APPEALED FROM: Deputy Commissioner of Taxation v Woods [2010] TASSC 46

Deputy Commissioner of Taxation v Woods (No 2) [2010] TASSC 67

Taxes and Duties - Income tax and related legislation - Objections and appeals - In general - Challenge to the validity of assessments - Conclusiveness of notice of assessment - Application by Deputy Commissioner for summary judgment in recovery proceedings - Arguable challenge to assessment on the basis of jurisdictional error - Availability of remedies under s75(v) of the Constitution and s39B of the Judiciary Act 1903 (Cth) - Operation of ss175 and 177(1) of the Income Tax Assessment Act 1936 (Cth).

Income Tax Assessment Act 1936 (Cth) , ss175 and 177(1).

Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146, considered.

Judgment Number: [2011] TASSC 68

CAROL SUSAN WOODS v DEPUTY COMMISSIONER OF TAXATION

1 The Deputy Commissioner of Taxation, the respondent to this appeal, sued Carol Woods, the appellant, for a considerable sum of money for income tax payable on amended assessments, together with interest. The appellant served a defence and counterclaim. The counterclaim sought a declaration that the assessments are void. The respondent successfully applied for summary judgment under r356(1) of the Supreme Court Rules 2000[1], and for an order that the counterclaim be struck out. The Associate Judge struck out the counterclaim and entered judgment for the respondent (plaintiff) against the appellant (defendant) for $1,652,392.81: [2010] TASSC 46 ("the first judgment"). His Honour later heard and determined, adversely to the appellant, an application for a stay of enforcement proceedings: [2010] TASSC 67 ("the second judgment"). In this appeal, the appellant challenges both the entry of judgment against her, and the refusal to stay enforcement proceedings.

2 The liability for the amounts of income tax and interest are said to arise from three notices of amended assessments and a notice of assessment and a liability to pay a penalty. The principal features of the defence were:

•

a non-admission that the assessments were validly made, on the basis that the defendant "cannot by reasonable enquiry at this time determine whether the relevant tax officers held appropriate authority and delegation at law to make the assessments";

•

an allegation "that the assessments were made with a lack of bona fides, are not valid assessments pursuant to the [Income Tax Assessment Act 1936 (Cth)] and are void or otherwise of no force and effect at law".

3 The counterclaim pleaded repetition and reliance on the allegations of fact contained in paragraphs of the defence which included those matters set out above. It might not be strictly correct to say that allegations of fact were made in respect of the first issue, but the intent of the pleader seems to have been to include absence of appropriate authority and delegation, as well as a lack of bona fides, as the basis for the declaratory relief sought in the counterclaim.

4 Before the Associate Judge, the appellant conceded that the statement of claim disclosed a cause of action and that the facts pleaded had been verified by affidavit as required by r357. However, she sought to show cause against the application, and sought an order under r359(4)[2] granting to her leave to defend. The issues which the appellant said ought to be tried were two bases of challenge to the assessments as pleaded. In some further detail, these were that there was no power to issue the amended assessments, or at least no sufficient evidence of that power at this time, and that the amended assessments were not made bona fide. As to the first basis, the argument is that no relevant opinion had been formed; alternatively, that the person who purported to form the opinion did not have the authority to do so, and hence there was no power to issue the amended assessments. Although containing two parts, I will simply refer to this issue as an absence of the opinion which gives rise to the power to issue amended assessments.

5 The arguments revolve around provisions of the Income Tax Assessment Act 1936 (Cth) ("ITAA"), principally ss175 and 177(1). The starting point may be s6 of that Act, which includes a provision that "assessment means: (a) the ascertainment of the amount of taxable income (or that there is no taxable income) and of the tax payable on that taxable income (or that no tax is payable); ...". There is also s8 of the Taxation Administration Act 1953 (Cth) ("TAA") which provides that the Commissioner of Taxation may, either generally or as otherwise provided by the instrument of delegation, delegate all or any of the Commissioner's powers or functions under a taxation law or other law of the Commonwealth, other than the power of delegation.

6 Concerning further provisions of the ITAA, s170(2), has been amended over the relevant period of time, but the essential part has remained. Relevantly, it gives to the Commissioner the power to amend an assessment at any time if he or she is of the opinion that there has been fraud or evasion. The respondent's action is brought pursuant to amended assessments purportedly made in reliance on that power.

7 Sections 175, 175A(1) and 177(1) provide as follows:

"175 Validity of assessment

The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

175A Objections against assessments

(1) A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

177 Evidence

(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."

8 The purpose of s175 is to prevent challenges against errors or procedural irregularities in the process of assessment, but as provided for in s175A, a taxpayer who is dissatisfied with an assessment, can challenge that assessment under the review and appeal provisions in Part IVC of the TAA. The law is that ss175 and 177(1) must be read together, with s177(1) merely giving evidentiary effect to s175: Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146, a case which I will need to examine in greater detail.

9 The result is that the validity of an assessment is not affected by a failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Part IVC of the TAA. In review or appeal proceedings under Part IVC, the amount and all the particulars of the assessment may be challenged by the taxpayer. Sections 14ZZK and 14ZZO of the TAA respectively relate to Administrative Appeals Tribunal reviews and Federal Court appeals, and provide that the taxpayer has the burden of proving that an assessment is "excessive". Thus the making of the assessment and of the particulars, including the amount of the tax due and payable, are beyond challenge in recovery proceedings; the taxpayer cannot go behind or challenge the assessment, except in Part IV proceedings.

10 Where there has been an assessment, and where s175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s75(v) of the Constitution or available from the Federal Court under s39B of the Judiciary Act 1903 (Cth). "[S]o-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 ... may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an 'assessment' to which s 175 applies." See Futuris at 157 - 158 [24] - [25]; passages to which I will return.

11 In this case, it is the application of ss175 and 177 to the first basis upon which leave to defend is sought, which is one major point of contention. The appellant argues that the absence of an opinion means there was no power to amend an assessment, and a challenge can competently be made otherwise than by way of Part IVC of the TAA on the basis of jurisdictional error. The respondent argues that the availability of a remedy for jurisdictional error is limited to the two categories referred to in Futuris, and that such an issue is caught by the provisions. That issue does not arise in relation to the second matter upon which leave to defend is sought. The allegation of lack of bona fides, is accepted to be one of maladministration, and one which can be made otherwise than by way of Part IVC of the TAA. The argument as to this basis of challenge is one on the merits.

12 The parties are agreed that if these issues can be raised outside the parameters of Part IVC, this Court can only have jurisdiction under the cross-vesting legislation, and that in the absence of special circumstances, the matters should be in the Federal Court. This is because s6(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Tas) provides that if a matter for determination in a proceeding in this Court is a special federal matter, and no order is made under subs(3), the court must transfer the proceeding to the Federal Court or other court with appropriate jurisdiction. Section 6(3) provides this Court may order that the proceeding be determined in this court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding other than reasons relevant to the convenience of the parties. "Special federal matter" is defined in s3(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) as including any matter within the original jurisdiction of the Federal Court by virtue of the Judiciary Act, s39B. Section 6 of the Commonwealth Act provides that the general rule is that "special federal matters" should be heard by the Federal Court.

13 Apparently, the defendant's counterclaim in these proceedings was struck out for that reason. As noted, it sought declaratory relief on the bases pleaded in the defence. In this appeal, the parties are agreed that if the appeal succeeds on the summary judgment point, I should make an order of transfer to the Federal Court, but there is disagreement about the scope of the matter which is to be transferred and the basis on which that should be done.

14 The facts about the issue of the notices of amended assessments were set out by the Associate Judge in his first judgment. Neither the bare facts themselves nor his Honour's summary appear to be contentious. The following is based on that summary:

•

The Australian Transaction Reports & Analysis Centre reported to the Australian Taxation Office ("ATO") that the appellant had received international funds transfers of $75,000, $30,000 and $1,499,773 respectively on 29 January 2001, 26 October 2001 and 30 May 2005.

•

In her income tax returns for the relevant years the appellant made no entries in the section dealing with foreign source income and no mention at all of these payments to her.

•

In February 2007 she was asked to explain the transactions.

•

By letter dated 27 April 2007 the appellant advised that the funds had come from her father-in-law, who had established a trust fund in the Cook Islands in 1997 administered by Asiaciti Trust Pacific Ltd. The appellant said that the monies transferred to her came from the trust fund and were a gift. She produced a letter from Asiaciti Trust dated 24 April 2007 which included the following:

"... we have received requests to make, and have resolved to make, the following discretionary distributions to your client from the capital of the Trust

$AUD

24 January 2001 75,000

2 October 2001 30,000

5 May 2005 1,499,773

The dates shown are the dates on which it was resolved to make the distributions."

•

The appellant was at all times an Australian resident. Section 99B of the ITAA provides that where property of a trust estate is paid to a beneficiary who was a resident during the year of income, the assessable income of that person was to include that amount, except (with some limitations) to the extent that the amount represented the corpus of the trust estate.

•

On 22 October 2008 a senior auditor working in the Serious Non-Compliance Section of the Taxation Office (Ms Knappick) accepted that the funds had come from the capital of the trust and approved a decision that no further action was to be taken.

•

However, on 13 November 2008 Ms Knappick issued a letter to the appellant requesting copies of the trust deed, accounts, minutes of meetings and other documents which would show that the payments were a distribution from capital. There is no record, at least obtained by the appellant under FOI legislation, which shows any intervening action or apparent reason the "no further action" decision was reversed.

•

The requested documentation was not forthcoming, and in December 2008 a formal notice requesting it issued.

•

In April 2009 the appellant's tax agent responded to the notice by saying that the appellant was unable to produce the documents because she could not obtain them from Asiaciti Trust for the reason that she had no standing with that company. No mention was made of any attempt by the appellant to obtain the documents from her father-in-law who had established the trust fund and who had caused the distributions to the appellant to be made.

•

On 12 May 2009 Ms Knappick produced a submission directed to the regional audit manager, Mr McKay. In the submission Ms Knappick noted that the appellant had been unable to substantiate her claims and concluded that there had been an avoidance of tax due to evasion. Oddly enough, Ms Knappick went on in the same passage to assert that the Commissioner "is of the opinion that the avoidance is due to evasion". Ms Knappick's conclusion was based on the following matters. Firstly, that the appellant did not have at the time she lodged her returns and still does not have documentation (other than the letter of 24 April 2007) showing that the distributions came from the capital of the trust. Secondly, she had made no enquiries to the Commissioner when she lodged her returns as to the correct tax treatment of the funds.

•

The submission contained a recommendation. Arguably at least, it contains a contradiction. After outlining essential points, the submission states "On this basis there has been an avoidance of tax and the Commissioner is of the opinion that the avoidance is due to evasion. As a consequence of forming this opinion the Commissioner may amend the taxpayer's assessments ... It is recommended that such an opinion be formed in respect of Mrs Carol Woods for the year [sic] ended 30 June 2001, 2002 and 2005."

•

On 1 June 2009 Ms Knappick and Mr McKay apparently attended a meeting with five members of the Serious Non-Compliance Section Quality Panel. The submission was considered by the panel. The panel suggested some minor changes to the submission including the following:

"Emphasise that no evidence has been provided to substantiate that the money came from the corpus of the trust.

Note what Mrs Wood stated on her relevant income tax returns about foreign income/assets ..."

•

The following day, on 2 June 2009, a "Position Paper" was sent to the appellant's tax agent. The appellant was invited to comment on the ATO's understanding of the facts and its interpretation of the law. This contained substantially the same reasoning and the same conclusions as the submission together with the suggested changes, and included the assertion that the Commissioner had already formed an opinion on tax avoidance being due to evasion.

•

The appellant did not respond, and on 2 July 2009 Ms Knappick formally provided her submission to Mr McKay who, on the same day, approved it.

•

A document entitled "Determination" was prepared in the name of a Deputy Commissioner stating that the Deputy Commissioner had formed the opinion that in each of the years in question, there had been an avoidance of tax due to evasion. That document, however, was not signed by the Deputy Commissioner nor was it signed by anyone else in his name. Under that person's name, there are the words "Determined by me as authorised officer", under which in turn, appear Mr McKay's signature, name and position.

•

Objections were disallowed, and on 30 July 2009 the amended assessments issued. The appellant has applied to the Administrative Appeals Tribunal for the review of the disallowance of the objections. That application is pending.

15 The first issue of the absence of an opinion formed under s170, principally relates to the "Determination" of 2 July 2009 signed by Mr McKay. After noting some potential difficulties with proof of Mr McKay's authority, the Associate Judge said at [16]:

"Even if there had been no delegation or a failure to comply with the terms of the instrument of delegation the assessments would still be assessments answering the statutory description and so be protected. The Act, s6 includes a provision that: '"assessment" means: (a) the ascertainment of the amount of taxable income (or that there is no taxable income) and of the tax payable on that taxable income (or that no tax is payable); ...' Each of the assessments here answers that description. They are not tentative or provisional assessments of the type referred to in Futuris. They cannot be challenged, in this proceeding, on the delegation point. Leave to defend will not be given on the first basis claimed."

16 The second issue of lack of bona fides relates to Mr McKay's involvement. As I will later detail, Mr McKay was involved in an investigation of the tax affairs of a company of which the defendant and her husband were directors. Ultimately, that company's solicitor, who was also the solicitor for the defendant personally, brought proceedings against Mr McKay and three other ATO employees for damages for malicious prosecution. These proceedings were settled in the solicitor's favour in late 2008, at or about the same time as the "no further action" decision was made, and the subsequent reinvigoration of the investigation into the defendant's tax affairs. The settlement of the proceedings resulted in a payment to the solicitor "of a six figure sum". In short, this forms part of the foundation for the lack of bona fides claim.

17 At [20] the Associate Judge said that he saw "no possibility of an attack on the integrity of the regional audit manager, based on the information contained in the defendant's solicitor's affidavit, resulting in a conclusion that the decision making on this occasion was malicious, dishonest, corrupt, reckless, derelict or otherwise such as to justify a grant of relief in face of the Act, ss175 and 177. Leave to defend will not be given on the second basis claimed".

18 There are seven grounds of appeal relating to the application for summary judgment. For present purposes it is enough to say that there is a comprehensive challenge to findings that there were no issues or questions in dispute that ought to be tried, to conclusions reached, and to the exercise of the discretion in general.

19 In Spencer v Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118 at 131 [24], French CJ and Gummow J said (in a passage set out by the Associate Judge in his first judgment):

"The exercise of powers to summarily terminate proceedings must always be attended with caution. That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 128 - 130 per Barwick CJ; or on the basis that the action is frivolous or vexatious or an abuse of process Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91 per Dixon J. The same applies where such a disposition is sought in a summary judgment application supported by evidence. As to the latter, this Court in Fancourt v Mercantile Credits Ltd said [1983] HCA 25; (1983) 154 CLR 87 at 99:

'The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.'

More recently, in Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27; (2006) 226 CLR 256 at 275; Gleeson CJ, Gummow, Hayne and Crennan JJ repeated a statement by Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at 575 - 576; which included the following:

'Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways Dey v Victorian Railways Commissioners [1949] HCA 1; [1949] 78 CLR 62 at 91 per Dixon J; General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 130 per Barwick CJ, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way'."

20 In Spencer, the court was considering s31A(2) of the Federal Court Act 1976 (Cth), which provided for summary judgment where the court was satisfied that a party had no reasonable prospect of successfully prosecuting a proceeding, and that a proceeding need not be hopeless, or bound to fail, for it to have no reasonable prospect of success. At 132 [25], their Honours said:

"Where there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the Court has formed the view that the applicant is unlikely to succeed on the factual issue. Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter. Existing authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law."

21 At 139 [53], Hayne, Crennan, Kiefel and Bell JJ suggested that provisions permitting the entry of summary judgment such as the ones presently under consideration "were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail".

22 In this case, the focus is on whether the appellant has shown there is an issue or question which ought to be tried, or other reason there ought to be a trial. In that context, in Port v Alexopolous (No 2) [2011] TASSC 37 at [5], Crawford CJ said:

"In that connection, the rule has been stated to be that a judge should not make an order for summary judgment unless fully persuaded that there is no real question to be tried, that is, that there are no facts shown such as would lead to an inference that at a trial of the action the defendant might be able to establish a defence to the plaintiff's claim. Australia & New Zealand Banking Group Ltd v Barry [1992] 2 Qd R 12 at 14. A complete defence does not have to be shown. Cloverdell Lumber Co Pty Ltd v Abbott [1924] HCA 4; (1924) 34 CLR 122 at 133. That a defence to the claim is arguable is all that is usually needed to be established by the evidence."

23 Further, in Spellson v George (1992) 26 NSWLR 666 at 678, Young AJA (Handley JA and Hope AJA agreeing) noted the need for trial courts to strike out proceedings as an abuse of process which are doomed to failure, but said "it is a very serious matter to deny to a litigant the right to have his or her case heard at a trial, so that extreme care must be used when deciding to make use of the power to strike out ...". His Honour went on to note various matters about the power to strike out which appear to be abundantly clear on the authorities. First, the rule was not applied where there was any serious conflict as to any matter of fact, and secondly a party was not to be deprived of a right to go to trial if there was a question of credit involved even though the judge may have a strong prima facie view as to the result.

24 Lastly, I would include a reference to what Wilcox, Burchett and Marshall JJ said in Martin v NRMA Insurance Ltd [2000] FCA 773 at [9]:

"It is very important to emphasise that the discretion is always retained by the Court to refuse summary judgment, so that both parties will have the benefit of a full and fair trial, to which in the normal course they are both entitled. The Court should refuse to enter summary judgment unless it is absolutely clear there is no case to be tried. That is the issue to which the rule is directed. And that is the way in which the discretion is required to be exercised by the High Court in Fancourt."

25 In the summary of background facts, I have already referred to the "Determination" which is the focus of attention in this part of the argument. As much turns on the construction of the wording of this document, I will set out its terms more fully:

"I, Michael Cranston, Deputy Commissioner of Taxation, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation have formed the opinion for the purposes of subsection 170(2) of the Income Tax Assessment Act 1936 that an avoidance of tax of $761,736.68 ... was due to evasion.

Michael Cranston

Michael Cranston

Deputy Commissioner of Taxation

Determined by me as authorised officer

[Signature]

Malcolm McKay

Regional Audit Director

SNC, Project Wickenby

Dated 02/07/2009"

26 The appellant argues that the document does not support the formation of an opinion under s170(2) because it is not signed in the name of or on behalf of the Deputy Commissioner. She further argues that if there was an opinion formed and it was that of Mr McKay, there is no evidence to suggest that he had the authority to make it. The appellant notes the reference to a determination being made by Mr McKay, which it is said, is a different concept to forming an opinion. The respondent submits that the document "does disclose the formation of an opinion by an appropriate officer and that it is clearly open on the face of that document to find that that was the case".

27 The following would each have been necessary for a notice of amended assessment to properly issue on the basis of an opinion formed by someone other that the Commissioner:

•

Under s8 of the TAA the Commissioner delegated the function of forming the opinion to a Deputy Commissioner or another person.

•

If there had been delegation to a Deputy Commissioner, a proper delegation or authorisation (express or implied) to an Executive Level 2 officer.

•

The appointment of Mr McKay as an Executive Level 2 officer.

•

The formation by Mr McKay of the opinion in the name of the delegator.

28 As to the this general structure of delegation and the issues involved, I refer to the discussion by Logan J in Pattenden v Commissioner of Taxation [2008] FCA 1590 at [40] - [44].

29 The respondent's affidavit in support of summary judgment was sworn by an officer employed in the Debt (Strategic Recovery) Section of the ATO. The affidavit deals with the details of the amended assessments issued in the name of a Deputy Commissioner of Taxation, Ms Raelene Vivian who is, of course, a different Deputy Commissioner than the one on whose behalf the opinion was purportedly formed under s170(2). The deponent verifies the truth of the facts pleaded in the statement of claim, and asserts a belief that there is no defence to the claim made by the defendant (appellant). The deponent refers to s255-50 of Schedule 1 of the TAA which makes a statement or averment about a matter in the plaintiff's claims, prima facie evidence of the matter. However, the statement of claim does not plead the formation of the opinion, but is confined to the relevant assessments, amended assessments, and issues of penalties and interest.

30 The affidavit contains little if any reference to the legislative or factual means by which Mr McKay came to have the authority to form the opinion. It does not refer to the formation of the opinion under s170(2), and the respondent did not adduce any other evidence as to the determination itself, apart from a reference to the "Taxation Authorisations Guidelines". They note that an Executive Level 2 officer may make a determination or form an opinion in the name of a Deputy Commissioner that a taxpayer had been involved in fraud or evasion. There is nothing referable to the delegation of the Commissioner's powers or functions to the named Deputy Commissioner, nor anything referable to the means by which an Executive Level 2 officer seems to have the power to form an opinion under s170(2). Nor was there any evidence that Mr McKay was an Executive Level 2 officer at the time of purportedly forming the opinion.

31 The Associate Judge did not deal with this factual situation, other than to note the apparent authority of an Executive Level 2 officer, that there were no documents showing that Mr McKay was an Executive Level 2 officer, and that the purported opinion was not expressed specifically to be in the name of a Deputy Commissioner.

The application of ss175/177 of the ITAA

32 The debate about whether the "opinion" issue is foreclosed by ss175/177, centres on a number of passages in the Futuris case, to some of which I have already referred. The passages are from the joint judgment at 156 - 157 [23] - [25]:

"23 The significance of s 175 for the operation of the Act and for the scope of judicial review outside Pt IVC is to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355. That case decided that the description of provisions as either mandatory or directory provides no test by which the consequences of non-compliance with a statutory criterion can be determined [1998] HCA 28; (1998) 194 CLR 355 at 373-374 [38]. Rather, consistently with the reasons in Project Blue Sky of McHugh, Gummow, Kirby and Hayne JJ [1998] HCA 28; (1998) 194 CLR 355 at 390-391 [93], the question for the present case is whether it is a purpose of the Act that a failure by the Commissioner in the process of assessment to comply with provisions of the Act renders the assessment invalid; in determining that question of legislative purpose regard must be had to the language of the relevant provisions and the scope and purpose of the statute.

24 Section 175 must be read with ss 175A and 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in ss 14ZZK and 14ZZO of the Administration Act. Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act.

25 But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an 'assessment'. Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an 'assessment' to which s 175 applies. Whether this be so is an important issue for the present appeal.

33 The particular question is whether in par[25], the reference to the limits to s175 and to the two categories - tentative or provisional assessments and conscious maladministration of the assessment process - means that it is only those two categories to which s175 does not reach. Kirby J, who agreed as to the ultimate outcome but wrote a separate judgment expanding on the issue of jurisdictional error, did not think that this was the intended meaning of the passage. At 187 - 188 [139] - [140] his Honour said:

"139 It is a flawed legal approach to confine a case such as the present, in law or substance, to an inquiry into whether an assessment was invalid because it was impermissibly tentative or provisional, or because it was made with a lack of good faith. ...

140 I accept that a diminution of judicial remedies was probably not intended in this case. However, unless courts approach such problems conceptually (so far as the notion of 'jurisdictional error' allows) there are risks in proceeding in taxation cases only by reference to particular historical categories. Classification as 'jurisdictional error' recognises that certain features of the administrative decision in question (here a Commissioner's 'assessment' under the Act) will be so alien to the character of that decision as afforded by the Parliament as to invalidate the purported performance and to render it no decision (ie no 'assessment') at all." [Emphasis added]

34 Earlier in his reasons, his Honour discussed the long-standing focus in taxation matters on the two particular categories of case open to judicial review type challenge. The following appears at 185 - 186 [133] - [134] (omitting references):

"133 For decades, taxation decisions arising in judicial review proceedings have typically concerned the suggested tentative or provisional character of such decisions or their lack of good faith. This does not justify treating these two categories as covering the entire field of disqualifying legal (or 'jurisdictional') error for s 39B purposes. As the two nominated categories of invalidity have arisen in taxation cases for at least eighty years, there is a risk that specialists in taxation law will overlook, or ignore, the considerable subsequent advances in administrative law, in particular within judicial review. Specialist disciplines, including in law, can occasionally be myopic and inward-looking. In commenting on the advances in administrative law, Lord Diplock declared that they had been the 'greatest achievement of the English courts in [his] judicial lifetime'. The same is at least partly true in Australia. ... .

134 The recognised 'jurisdictional error' categories in Australia are not closed. Least of all are they confined to the two classifications beloved by tax lawyers. ...".

35 The appellant argues that the joint judgment in Futuris at [23], generally establishes that ss175 and 177 "are not incapable of being excluded where there has been jurisdictional error"; that is, error of such a nature as would make the assessment invalid. Such errors, it is submitted, can be challenged by way of constitutional writ under s39B of the Judiciary Act. The opinion required under s170(2) before an amended assessment can be made is said to be a jurisdictional fact as described in Gedeon v Commissioner of the New South Wales Crime Commission [2008] HCA 43; (2008) 236 CLR 120 at 139 [43]. The appellant says that absent the formation of the opinion, the power to issue an amended notice does not arise. She accepts that questions affecting the validity of an opinion under s170(c) fall within the operation of the provisions, but says that where no opinion was in fact formed as required, remedies for jurisdictional error are available.

36 The respondent argues that that the majority judgment in Futuris identifies two categories of case which are not touched by the conclusivity provisions. They are tentative or provisional assessments and questions of bad faith. The respondent says that the statement of categories is definitive; there are no other categories. The further submission is that such an issue as the want of a required opinion as a preliminary step to an assessment is a matter which cannot be raised in recovery proceedings. A line of High Court authority was examined. No doubt this was done in order to demonstrate the reach of s177(1) and what is encompassed by the two limbs[3]. However, although in a sense it is the obverse side of the same coin, the appellant's argument is that the provisions do not apply because a jurisdictional error means that there is no "assessment" to which they can apply. The appellant expressly conceded that if there was no jurisdictional error, and hence there was an assessment within the statutory description, then ss175 and 177(1) apply, and the appellant is limited to the Part IVC process.

37 The appellant did not submit that there was some sort of middle ground in which the formation of the opinion was not capable of challenge for jurisdictional error, but could be nonetheless raised in recovery proceedings because it was not part of the "making of an assessment", and did not relate to the amount and particulars of the assessment. This situation seemed to cause Mr Wilson SC to observe in his reply that it seems the parties' arguments were "almost like passing ships in the night". Having noted that, I will examine the cases referred to, and comment where necessary.

38 As to the point that the forming of the opinion is part of the process of the making of the assessment, the respondent relies on statements in George v Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183. That case concerned an assessment under s167 of the ITAA which could be made upon the Commissioner not being satisfied with a return furnished by a person. On appeal to the High Court in its original jurisdiction against the disallowance of an objection, the taxpayer sought particulars of the additional income which the Commissioner had assessed. The application was dismissed at first instance by a single justice. An appeal against that decision was dismissed. One of the issues was whether the determination that the returns were not satisfactory had been made by an authorised officer. The particular comments relied on by the respondent in this case are by Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ in a joint judgment, at 206 - 207. They are:

"But in any case the question whether the right officer has applied his mind to the question whether the taxpayer's returns are satisfactory within s 167 (b) is not a question left open by s 177. As already has been said, ss 166 and 167 are together concerned with the process of ascertaining the taxpayer's taxable income and the consequent tax. The clear policy of s 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment. The production of the notice of assessment is conclusive evidence of the due making of the assessment. It would, for example, be absurd to suppose that in an action brought by the commissioner under s 209 to recover unpaid tax due upon such an assessment as those now under appeal, evidence must be given for the plaintiff that the right officer was not satisfied under s 167 (b) and formed a judgment as to the amount of the income to be taxed. Yet that is the consequence of the argument. To avoid this consequence ... it was suggested that under s 177(1) the amount of the assessment was conclusive, although fulfilment of what the argument treated as conditions precedent to the power given by s 167 to make the assessment were not covered by the words 'due making'. ..." [Emphasis added]

39 The court said that if it were correct that there were such conditions precedent to the power to make an assessment, their non-fulfilment would mean ex hypothesi that the power to assess was not well exercised. "Accordingly the assessment would be bad and there would be nothing to be treated as good". Their Honours continued:

"Obviously the 'due making of the assessment' was intended to cover all procedural steps, other than those if any going to substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal."

40 In that passage, the clear distinction is drawn between procedural steps as part of the due making of the assessment, and other procedural steps which go to establishing the taxpayer's substantive liability. In W R Carpenter Holdings Pty Ltd v Commissioner of Taxation [2006] FCA 1252 Lindgren J observed at [49]:

"The distinction between two classes of procedural steps is a difficult one. A taxpayer is to be at liberty, by attacking procedural steps of one class, to prove in an appeal that the amount of the assessment is excessive, but may not attack other procedural steps which are left shielded by the 'due making' of the assessment."

41 It should be noted that earlier in the joint judgment in George, their Honours considered what was involved in forming a judgment as to the amount of tax. Their Honours said, at 204:

"It is an error to treat the formation by the commissioner of a judgment as to the amount of the taxable income as if it were not the ascertainment of the taxable income which constitutes assessment or a necessary part of that process and as if it were but the fulfilment of a condition precedent to the power or authority to assess. If, however, it were a condition precedent the question would at once arise whether the fulfilment of the condition was not part of 'the due making of the assessment' of which s 177 (1) makes the production of a notice of assessment conclusive evidence. But of this it is unnecessary to speak specifically."

42 The various statements in George's case might support the proposition that some conditions precedent to an assessment may not necessarily be part of the due making of the process, or otherwise not fall within the scope of the section. At the same time, there is a suggestion that the question of whether the right officer has formed a required view to enable an assessment to be made, is covered by the first limb of s177, and on that basis the issue could not be raised in any proceedings.

43 The next case relied on by the respondent is McAndrew v Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263. Section 170(2) of the ITAA then provided that the Commissioner might amend an assessment where a taxpayer had not made a full and true disclosure of all material facts, or there had been an avoidance of tax. The formation of an opinion as to fraud or evasion only arose in relation to the time limits for the amendments to be made. A case was stated to the Full Court by a single justice exercising original jurisdiction in relation to an objection decision. In a joint judgment Dixon CJ, McTiernan and Webb JJ discussed the factual preconditions required for amendment, and whether they were covered by s177(1). At 270 - 271 their Honours said:

"That they are so covered appears to us to be shown by the words of s. 177 (1) themselves, viz 'conclusive evidence of the due making and (except etc) that the amount and all the particulars of the assessment are correct'. If the existence of the conditions on which the power to amend arises is not part of the due making, it certainly is a matter on which the amount of the assessment must depend. It would not be difficult to regard it as part of the due making of the assessment but the consequence of that would be to deprive the taxpayer of any remedy to enforce the protection which s 170 (2) seems designed to give him."

44 After referring to the distinction drawn in George's case (above) between the procedural mechanism by which the taxable income and tax is assessed on the one hand, and substantive liability on the other, their Honours continued:

"Section 177 [sic 170] (2) and (3) impose certain conditional time bars which in this dichotomy seem evidently to belong to substantive liability. From this it follows that fulfilment of the conditions which bring a case within s 170 (2) is part of the matter governed by the words of exception in s 177 (1), viz 'except in proceedings on appeal against the assessment'. ...

But there is more than that. For s 190 (b) [now ss14ZZK/14ZZO of the TAA] expressly places upon the taxpayer the burden of proving that the assessment is excessive. ... But bearing in mind that the word 'excessive' relates to the amount of the substantive liability it is not difficult to see that it will extend over the area in which the conditions mentioned in s 170 (2) find a place. For the fulfilment of those conditions goes to the power of the commissioner to impose the liability by amendment. If he cannot amend consistently with s 170 (2) and so increase the amount of the assessment then it must be excessive."

45 Taylor J was of a similar view, saying at 281, that the "'due making of the assessment' does not involve the ascertainment of the existence of a state of facts prescribed as a condition precedent to the making of an amended assessment". His Honour went on at 281 - 282 to say that s177(1) was intended to make it impossible for a taxpayer, in proceedings other than an appeal, to challenge an assessment on any ground, and accordingly it should be thought that the subsection covered all grounds upon which an assessment may be challenged, other than those covered by the first limb. His Honour acknowledged that the use of the word "excessive" in the legislation was inappropriate, but said it was capable of wide meaning, and that there was no reason for thinking that an assessment made in purported, but not justifiable, exercise of a statutory power, may not properly be described as excessive.

46 I respectfully agree that McAndrew's case is "authority for the proposition that the first limb of s177(1) is limited to precluding inquiry into matters of a procedural character which might otherwise have been taken to condition the validity of assessment. Facts outside that category, whose existence or non-existence conditions the statutory power to rely on the assessment are not protected from inquiry from the first limb, although they would be caught by the second.": David Jones Finance& Investments Pty Ltd v Commissioner of Taxation (1991) 28 FCR 484 per Morling and French JJ at 501.

47 The respondent also relies on F J Bloemen Pty Ltd v Commissioner of Taxation [1981] HCA 27; (1981) 147 CLR 360, a case to which I will return later in these reasons. At 373 Mason and Wilson JJ (Stephen and Aickin JJ agreeing) confirmed the distinction drawn by s177(1) between the procedure by which the taxable income is ascertained (the "due making" of the assessment of which the production of the notice of assessment is conclusive evidence), and the taxpayer's substantive liability to tax ("the amount and all the particulars of assessment" which may be challenged in Part IVC proceedings). The actual making of an assessment was said to be comprehended by the expression "due making", and was put beyond challenge by s177(1). At 375 their Honours said that the statements of Taylor J in McAndrew (set out above) were a correct statement of the effect of s177(1). Their Honours continued:

"This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of s 177 (1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under [Pt IVC]."

48 As I see it, the principal issue is really one of whether the absence of an opinion, the existence of which is a pre-condition to an assessment, can be raised in appropriate proceedings as a matter of jurisdiction. That is to say, it can be argued as a matter which would give rise to the situation in which there is no "assessment" to which s175 applies: Futuris at 157 [25]. If it does not, then there seems to be common ground, at least to the extent that the issue cannot be raised in recovery proceedings. Accordingly, as I earlier adverted to, in a real sense the area of dispute between the parties is a confined one.

49 More correctly, the question is whether the appellant's point (leaving aside issues of fact for the moment) is sufficiently arguable to warrant leave being granted to defend. Putting it the other way, the question is whether the argument is doomed to fail. To the extent that a point is a novel one, caution must be exercised not to stifle the development of the law by summarily rejecting it: Bridgetown/Greenbushes Friends of the Forest Inc v Executive Director of Department of Conservation and Land Management (1997) 18 WAR 126 per Templeman J at 189; ENT Pty Ltd v McVeigh (1996) 6 Tas R 202 at 213 - 214.

50 Focussing for the moment on the joint judgment in Futuris, I do not see that a fair reading of all relevant passages produces the result that there has been a definitive limiting of the categories of case available to be reviewed for jurisdictional error. Their Honours said that the significance of s175 for the operation of the ITAA and for judicial review outside Part IVC was to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at 390 - 391 [93]. The question for the case was put as being one of legislative purpose, with regard being had to the language of the provisions and scope and purpose of the statute. In answer to the further question of the limits beyond which s175 did not reach, their Honours said the section operates only where there has been what answers the statutory description of an "assessment" Two instances of that were given. It is at least arguable, being the view adopted by Kirby J, that there was no intention to limit the categories to those two instances.

51 There is an additional statement in the joint judgment in Futuris which is, I think, of some significance, as it casts doubt on the line of authority relied on by the respondent as to the reach of s177(1). At 164 - 165 [55], their Honours discussed the duties of public officers and deliberate failures to administer the law according to its terms. At 165 [56], their Honours said:

"Such failures manifest jurisdictional error and attract the jurisdiction to issue the constitutional writs. To the extent that there is any indication to the contrary in what was said by Mason and Wilson JJ in F J Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27; (1981) 147 CLR 360 at 378 that should not be followed."

52 The reference to page 378 of Bloemen appears to be incorrect. Their Honours' comment seems to be directed to a passage on page 377, where Mason and Wilson JJ said:

"It is one thing to say that a notice of a tentative assessment is not touched by ss 175 and 177. That is clearly correct. But it is difficult to understand how it can be said, consistently with those sections, that a notice which appears to be a final notice of assessment is nevertheless not what it appears to be because there was no assessment at all."

53 In this case, the appellant relies on the availability of a remedy for jurisdictional error in the narrow historical sense - a lack or want of jurisdiction - and not the more recent broader sense of an acting in "excess of jurisdiction". The doctrine relied on is effectively that represented by the somewhat outmoded term of ultra vires. In Futuris, Kirby J at [134] said that the recognised jurisdictional error categories in Australia are not closed, and identified by reference to academic authority, eight presently recognised categories. That analysis was in turn based on Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163 and Anisminic v Foreign Compensation Commission [1968] UKHL 6; [1969] 2 AC 147 per Lord Reid. It is unnecessary for me to determine how far-reaching the consequences of the appellant's argument might be. It is confined to a simple absence of power. I am not able to see anything in the line of authority starting with George's case which definitively negates the appellant's point.

54 Additionally, there is earlier High Court authority for the proposition that the Constitutional remedies under s75(v) are available where an assessment was made without jurisdiction. Mooney v Commissioners of Taxation (NSW) [1905] HCA 61; 1905 3 CLR 221, concerned an assessment under the Land and Income Tax Assessment Act 1895 (NSW). Section 67 of that Act made the production of the assessment book or certified Acts extract conclusive evidence of the making of the assessment, and the absolute correctness of the amount and all the particulars of such assessment. It was not dissimilarly worded to s177(1). There was a right of appeal to a review court. Griffiths CJ at 242 said that it was impossible to read the section as applying to a case where an assessment was made without jurisdiction, without either rejecting express provisions and conditions of other sections in the Act, or making it applicable to assessments in circumstances which could not arise. Barton J generally agreed with the Chief Justice, and added at 246, that the right of appeal to a Court of Review on the question of jurisdiction did not deprive the Supreme Court of the power to say whether the Commissioners have acted within their jurisdiction. Accordingly, it was said that an assessment was only conclusive as to matters within jurisdiction.

55 In David Jones Finance & Investments Pty Ltd v Commissioner of Taxation (above), Morling and French JJ at 499 said that the use of the language of "jurisdiction" in Mooney's case "... carries with it conceptual encrustations which are now outdated. But it does suggest that Mooney's case is support for the proposition that the statutory precursors of s 177 would not preclude inquiry into the question whether an assessment was within power".

56 The appellant argues that the formation of an opinion under s170(2) is a jurisdictional fact. There is no doubt, of course, that remedies exist for jurisdictional error where the error is one of jurisdictional fact. In general terms, such a fact is "a criterion the satisfaction of which enlivens the exercise of the statutory power or discretion in question": Gedeon v Commissioner of the New South Wales Crime Commission (above). The determination of whether a particular issue is one of jurisdictional fact is often a difficult question: see the discussions by Weinberg J in Cabal v Attorney-General (Cth) [2001] FCA 583; (2001) 113 FCR 154 at [49] - [70], and Chesterman J in Chancellor Park Retirement Village Pty Ltd v Retirement Villages Tribunal [2003] QSC 276 at [16] - [31]. In Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5; (2000) 199 CLR 135 at 148, Gleeson CJ, Gummow, Kirby and Hayne JJ said that "The term 'jurisdictional fact' (which may be a complex of elements) is often used to identify that criterion, satisfaction of which enlivens the power of the decision-maker to exercise a discretion."

57 As to the formation of an opinion, the construction is often, although not necessarily, against a conclusion of jurisdictional fact, other than in the sense that the existence of the mental state is a jurisdictional fact: Timbarra Protection Coalition Inc v Ross Mining NL [1999] NSWCA 8; (1999) 46 NSWLR 55 at [42], Anvil Hill Project Watch Association Inc v Minister for Environment and Water Resources [2008] FCAFC 3; (2008) 166 FCR 54 at [21], and see also Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 per Gummow J at 651. It follows that the appellant's argument that the absence of an opinion is a jurisdictional fact is open.

58 In his judgment, the Associate Judge did not discuss or deal at all with the appellant's argument that the point could be argued as one of jurisdictional error, leading to a possible conclusion that there was no "assessment" to which the provisions could apply. I have set out at [15] above the precise terms in which his Honour dealt with the issue. It will be recalled that his Honour said that the assessments in this case answered the statutory description and were not tentative or provisional as referred to in Futuris. Hence, they could not be challenged in the recovery proceedings on the delegation point. No consideration seems to have been given to the argument that jurisdictional error meant there was no "assessment".

59 In my view, the Associate Judge, by failing to consider the argument, and in reaching that conclusion, has erred. Consideration ought to have been given to the appellant's argument, and a decision made as to whether it was of such a nature that leave to defend ought to be granted. In short, the argument was not considered and the proper principles not applied. It follows from what I have said about the suggested limitation on the categories of jurisdictional error available to be challenged, that the appellant's point is at least arguable. I am not able to say that there is such a lack of merit in the appellant's argument as to the law, to warrant summary termination. I should not be taken as saying anything more about the law than that.

60 As to the facts, the record of the formation of the opinion is not signed by the Deputy Commissioner of Taxation concerned, nor signed on his behalf. Purportedly, there is something which has been "determined" by Mr McKay "as authorised officer". Ms Schilling submits that the document does disclose the formation of an opinion by an appropriate officer "and it's clearly open on the face of that document to find that that was the case". Precisely how that was so was not explained. The proper authority of Mr McKay to form the opinion might have been the subject of evidence and explanation, but it was not. It might be suspected that all of what was involved could easily be proved, but it must be recognised that sometimes things are not done properly, putting that in a neutral sense, and that there may have been deficiencies in the process.

61 This sort of situation seems to have arisen in Deputy Commissioner of Taxation v Jennings [2005] QSC 312, which also involved an application for summary judgment. McMurdo J described what occurred as follows:

"The defendants at first resisted the applications for judgment arguing that s 177 of the Income Tax Assessment Act 1936 did not assist the Commissioner's case because the notices of assessment or copies of them were not under the hand of a relevant person. But subsequently further notices were produced which were tendered and which the defendants' counsel concedes to be sufficient to provide the assistance of s 177. Ultimately then there was no opposition to the applications for judgment and the arguments involved only whether the judgments should be stayed."

62 Whether or not further documents can be produced in this case "sufficient to provide the assistance of s177", I do not know. There seems to me to be a question of fact which needs to be resolved. In my view, putting the arguments of law and fact together produces the result that leave should have been granted on this point. I am satisfied that the exercise of the discretion miscarried. There were errors in the application of principle and as to the weight to be given to arguments about the law and the facts.

63 The Associate Judge had evidence from the appellant's solicitor designed to demonstrate a basis for a contention at a trial that the regional audit manager, Mr McKay, did not act bona fides in purporting to form an opinion that there had been avoidance of tax due to evasion. The appellant relied on an affidavit of Ian Collie, a solicitor of the Supreme Court of Queensland and a principal of the firm Cleary Hoare Solicitors. Mr Collie seems to have been involved in advising the appellant, and individuals and entities associated with her, for a considerable period. As to this issue, Mr Collie exhibits to his affidavit a number of ATO communications and other documents obtained by him under freedom of information legislation. After setting out a short chronological account, he says that the involvement of Mr McKay after 22 October 2008 (the date of the "no further action" decision) causes the appellant, and him, "considerable apprehension that the amended assessments have not been issued bona fide".

64 In his affidavit, Mr Collie goes on to set out the reasons, which include the following:

•

In August 2001 Mr McKay went to the offices of Cleary Hoare Solicitors in Brisbane, at a time when Mr Collie was away.

•

Among "the apparent targets of Mr McKay's visit" was a company controlled by the appellant's husband, but of which she was also a director, a factor which is noted in a disclosed ATO document.

•

On his return in September 2001, Mr Collie spoke to Mr McKay and was told that Mr McKay had concerns in relation to a number of trusts which, it was asserted, had not discharged tax liabilities.

•

There followed a discussion about the tax liability of the trusts, and the beneficiaries of those trusts, one of which was the company referred to. In this discussion Mr McKay said that he was "not prepared to discuss technicalities", Mr Collie's impression being that he "reached conclusions on a peremptory and non-factual basis and that he had a personal objection to the actions of taxpayers and their advisors regardless of the validity of such actions under the law".

•

Over the next 18 months or so, Mr Collie supplied Mr McKay and the ATO with documentation on a substantial number of entities but, "contrary to the arrangements made for access with Mr McKay, he surreptitiously breached" Cleary Hoare's computerised trust account system and downloaded onto a disc information relating to a great number of clients, regardless of whether there was any connection with income tax matters.

•

It was only after a complaint to Mr McKay's superior, that a copy of the disc was provided to Mr Collie.

•

During 2002, Mr McKay sought financial statements relating to non-trading clients of Cleary Hoare, disagreeing with Mr Collie's position that those records be kept by such entities, and ignoring repeated requests to provide an indication of the legislative basis for the ATO's stance.

•

In September 2003, Mr McKay was involved in proceedings being issued against Mr Collie personally, for his alleged failure to comply with nine notices issued to him under s264 of the ITAA by Mr McKay on 6 May 2003.

•

Mr McKay was the only witness for the prosecution at the trial of this matter in the Brisbane Magistrates Court in May 2004, Mr Collie subsequently being found not guilty, with the notices held to be invalid, and costs were awarded against the Commonwealth.

•

In 2005, Mr Collie started proceedings in the Supreme Court of Queensland against Mr McKay and three other ATO officers who were involved in the prosecution of him, for damages for malicious prosecution. These proceedings were resolved in late 2008 on the payment to Mr Collie of a six figure sum.

•

The dispute between the ATO and the company, the subject of the investigation in 2001, was resolved in early 2009 without any payment of tax. Mr Collie says "contemporaneously with the resolution of the [company's] dispute, Mr McKay appears to have seen the opportunity to become involved in another Woods' related matter - the present matter".

65 There were in fact three affidavits sworn by Mr Collie and relied on by the appellant at the hearing of the application. Mr Collie was not cross-examined at all, no notice apparently having been given. No answering affidavit material was filed on behalf of the respondent. It follows of course, that none of Mr Collie's assertions were challenged before the Associate Judge.

66 As I have noted, there is no dispute that an issue of conscious maladministration can be raised otherwise than in Part IVC proceedings: Futuris (above) at 157 [25]. That is not in contention in this appeal. However, the respondent refers to comments in the majority judgment in Futuris at 165 [60] to highlight the difficulty of the task which the appellant faces in pursuing this line of defence in any proceedings. I will set out the passage referred to:

"60 Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld. Remarks by Hill, Dowsett and Hely JJ in Kordan Pty Ltd v Federal Commissioner of Taxation (2000) 46 ATR 191 at 193; [2000] ATC 4812 at 4815 are in point. Their Honours said:

'The allegation that the Commissioner, or those exercising his powers by delegation, acted other than in good faith in assessing a taxpayer to income tax is a serious allegation and not one lightly to be made. It is, thus, not particularly surprising that applications directed at setting aside assessments on the basis of absence of good faith have generally been unsuccessful. Indeed one would hope that this was and would continue to be the case. As Hill J said in San Remo Macaroni Co Pty Ltd v Federal Commissioner of Taxation (1999) 43 ATR 53 at 71; 99 ATC 5138 at 5154 it would be a rare case where a taxpayer will succeed in showing that an assessment has in the relevant sense been made in bad faith and should for that reason be set aside.'

61 The outcome on the present appeal bears out the quoted observation by Hill J."

67 As noted in Denlay v Commissioner of Taxation [2011] FCAFC 63 at 76, those observations highlight that their Honours were concerned, in their reference to conscious maladministration, with bad faith in the exercise of the decision-making power and the need for proof of such an allegation, and concerned with actual bad faith as distinct from some form of "constructive" bad faith established by unwitting involvement in an offence. So much of course must be accepted, but at the same time it is necessary to look at what is encompassed by expressions such as "conscious maladministration" or "lack of bona fides" in this context.

68 There are earlier statements by the majority in Futuris than those in [60] set out above. At 154 [12] - [13], reference was made to the judgment of Aickin J in R v Toohey; ex parte Northern Land Council [1981] HCA 74; (1981) 151 CLR 170 at 232, in which his Honour identified a number distinct grounds on which administrative decisions could be attacked. The first was the existence of a corrupt purpose. The second was absence of good faith indicating the presence of an improper purpose outside the scope of the power, but without any endeavour to obtain personal gain.

69 In Futuris, having at 164 [55] concluded that a number of considerations concerning the duties of public officers "point decisively against a construction of s175 which would encompass deliberate failures to administer the law according to its terms", at 165 [57], their Honours went on to say that "with respect to the remedy of injunction, what was said in the joint reasons in Plaintiff S157/2002 v The Commonwealth (2003) 211 CLR 476 at 508 [82] indicates that injunctive relief clearly is 'available for fraud, bribery, dishonesty or other improper purpose'."

70 Further, in a case cited by the Associate Judge in his reasons, Deputy Commissioner of Taxation v Warrick (No 2) [2004] ATC 4779, French J (as he then was) said at [100]:

"The threshold for demonstrating a failure to exercise a power bona fide is not a low one. While it does not require proof of malice or dishonesty it does import a serious dereliction of duty which borders upon, if not amounts to, recklessness in the decision-making process. Want of bona fides is not a vehicle through which the taxpayer may challenge the adequacy of the Commissioner's logic in making assessments of taxable income."

71 The Associate Judge resolved the issue against the appellant by making a judgment on the likely outcome of the factual dispute. As earlier discussed, his Honour did not discuss or assess the impact of the unchallenged evidence of Mr Collie, and I have already briefly noted how his Honour dealt with the issue generally. I will set out the full text of what his Honour said about this:

"18 Clearly, if the regional audit manager did not hold an opinion that there had been avoidance of tax due to evasion, but dishonestly said that he did hold such an opinion, there would exist the type of conduct which would take the assessments outside the protection of the Act, ss175 and 177.

20 The evidence discloses the existence of sufficient reasons for the formation of an opinion that there had been avoidance of tax due to evasion. The matters justifying the opinion were put forward by a senior audit officer whose bona fides are not challenged. The material then went before a five member quality panel who approved the analysis. The analysis was then sent to the defendant a month before the regional audit manager signed as having formed the relevant opinion. I see no possibility of an attack on the integrity of the regional audit manager, based on the information contained in the defendant's solicitor's affidavit, resulting in a conclusion that the decision making on this occasion was malicious, dishonest, corrupt, reckless, derelict or otherwise such as to justify a grant of relief in face of the Act, ss175 and 177. Leave to defend will not be given on the second basis claimed."

72 The law provides for a remedy where the making of an assessment is said to involve a lack of bad faith in the various senses which I have set out. It must, of course, be accepted that such allegations are not lightly made and are generally unsuccessful, but that does not mean that there should be some sort of preconceived notion about such allegations. Each case needs to be considered in light of its own facts and circumstances.

73 The facts referred to by the Associate Judge at [20] of his reasons (above) are correct. However, leaving aside for the moment Mr Collie's evidence, I make the following points:

•

It is not known what, if any, instructions were given to Ms Knappick to reinvigorate the investigation into the appellant's affairs, or by whom.

•

Mr McKay's involvement before going to the panel meeting with Ms Knappick on 1 June 2009 is not known.

•

Both Ms Knappick and Mr McKay were present at the panel meeting, but their respective roles and participation are not clear, nor is the role of the panel.

•

Ms Knappick subsequently made the "submission" to Mr McKay, who approved the submission to him, and on the same day signed the "Determination".

74 There is no proper basis upon which the evidence of Mr Collie could have been ignored in the context of a summary judgment application. I think the point can be properly made that were the issue to have been a lack of procedural fairness, Mr Collie's evidence would be likely to support an allegation of apprehended bias. That is, a fair-minded observer might reasonably apprehend that he might not bring an impartial and unprejudiced mind to the resolution of the question required to be decided, or of the task which has been entrusted.

75 I conclude that the Associate Judge erred in failing to properly apply the principles relating to summary judgment. The true question was whether the evidence established an arguable defence. In my view, his Honour failed to give sufficient weight to the evidence of Mr Collie, and decided the point by apparently resolving a factual issue when he was not in a proper position to do so. The material clearly indicated a factual dispute of some proportion, and one which could only have been resolved after a full investigation at trial. In my view, leave should have been granted on this second basis. I am not, of course, to be understood as making any comment on the validity of the claims about Mr McKay's conduct.

76 It follows that the appeal against the entry of judgment should succeed. I have considered the submissions as to what course should be adopted in that event. The respondent suggested that the judgment should remain, with a transfer of confined matters to the Federal Court, and a stay on execution of the judgment pending the resolution of those matters. The appellant argues that it is inappropriate to have the judgment remain whilst matters are agitated in the Federal Court which might necessitate the judgment in this Court being set aside. I think the appellant's proposition to be the sounder one. I think it is undesirable to fragment the proceedings in the way suggested by the respondent. I would propose ordering that the appeal be allowed, the judgment be set aside, and the proceeding be transferred to the Federal Court. That Court would be concerned with the determination of pars2(b) and 2(c)(iii) of the defence, in the defence and counterclaim dated 8 March 2010 It is those paragraphs which raise the issues I have considered. It seems to me that in order for that Court to be immediately and fully seized of the issues, I should also set aside the order by which the counterclaim was struck out. It is that counterclaim which seeks declaratory relief, and which the appellant would no doubt wish to pursue in that Court. However, I will hear the parties as to the final orders.

The appeal against the order refusing a stay of enforcement

77 Because of the outcome of the appeal against the judgment, there is no need for me to formally determine this appeal. However, to take account of what may occur, it is probably appropriate that I express a view.

78 The Associate Judge had evidence by way of a short affidavit from the appellant sworn on 1 October 2010. The appellant says as follows:

•

She has instructed her solicitors to seek review by the AAT of the disallowance of objections and to seek a stay of execution pending that review due to her current financial situation and her inability to pay the outstanding amounts should summary judgment be entered.

•

As the director of a company which is the trustee of a discretionary family trust, she receives $20,000 per annum, and no other income.

•

That company is funding her legal representation and she owes it a substantial amount of money. That liability, together with her general costs of living, have left her without assets of any significant value.

•

The family business (which I assume is farming) is owned by the company in its trustee capacity, and she has no interest other than as a potential beneficiary.

•

She was not expecting to receive or benefit from any further income "or monetary amounts" in the near future.

•

Bankruptcy would cause her severe financial hardship, and she does not own sufficient assets to pay the amounts claimed.

79 Sections 14ZZM and 14ZZR of the TAA both provide that recovery of any tax, additional tax or other amount may be pursued, notwithstanding that a review is pending in relation to a taxation decision. In Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473, these provisions were described as possibly harsh, but "they implement a long-standing legislative policy to protect the interests of the revenue": Gummow ACJ, Heydon, Crennan and Kiefel JJ at [44]. In the second judgment, [2010] TASSC 67, the Associate Judge referred to the principles set out by French J (as he then was) in Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 at 139. French J said:

"It may generally be concluded from the preceding review, that the power of State courts to stay recovery proceedings instituted in them under the ITAA is well established and that courts exercising it have regard to the following propositions:

1 The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer's appeal against his assessment.

2 The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it.

3 The merits of the taxpayer's appeal constitute a factor to be taken into account in the exercise of the discretion (although some Judges have expressed different views on this point).

4 Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax.

5 A stay may be granted in a case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay.

6 The mere imposition of the obligation to pay does not constitute hardship.

7 The existence of a request for reference of an objection for review where appeal is a factor relevant to the exercise of the discretion."

80 This statement of the principles involved in the exercise has been endorsed on many occasions and their application was common ground between the parties. In particular, there is no doubt that the power to grant a stay in the circumstances is to be exercised sparingly or with great caution: Deputy Commissioner of Taxation (NSW) v Mackey (1982) 13 ATR 547; Deputy Commissioner of Taxation v Denlay [2010] QCA 217 at [48]. In Deputy Commissioner of Taxation v Stjepovic (1991) 91 ATC 4715, J D Phillips J at 4728 referred to the accepted position that the mere obligation to pay that which is created by the legislation is not in itself hardship. He said:

"But where the alleged taxpayer does not have the assets to meet the claim, or at least does not have the assets without the destruction of his business activities or, perhaps, without the sale of something irreplaceable like a long-established family home, it seems to me much more probable that extreme personal hardship can be demonstrated ...".

This was quoted with approval in Denlay (above) at [23].

81 The possibility of bankruptcy is not considered, of itself, to constitute extreme personal hardship: Deputy Commissioner of Taxation v Akers (1989) 89 ATC 4725; Denlay (above) at [35]. It might be otherwise where there is a real prospect of bankruptcy, coupled with the deprivation of the ability to challenge the notices of assessment: Deputy Commissioner of Taxation v Jennings (above), Denlay (above) at [24], [30] - [31].

82 At par[5] of his reasons, the Associate Judge set out the submissions made to him, which were repeated before me. They were that the appellant's bankruptcy would cause extreme personal hardship to the appellant because:

•

she will suffer the serious social stigma of bankruptcy;

•

the fact of the bankruptcy will remain on her record for ever;

•

she will lose her directorship of the company which administers the family trust and consequently will lose her annual director's fee of $20,000;

•

her ability to engage in commercial activities will be restricted; and

•

the trustee company will cease funding the review pending before the Administrative Appeals Tribunal.

83 The Associate Judge resolved the application in the following way:

"[12] There is no evidence to suggest that in bankruptcy the defendant would lose her home or assets of special significance to her or that there will be any material change to her lifestyle. I was not referred to any authority where it has been held that the stigma of bankruptcy amounts to extreme personal hardship. There is no evidence that the defendant is engaged in business. There is no evidence that she has or is dependent upon an unblemished business reputation or has a good general reputation. In short, there is no evidence as to how the stigma of bankruptcy might impact on her.

[13] It was submitted that bankruptcy would be likely to put an end to the defendant's legal representation as she would no longer be able to borrow money from the trustee company to pay the costs. Although the defendant refers to a liability to repay the money which the trustee company spends on legal services it appears that the only means which the defendant would have of satisfying such a liability would be if she succeeds in her review and is awarded costs. She has said that she has no assets of significant value. The defendant is a director of the trustee company, but she has not said in her affidavit that the continuing funding of her legal representation will cease upon bankruptcy. There is no evidence that the trust will continue to fund the defendant's legal representation even if there is no bankruptcy. There was no submission that the defendant would be incapable of conducting the review herself without legal representation. I am not persuaded that without a stay of execution the defendant will lose her capacity to demonstrate that the assessments were wrong.

[14] The defendant has failed to persuade me that bankruptcy will result in extreme personal hardship."

84 These reasons reflect the statements made in the cases to which I have referred. The respondent correctly stressed that the appeal was one seeking the review of an exercise of a discretion. I should not intervene unless specific error is shown, or appears from the plain unreasonableness or unjustness of the outcome. It is not for me to substitute my view of what I would have done.

85 The factual material before the Associate Judge was sparse. The appellant bore the onus of establishing that a stay was appropriate. I am not persuaded that there was any error in the application of principle, and no error of fact on the part of the Associate Judge has been shown. Although the outcome might be regarded as harsh, that is one for which the law clearly provides. On the whole, the appellant has not shown error in the exercise of the discretion. Were it to be necessary, I would dismiss this aspect of the appeal.

86 Following on from what I said about the disposition of the matter at par[76] above, and subject to hearing from the parties, I would make the following orders:

1 The appeal be allowed to the extent that it relates to the entry of judgment.

2 The judgment entered on 10 January 2011 be set aside.

3 The order striking out the counterclaim be set aside.

4 The proceedings be transferred to the Federal Court of Australia.

[1] 356 Application by plaintiff for summary judgment

(1) If a statement of claim has been served on a defendant in an action and the defendant has appeared in the action, the plaintiff may apply to a judge for judgment against the defendant on the ground that the defendant -

(a) does not have a defence to a claim included in the writ or to a particular part of that claim; or

(b) does not have a defence to that claim or part, other than as to the amount of any damages claimed.

(1) A defendant may show cause against an application for summary judgment by affidavit or otherwise.

(4) A judge is to grant leave either unconditionally or on any terms to defend the claim or a part of the claim if -

(a) there is an issue or question in dispute that ought to be tried; or

(b) for some other reason there ought to be a trial of the claim or a part of the claim.

[3] In written submissions the respondent argued that the concept of the due making of the assessment covers all procedural steps, other than those going to substantive liability and thereby contributing to the excessiveness of the assessment as referred to in ss14ZZK and 14ZZO of the TAA. Although I am more than happy to accept the fault is mine, I am a little unsure as to the respondent's final position after oral argument. It seemed to be variously suggested on the one hand that the issue of whether an opinion was formed was a matter which fell within the parameters of the due making of the assessment and hence not capable of being disputed in any proceedings, and on the other hand that the issue was one which went to substantive liability and was capable of being raised in Part IVC proceedings. Of course in either case, it means that the issue of whether an opinion had been formed is conclusively resolved against the appellant in these proceedings by the production of the notice. I note that the appellant clearly accepted that questions relating to the facts upon which the opinion was based went to the taxpayer's substantive liability, and could not be raised outside Part IVC proceedings.