for the exercise of the Commissioner's discretion under subs 18(1) of the ITA Act, and the principle has no application. 111 (Although, in terms, the principle could not be invoked by MLC because it was both the successful applicant for leave under subs 18(1) in relation to the existing Funds and is also the unsuccessful applicant in relation to the new MUTs, an analogous principle may have been available to it: the Decision had the effect of discriminating between the unit holders in the new MUTs and those in the existing MUTs (see [50] above. Although MLC sought consistency in decision-making, it did not raise this precise point and I say no more of it.) 112 I do not accept MLC's submission that by accepting Mr Gannon's comment that a SAP would give MLC a competitive advantage, Mr Thaler was exercising a personal discretionary power at the direction or behest of Mr Gannon. Accepting the correctness of what one is told in relation to a particular matter is not the same thing as deciding at the behest of ones informant. Indeed, MLC did not suggest why it was not correct to accept that a trustee of a unit trust using a SAP ending on 31 May would enjoy a competitive advantage over one using the ordinary accounting period ending on 30 June.

Improper exercise of power - irrelevant consideration - annual distribution statement 113 MLC attacks the following passage in the Statement of Reasons: 'I wanted to understand whether timing [the reference is to 'difficulty in producing annual distribution statements in sufficient time for investors (unit holders) to include the relevant amounts in their income tax returns'] was still seen as a major issue for those fund managers who managed unit trusts having June balancing dates. … I made enquiries of a manager of another stable of large investment trusts, those trusts having 30 June balancing dates, in order to establish the length of time taken for that manager to produce and distribute trust distribution statements to its investors, and also to discover whether 30 June balancing dates were still considered to be a problem within the funds management industry. He advised me that it was no longer an issue …' 114 MLC submits that this passage shows that Mr Thaler took into account an irrelevant consideration. The submission is that since MLC had not advanced as a ground for the granting of the SAPs that it experienced difficulty producing annual distribution statements in sufficient time for unit holders to include the amounts of their distributions in their income tax returns by the then due date for lodgement of individual returns of 31 August, it was an irrelevant consideration that a 30 June balancing date was no longer a problem within the funds management industry. 115 There is more than one answer to this submission. First, the passage occurs in a part of the Statement of Reasons in which Mr Thaler is recounting steps he took. In the passage in question, he was giving the background to the issue of IT 2497. In concluding that investors in unit trusts having 30 June balancing dates are not unduly inconvenienced in preparing their returns, Mr Thaler gave useful background information to his consideration of MLC's application. (The observation is, however, an indication of Mr Thaler's preoccupation with IT 2497 and with 'substantial business need' in the particular sense explained earlier.) 116 If it is correct at all to say that this passage expresses a 'consideration' which Mr Thaler took into account, it was not an irrelevant one. 117 MLC does not suggest that there is a difficulty for large unit trusts generally in having 30 June balancing dates. Its case dwells, instead, on the many previous instances of approval of SAPs ending 31 May and on alleged difficulties for MLC and for prospective investors, if the new MUTs were to be treated differently. Since it was, as it were, common ground between MLC and the Commissioner that there was no general industry problem (no 'substantial business need' in the particular sense explained earlier) with a 30 June balancing date, it is difficult to regard Mr Thaler's acceptance of that position as a 'consideration' which he 'took into account' at all.

Improper exercise of power - irrelevant consideration - information provided by other officers 118 MLC criticises the consultations which Mr Thaler had with other officers of the ATO, and his having taken into account comments made by them. The ground of review relied on by MLC is apparently that recognised in s 5(1)(e) and (2)(a) of the ADJR Act. 119 Various passages in the Statement of Reasons reveal Mr Thaler's consultations with officers of the ATO, namely, Phil Daly, Warwick Johns, and Dianne Burney. 120 It may be permissible for an administrative decision maker to consult with others: cf Bread Manufacturers of New South Wales v Evans (1981) 180 CLR 404 at 429 - 431 per Mason and Wilson JJ. A fair reading of the Statement of Reasons does not, however, show that Mr Thaler acted at the behest of Mr Daly, Mr Johns or Ms Burney. 121 After summarising what he had been told by Jim Gannon, Phil Daly, Warwick Johns and Dianne Burney, Mr Thaler stated in the Statement of Reasons: 'Following consideration of the information provided with the application and consideration of the IT rulings together with information provided by Mr Gannon, Mr Johns, Mr Daly and Mrs Burney, and my own research on the matter, I decided to refuse the requests. I communicated my decision to Ms Jacinta Oner of G&F by telephone on 6 September 2001.' The date 6 September 2001 preceded the lengthy supplementary submission by G&F of 5 March 2002 and Mr Thaler's subsequent deliberations and the making of the Decision. 122 There is no substance in the criticism that Mr Thaler consulted with other ATO officers of the ATO. Mr Thaler's acceptance of the advice that he should decide in accordance with the Taxation Rulings is a different matter, and has been discussed earlier.

Improper exercise of power - irrelevant consideration - Profile Statement 123 Mr Thaler said in his Statement of Reasons: '… I noted that I was unable to find in this Profile Statement any reference to the funds balancing on 31 May rather than 30 June or indeed any other date. I was surprised by this because G&F had claimed that differing balancing dates would "cause confusion among investors".' and: 'For the reasons given above I came to the conclusion that G&F overstated the claimed "confusion" amongst investors.' 124 In a table at p 17 of the Profile Statement, there is shown for the various MUTs the cents per unit returned for four years in four columns, the headings of which are: Year ended 31/05/01 Year ended 31/05/00 Year ended 31/05/99 Year ended 31/05/98 cents per unit cents per unit cents per unit cents per unit

125 The Commissioner submits that it does not necessarily follow that income was distributed as at 31 May or that 31 May is the balancing date. I disagree. A fair reading of the column headings suggests an annual balancing date and a distribution date of 31 May for all the MUTs listed in the table, even if some of them may make quarterly distributions. Accordingly, Mr Thaler erred in thinking that the Profile Statement did not refer to balancing dates of 31 May. 126 The Commissioner submits, in the alternative, that the error could only amount to an error of fact. I agree. Such an error, without more, does not give rise to a ground of review.

Improper exercise of power - irrelevant consideration - possibility of 'reversion' to accounting periods ending 30 June 127 MLC submits that Mr Thaler assumed that a matter countervailing any 'substantial business need' for the approval of SAPs for the new MUTs was the possibility of the existing Funds abandoning their SAPs and adopting accounting periods ending 30 June. 128 I do not think that the reference to this possibility establishes that Mr Thaler took into account an irrelevant consideration. The possibility appears to have been an afterthought.

Improper exercise of power - failure to have regard to relevant consideration -submissions 129 MLC submits that the Statement of Reasons shows that 'the significance of the submissions put by the tax agent were dismissed summarily or, at the least, were not fully taken into account'. I disagree. It is not always the case that a decision-maker must refer to every single submission or every single aspect of a submission which an applicant has chosen to put before the decision-maker: Sean Investments Pty Ltd v MacKellar (1981) 38 ALR 363 at 375 per Deane J. Where, as here, the empowering statute does not specify relevant considerations, it is for the decision-maker to determine which of the matters put, he or she regards as relevant and the comparative importance to be accorded to them (ibid, and see [28] above).

CONCLUSION 130 The Decision should be set aside and the matter remitted to the Commissioner for further consideration in accordance with law. I will invite the parties to make submissions as to the appropriate order as to costs in the light of the above result and reasons, including my non-reliance on the affidavit of Ms Suffield or the two-volume exhibit to it. I certify that the preceding one hundred and thirty (130) paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 15 December 2003 Counsel for the Applicant: Mr A H Slater QC and Mr P M Fraser

Solicitor for the Respondent: Australian Government Solicitor

Date of Hearing: 15 September 2003, 29 October 2003