Hazim and Commissioner of Taxation - [2005] AATA 1183

CATCHWORDS – EXCISE – tobacco – producer licence – condition that applicant not produce tobacco without shareholding in tobacco co-operative – breach of conditions of licence – whether applicant encouraged to grow in breach of licence condition – whether industry practice – exercise of discretion to cancel licence – limits of discretion – doctrine of proportionality – whether sufficient steps taken to secure the crop – risk to revenue – decision affirmed.

Acts Interpretation Act 1901 ss. 15AB and 33
Commonwealth of Australia Constitution Act s. 90
Equal Opportunity Act 1995 (Vic) s. 35
Excise Act 1901 ss. 4, 28, 29, 30, 31, 32, 39A, 39B, 39D, 39E, 39G, 39K, 39L, 39M, 39N, 44, 54, 105, 107CA and 116
Excise Amendment (Compliance Improvement) Act 2000
Excise Regulations 1925 rr. 3 and 4
Taxation Laws Amendment (Excise Arrangements) Act 2001 ss. 4 and 6

Alexandra Private Geriatric Hospital Pty Ltd v Blewett (1984) 2 FCR 368; 56 ALR 265
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; 141 ALR 618
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194
Comptroller-General of Customs v Akai Pty Ltd (1994) 50 FCR 511
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Freeman v Secretary, Department of Social Security (1988) 19 FCR 342
Gribbles Pathology (Victoria) Pty Ltd v Minister for Health and Aged Care (2000) 106 FCR 1
Ha v State of New South Wales (1997) 189 CLR 465; 146 ALR 355
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24
Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic (1990) 92 ALR 93
Vanstone v Clark [2005] FCAFC 189
Nagle v Feilden [1966] 2 QB 633; [1966] 2 WLR 1027
Re Martino and Australian Taxation Office (No 2) (2002) 70 ALD 403
R v Goldstein [1983] 1 All ER 434; [1983] 1 WLR 151
The Hospital Benefit Fund of Western Australia Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225

DECISION AND REASONS FOR DECISION [2005] AATA 1183

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          VT2004/182
TAXATION APPEALS DIVISION  )

Re AHMAD ABDUL RAZZAK HAZIM

Applicant

AndCOMMISSIONER OF TAXATION
Respondent

DECISION

Tribunal:                   Deputy President S A Forgie
Date:  30 November 2005
Place:  Melbourne

Decision:The Tribunal affirms the objection decision of the respondent dated 12 August 2004.
S A FORGIE
Deputy President

REASONS FOR DECISION

Mr Ahmad Abdul Razzak Hazim held a Producer Licence (“PL”) issued on 27 November 2003 under the Excise Act 1901 (“Act”) to produce tobacco. It was issued on condition that he not produce tobacco seed, plant or leaf without an approved shareholding in the Tobacco Co-operative of Victoria (“TCV”). Another condition was that he obtain that approval within three months of the issue of his licence. Mr Hazim planted tobacco seedlings in November 2001 but the TCV refused to approve his holding shares. The TCV advised him of its decision on or about 3 March 2004. On 6 May 2004, a delegate of the respondent, the Commissioner of Taxation (“Commissioner”) suspended Mr Hazim’s PL and cancelled it on 24 May. There is no question that Mr Hazim was in breach of two of the PL’s conditions. The question is whether the Commissioner should have exercised his discretion to cancel his PL. I have decided that he was correct to do so and have affirmed the Commissioner’s objection decision dated 12 August 2004 disallowing Mr Hazim’s objection to the cancellation.

BACKGROUND

A number of facts forming the background to this matter were not in dispute between the parties. In light of that and on the basis of the evidence, I make the findings of fact that I have set out in the following paragraphs.

Mr Hazim was born in Hrara in Lebanon where he worked as a tobacco farmer. In 2001 when he was in his early 30s, he migrated to Australia with an ambition to own his own his own tobacco farm. He did not realise his ambition immediately as he first bought a milk bar business in 2002. Mr Hazim operated that business until 2003.

In the middle of 2003, he decided to purchase a property on which to establish a tobacco farm. He met with Mr Ian (“Skeeta”) Keat, who was a Sales Consultant with First National Real Estate, about suitable properties in the Myrtleford area in Victoria. That is a major tobacco growing area. Mr Keat had previously spent some 20 years as a tobacco farmer in the Myrtleford area. The property Mr Hazim ultimately purchased through Mr Keat was located near Gapsted, which is in the vicinity of Myrtleford (“Gapsted property”). The Gapsted property comprised approximately 25 acres and had been used as a tobacco farm some 17 years before. It required repairs and improvements.

Mr Hazim sought legal advice as to the legal requirements he needed to satisfy to own and operate a tobacco farm. He engaged a local solicitor, Mr Barry Charles Fletcher, in August 2003 to advise him. Mr Hazim understood that Mr Fletcher had many years of experience in the tobacco industry and was a specialist in the area. Mr Fletcher, who has practised for 28 years in the Myrtleford area, described his “… areas of specialization [to] include advising and acting for tobacco growers and assisting clients in the purchase of properties for tobacco farming and obtaining tobacco licences.[1]
[1] Exhibit A at [1]

Mr Fletcher advised Mr Hazim that, if he were to grow and sell tobacco, he would need to obtain a PL from the Excise Department of the Australian Taxation Office (“ATO”). Mr Fletcher prepared his application for the PL. In support of his application, Mr Hazim lodged a detailed business plan. He engaged accountants to prepare that plan. The application was lodged with the ATO on 12 September 2003.

At this time, the contract between Mr Hazim and the vendor of the Gapsted property had yet to be finalised. A Contract for Sale was not signed until 12 November 2003 when the purchase price of $155,000 was agreed. During the period of the negotiations, Mr Hazim sold his milk bar and arranged for his father to sell a block of land located in Lebanon and that his father had given him.

On 27 November 2003, the ATO wrote to Mr Fletcher advising that it had granted Mr Hazim a PL. Mr Fletcher advised Mr Hazim that the PL had been granted subject to a number of conditions. Those conditions included conditions that that he would:
“ Acquire (within 3 months of the date of commencement of this licence), and then maintain, a shareholding in the TCV which has been approved by the TCV (the approved shareholding).
…
within 3 months of the date of commencement of this licence install and maintain a TCV approved alarm system for secure storage and Kilns area.
The Kilns must be fully operational by the 30^th January 2004.
Not produce tobacco seed, tobacco plant or tobacco leaf without the approved shareholding.
…
Formally engage for at least 12 months from the date of commencement of this licence, a person or persons with demonstrable skills and expertise in tobacco growing, curing and disease control, to assist and advise the licence holder in those matters.”[2]
[2] Documents lodged under s. 37 of the Administrative Appeals Tribunal Act 1975 (“T documents”) at 42

On or about 3 March 2004, Mr Fletcher told Mr Hazim that his application for membership of and shareholding in the TCV had been rejected. The TCV had advised of its decision in a letter of that date and sent a copy of it to the ATO on 5 March 2004. Both Mr Fletcher and Mr Keat contacted the TCV regarding its decision. Ultimately, Mr Hazim instructed Mr Fletcher to file a complaint in the Equal Opportunity Commission alleging the conduct of the TCV constituted racial discrimination.

By this time, Mr Hazim had harvested, dried and baled 66 bales of tobacco. Arrangements had to be made for their storage but Mr Hazim understood from Mr Fletcher that the ATO would not permit them to be stored at his home in Melbourne. He was concerned that the bales would be stolen or damaged and invited the ATO to take the bales for storage. It declined to do so as it did not have a storage facility. Relying on a Seizure Notice issued under s. 107CA of the Act, the ATO seized the 66 bales of tobacco from the Gapsted property on 25 May 2004.

On 8 November 2004, the TCV and Mr Hazim participated in a mediation at the Victorian Civil and Administrative Tribunal (“VCAT”). As a result of the mediation, the VCAT proceeding was settled on the basis that the TCV would admit Mr Hazim to membership if he were to apply to the ATO on or before 1 July 2005 and his application were successful or the proceeding in the Tribunal leads to his being granted a PL either as a result of the Tribunal’s reviewing and setting aside the Commissioner’s decision or by the parties’ agreement.

Mr Hazim has been unable to plant a tobacco crop in the 2004/2005 tobacco growing season and is yet to plant a crop in the 2005/2006 season. In the meantime, he has spent approximately $80,000 on improvements to his property and incurred a similar sum in legal expenses. He has had to turn to part time work to generate income.

THE LEGISLATIVE FRAMEWORK

Background

The High Court decided in 1997 that the Business Franchise Fee collected by the New South Wales State Government on the sale of tobacco products was a duty of excise within s. 90 of the Commonwealth Constitution.[3] Therefore, it could only be collected by the Commonwealth. In order to include the fees previously levied by the States, the Federal Government increased the excise duty payable on tobacco products from $85 to $239 per kilogramme. That was the rate initially levied but the rate increases in February and August of each year in line with the Cost Price Index. Relevant rates have been $272.55 per kilogramme in August 2003, $275.55 in February 2004 and 282.76 in February 2005.
[3] Ha v State of New South Wales (1997) 189 CLR 465; 146 ALR 355

Up until 1997 and until September 2000, producers of and dealers in tobacco products were required to be registered but there was no provision for refusing registration. This was changed by the introduction of amendments to the Act made by the Excise Amendment (Compliance Improvement) Act 2000.

Parts III and IV of the Act, which were repealed and substituted with effect from 7 September 2000, provide for, among other matters, the licensing of the producers of tobacco seed, tobacco plant and tobacco leaf. Although reference is made in the Act to the Collector, amendments effected by the Taxation Laws Amendment (Excise Arrangements) Act 2001 (“Amendment Act”) led to the Act’s being administered by the Commissioner and a reference to a Collector is, in the context of this case, the Commissioner (Amendment Act, ss. 4 and 6). I have used both terms interchangeably in these reasons.

Licensing of producers of tobacco seed, plant and leaf

No person other than a holder of a PL may produce tobacco seed, tobacco plant and tobacco leaf.[4] In general terms, licensed producers must produce those products in accordance with the Act and his or her PL.[5] Again in general terms, they must store them at licensed premises[6] and must not intentionally produce them at premises other than licensed premises.[7] A person who is a licensed producer, or who has been a licensed producer but is no longer, must keep accounts and make returns with respect to tobacco seed, plant and leaf in accordance with regulations made under the Act.[8]
[4] Act, s. 28(1)
[5] Act, s. 29
[6] Act, s. 30
[7] Act, s. 31
[8] Act, s. 32

It is in the Collector’s discretion whether to grant a licence.[9] Without limiting that discretion, s. 39A(2) sets out a number of circumstances in which the Collector may refuse to grant a licence. In the context of a PL and of a natural person, the following are relevant:
[9] Act, s. 39A(1)
“… the Collector may refuse to grant a licence if, in the Collector’s opinion:
(a)where the applicant is a natural person-the applicant is not a fit and proper person; or
(b)where the applicant is a partnership-any of the partners is not a fit and proper person; or
(c)…
(d)an employee of the applicant who would participate in the management or control of the premises in relation to which the licence is sought is not a fit and proper person; or
(e)…
(f)the applicant is an associate (within the meaning of the Income Tax Assessment Act 1997) of a person who is not:
(i)a fit and proper person; or
(ii)a fit and proper company; or
(g)...
(h)in relation to an application for a producer licence … - the physical security of the storage space on the premises in relation to which the licence is sought is not adequate having regard to:
(i)the nature of the storage place; or
(ii)the quantity of tobacco leaf that would be kept at the storage place; or
(iii)the procedures and methods that would be adopted by the applicant to ensure the security of tobacco leaf at the storage place;
(i)…
(j)the applicant would not be able to keep proper books of account or records to enable the CEO adequately to audit those books or records; or
(k)…
(l)refusal to grant the licence is necessary to protect the revenue.”

The Collector must not refuse to grant a PL under ss. 39A(2)(a), (b), (c), (d) or (f) unless satisfied that it is necessary to do so to protect the revenue.[10]

[10] Act, s. 39A(3)

What is meant by a “fit and proper person” is not defined. Section 39 provides that the Collector may have regard to a number of matters when considering whether or not a natural person is such a person. Among those matters are offences with which the person may have been charged under the Act or other legislation relating to excise, other offences carrying certain penalties, certain convictions, cancelled licences, an undischarged bankruptcy, misleading statements and false statements in the application.

A licence is subject to the conditions that are specified in s. 39D(1) of the Act and also to any that are prescribed.[11] In addition:
“A licence is subject to such other conditions (if any) as are specified in the licence, being conditions considered by the Collector to be necessary or desirable for the protection of the revenue or for the purpose of ensuring compliance with the Excise Acts.”[12]
[11] Act, s. 39D(2)
[12] Act, s. 39D(3)

Once granted, a PL comes into force on the day it was granted and remains in force unless it is cancelled.[13]
[13] Act, s. 39E(2)

Record keeping by producers of tobacco leaf

Records are to be maintained by every “producer of tobacco”. Among them are records kept in a book called the “Tobacco leaf producer’s book” in accordance with Form 1 in Schedule 1 to the Excise Regulations 1925 (“Regulations”).[14] In that book, each producer must keep an account of the number of hectares growing tobacco leaf, the quantity of tobacco leaf harvested and the quantity of tobacco leaf cured as well as all sales of tobacco leaf.[15]
[14] Regulations, r. 4
[15] Regulations, r. 3

Permission to move tobacco leaf

Section 44 of the Act provides that the Collector may give a person written permission to move tobacco leaf from one place specified in the permission to another.

Powers of officers

Section 105 provides that an officer may check the stock of tobacco leaf of any producer at any time. If any deficiency is found and the producer cannot account for that deficiency, that producer must pay duty on that amount as if it had been manufactured into excisable goods and entered into home consumption on the day on which the deficiency was found.

Suspension and cancellation of a PL

The Collector may suspend a licence under s. 39G. Subject to s. 39G(2), the Collector may suspend a licence if he or she has reasonable grounds for believing that any one of the grounds set out in s. 39G(1) exists. Two of those grounds are relevant in this case:
“… the Collector may suspend a licence if the Collector has reasonable grounds for believing that:
(k)a condition of the licence has been breached;
…
(m)it is necessary for the protection of the revenue to suspend the licence.”

During a period of suspension, s. 39K(6) provides that the Collector may:
“(a) give written permission for goods to be kept or stored at the premises specified in the licence; and
(b)give written permission for a process to be carried out at the premises specified in the licence; and
(c)give written permission for the movement of goods from the premises specified in the licence to another place; and
(d)by written notice, in a manner prescribed by the regulations, to the owner of goods at the premises specified in the licence, require him or her to remove the goods to another place approved by the Collector; and
(e)take such control of the premises specified in the licence and of any goods at the premises as may be necessary for the protection of the revenue or for ensuring compliance with the Excise Acts; and
(f)by written notice to the licence holder, require the holder to pay such costs incurred by the CEO as a result of the suspension.^[[16]]”
[16] The amount of costs may be recovered as a debt due to the Commonwealth: Act, s. 39K(7)

The Collector may cancel a licence if entitled to suspend it under s. 39G[17] and must do so in certain situations that are not relevant in this case.[18] When the licence is cancelled, the Collector must give a written notice to the owner of the excisable goods at the premises specified in the licence. It must state:
“(a) that the owner is required, within a time specified in the notice or any further time allowed by the Collector, to:
(i)pay to the Collector duty payable in respect of the goods at the premises; or
(ii)remove the goods at the premises to another place in accordance with permission obtained from the Collector; and
(b)that, if the owner does not comply with the requirements of the notice, the goods will be sold or otherwise disposed of.”

If the owner of the goods fails to comply with the requirements of the notice within the time specified in it or within any further time permitted by the Collector, the Collector may sell or otherwise dispose of the goods.[19]

[17] Act, s. 39L(1)

[18] Act, s. 39L(2)

[19] Act, s. 39L(6)

In general terms, a person may not remove excisable goods on which duty has not been paid.[20] The Collector, though:
“… may cause:
(a)any excisable goods on which duty has not been paid that are at the premises specified in the licence; and
(b)any packages in which the goods are contained;
to be removed to such other place as the Collector thinks fit.”[21]

The Collector may sell or otherwise dispose of the goods if, within six months of their removal, they are not claimed, in writing by their owner, or the duty, expenses of removal, storage rent and any other storage charges have not been paid in respect of them.[22] The duty payable on excisable goods claimed by their owner is calculated at the rate in force at the time when the duty is paid.[23]

THE EVIDENCE

[20] Act, ss. 39M(1) and (2) but see s. 44 at [22] above empowering the Collector to give written permission to be moved from one place to another.

[21] Act, s. 39N(1)

[22] Act, s. 39N(2)

[23] Act, s. 39N(3)

Buying and selling tobacco seed, plant and leaf

Mr Paul Crowe is the Manager of the Intelligence and Co-ordination Group within the Tobacco Industry Group (“TIG”) of the Excise business line in the Australian Taxation Office ATO. He referred to the way in which tobacco is bought from the holder of a PL and sold:
“11. The producer sells the tobacco to licensed manufacturers through Tobacco Co-operatives of which the producers are members. The Tobacco Co-operatives act solely on behalf of their member producers as dealers to the manufacturers. The manufacturers pay the requisite amount of excise duty to revenue. The manufacturers reach agreement with the Tobacco Co-operatives on what quantity of leaf they will buy for any particular year. The Tobacco Co-operatives then allocate that quantity amongst its member producers. In turn each member brings that quantity of leaf or quota to the Tobacco Co-Operative for sale. The member producers produce the tobacco leaf according to their quota.
12.In the past few seasons the manufacturers have purchased all tobacco that has been produced and therefore a number of producers have produced tobacco in excess of their quota amount.”[24]
[24] Exhibit 4

Membership of the TCV

Mr Crowe said that ensuring that an applicant for a PL had and maintained a licit market for his tobacco was an integral objective of the producer licensing process. Until July 2003, the objective had been achieved by the applicant for a PL’s obtaining membership of the TCV before the Commissioner issued a licence. In that month, the TCV decided that it would not admit to membership any person who did not hold a PL under the Act. It did not consult the ATO before it made its decision and a stalemate ensued.

In order to resolve that stalemate, the ATO decided to issue PLs subject to a condition that the licensee not produce tobacco seed, plant or leaf until membership had been granted. This condition was necessary to ensure that tobacco that did not have a licit market was not produced and so did not pose a risk to the revenue. The ATO began taking this approach in August 2003 in relation to applications for PLs lodged in respect of the 2004 growing season.

Initially, the PL stipulated a period of three months within which the licence holder had to obtain TCV membership. When the TCV took longer than three months to consider membership applications, the period of three months was deleted. The requirement to obtain TCV membership remained.

Mr Crowe said in giving evidence that the ATO’s:
“… process was to ensure that the applicant for a producer licence was able to have a market for that tobacco. Certainly, in more recent times, we have become stricter in how we determine that. Probably earlier on when the sale of a property to a buyer also included a share transfer we may have been happy with the closure of that sale or documents to the effect that this sale was being effected, but certainly we would always satisfy ourselves that there was a market there for any tobacco grown.
And how did you satisfy yourself that there was a market there for any tobacco grown, what was the litmus test for that satisfaction? --- Well, in later times it was evidenced on the TCV, or information from the TCV, that they had issued a shareholding. Or before that there were instances where we granted the licence but those properties were being sold by current licensees who took ownership and took control of the crop until such time as the new licensee had his share-holding granted.
And in those second sets of circumstances is the position, then, that you were satisfied there was a licit market because of the existence of an existing membership held by the vendor? --- That is correct.
Mr Fletcher also said that it was industry practice pending - sorry, industry practice after the issue of a producer licence and before TCV membership had been determined for the applicant to plant tobacco and the Australian Taxation Office was aware of it and acquiesced in that. What do you say about that? --- As I said, we only allowed tobacco to be produced where we had confidence that there was a licit market for it and that was via a shareholding in the TCV, growing it under that shareholder's licence.
And is that, therefore, a reference again to a circumstance which related to a sale of a going concern, a farm, a tobacco-producing farm, with an accompanying transfer of shares and an existing current TCV membership? --- That is correct. My recollection is that it first occurred in late 2003 I think - sorry 2002 - where the sale transaction couldn't be completed before growing was due to commence so the current licensee grew pending the completion of the sale and take over the property by the new licensee.”[25]
[25] Transcript at 182-183

Compliance with the conditions of a PL

The ATO has a regimen of compliance audits and inspections but also relies on:
“… its clients to self assess and voluntarily comply with their licence obligations. Where a client is found to be non-compliant education is initially given in order that the client will voluntarily comply. Where non-compliance continues more formal education and warnings of the consequences are issued. If these are ineffective then severe action which could include licence cancellation and prosecution may be pursued to protect the revenue.”[26]
[26] Exhibit 4 at [21]

To assist each tobacco producer to comply with the obligation to maintain a Tobacco Producer’s Record Book, the ATO gives a copy to each of them. Mr Crowe said that each is also made aware of all of the requirements of the licence. The licence itself sets out the conditions to which it is subject.

Mr Crowe described the ATO’s compliance regimen under the name of the Aggressive Tobacco Strategy:
“… comprehensive audits of a producer would occur at four critical stages of the growing season and would require both a physical examination of the farming process compared to a documentary check of the producer’s records and licence requirements. These stages are:
·‘- in the field’ – Planted acreages would be measured to enable an estimation of probable yield for the season.
·‘Crop Mid Term’ – A review of plantings as well as the gathering of information on factors which may affect the expected yield.
·‘Harvest Cure and Bale’ – monitoring of quantities of leaf cured and baled.
·‘Post Bale and Sale’ - a final check where total production was verified against records and expected yields and to ensure all tobacco has been removed from the licensed premises.
26.       The purpose of the audits initially was to educate producers on the new legislative requirements and to monitor tobacco production on the licensed premises.
27.       At the end of each producing season ATO rates each producer against a set of risk indicators. The producer is rated as either a low, medium, high or severe risk to Excise revenue.
28.       During the past two seasons ATO compliance activity has been directed at producers at the severe and high end of the risk scale. These producers would receive more frequent visits from Excise to encourage compliance. The compliance strategy is aimed at reconciling the tobacco that is grown and cured against what is sent to the Tobacco Co-operative.
29.      Heavy reliance is placed on the accuracy of producers’ records to enable reconciliation of their tobacco production against what is brought to licit sale. Any loss of production either whilst the tobacco is growing, being cured or rejected at sale for any reason is to be brought to the attention of ATO officers.”[27]
[27] Exhibit 4 at [25]-[29]

The ATO is concerned about the diversion of tobacco from the licit to the illicit market. As each bale weighs, on average, 105 kilogrammes, the loss of one bale to the illicit market represents, on current excise duty rates, a loss of $29,689.80 to the revenue. The ATO’s analysis of licit sales of tobacco in Victoria arising from the 2004 season against the acreages planted and expected yields showed a shortfall of 2,500 bales. That represented a possible shortfall to the revenue of $74,224,500.00 in the form of duty not paid as a result of being dealt with on the licit market.

The risk to the revenue escalates as the crop matures. The main threat occurs when the crop is able to be cured. Once cured, it can be stored for years in proper conditions and can be moved under excise control. While tobacco is in the form of seeds, seedlings or immature plants, they cannot be cured and turned into tobacco leaf. That presents less of a risk to the revenue.

During cross-examination, Mr Crowe rejected Dr McEvoy’s suggestion that the ATO’s regulation of the tobacco industry was “a pretty laissez-faire one”.[28] He characterised its regulation as:
“… not laissez-faire but certainly we respond to the environment as it changes and it certainly has over the last four or five years and as we learn more about the compliance activity that we need to put in place.
… --- I certainly think the people involved in the industry would recognise that there has been a change in the Tax Office’s compliance strategies over four or five years’ period.”[29]
[28] Transcript at 185
[29] Transcript at 185

Mr Crowe said that ATO officers visit participants in the industry at the start of each season and also write to them about compliance strategies. They consult with the TCV about any major changes to strategies that it was planning to implement. Mr Crowe was reasonably confident that ATO officers who met growers acted consistently with what was expressed in the formal documents the ATO gave them.

Mr Keat’s experience in advising those engaged in the tobacco industry

Earlier in his career, Mr Keat said, he had spent some 20 years as a tobacco farmer in the Myrtleford area. He had extensive experience in the requirements of the ATO and the TCV. Mr Keat felt that he formed a good relationship with Mr Hazim and wished to assist him. He was also impressed by Mr Hazim’s honesty and desire to participate lawfully in the tobacco industry. When Mr Hazim sought legal advice, Mr Keat referred him to Mr Fletcher, who was a local solicitor specialising in the tobacco farming industry.

Mr Fletcher’s background in advising tobacco producers

Mr Fletcher said that he had been admitted in 1977 and had done a lot of tobacco work in the Myrtleford area. He still practised as a consultant in the area. He estimated that the firm by whom he was engaged and which he had previously owned did 98% of such work in the area and another firm did the rest.

In cross-examination, Mr Fletcher said that he was unaware of the Excise Amendment (Compliance Improvement) Act 2000. He had never read it and had never read the Explanatory Memorandum that accompanied it. Mr Fletcher was aware, though, that the legislative framework changed in the late 1990s. Up until that time, “Joe the goose could have grown tobacco …”.[30] He was not sure of the date when the change occurred but would not argue with the suggestion that it occurred in September 2000. As far as legislation is concerned, Mr Fletcher said that he “… would assume there was some Act because the system changed.”[31]
[30] Transcript at 33
[31] Transcript at 33

When it was suggested to him that the previous system had been “a fairly laissez-faire regime”, Mr Fletcher replied “It still is.”[32] In response to the further suggestion that the amendments were designed to introduce a much tighter regime, he responded:
“… Never read the Act, but the regime doesn’t work, if that is what you’re saying.”[33]
[32] Transcript at 33
[33] Transcript at 34

Mr Fletcher did not agree that the new system required that producers provide business plans, give details of growing, curing and disease control skills and show evidence of the legal market for the tobacco by the lease or purchase of TCV shares. As to the purchase or lease of TCV shares, that is not correct:
“… Well, there’s numerous instances where people have grown tobacco before they have had their TCV shares, innumerable instances.
… What I am alluding to since, say 2002, up to the present time, there is innumerable situations whereby people have received a licence from the ATO, have for want of a better word and I am not a wordsman, stuck tobacco in the ground prior to having their TCV shares.”[34]

Those cases have occurred in both the 2002 and 2003 seasons. The ATO has granted a PL before the producer has had TCV membership.

[34] Transcript at 35

Mr Fletcher did not agree with the statement made by Mr Crowe that:
“An integral part of the producer licensing process is and was to ensure that any applicant for a Producer Licence has and maintains a licit market for all tobacco produced. This objective was usually achieved by the applicant for a Producer Licence having first applied for and obtained membership in and quota from the Tobacco Co-operative prior to the issue of a Producer Licence.”[35]

He said that the TCV will not even consider an application until the ATO has issued a licence. A person might not even make an application. He later agreed that Mr Crowe had accurately described the situation that had prevailed when the new system was first introduced and up until the ATO issued a PL before the TCV gave or withheld approval of a person’s being one of its members. “… [A]t one stage it was the cat chasing its tail.”[36] That occurred when the ATO required a producer to have TCV membership before issuing a PL and the TCV required the PL first. Mr Fletcher did not know the date on which this occurred and thought that it might have predated July 2003.

[35] Exhibit 4 at [13]

[36] Transcript at 39

Mr Fletcher said that he was aware that conditions are included in a PL if they are considered necessary for the protection of the revenue or for ensuring compliance with the Act. When asked whether he knew that it was a provision of the Act, the following exchange occurred between Mr Fletcher and Mr Lorkin:
“… --- No, I don’t know much about the Excise Act, mate.
You are advising clients ever day of the week aren’t you, or you were, in relation to matters dealing with the Excise Act and its application to your client’s interests? --- We dealt with the conditions on the licence, yes.
Yes. I am asking now more broadly as to your knowledge of the Excise Act? --- Wouldn’t be good
…
… --- I would explain the conditions on the licence to people, I would explain to them how the industry actually works because how it works and what the conditions on the licence say are two totally different things. Totally different things.
…
… the advice your give would be based on that view of a laissez faire industry? --- The advice I would give in some instances would be, ‘Your licence condition says x’ ---
Yes? --- ‘but industry practice has been y’.
Yes? --- ‘I am telling you that you are supposed to do this but if you do, the industry has never functioned like that. You take your pick.’
…
… --- I would tell them of past things that have occurred and let them make up their own mind.
… And translating that to Mr Hazim’s case ---? --- Yes
--- that is exactly what you did here? --- Yes. I think so. I think so.
Well, do you know so or do you just think so? --- I went through the conditions with him, yes.”[37]
[37] Transcript at 41-42

Mr Fletcher did not agree with Mr Crowe’s description of the ATO’s decision to issue PLs on condition that the licensee not produce tobacco seed, plant or leaf until TCV membership had been granted. This condition had been necessary to ensure that the tobacco that did not have a licit market was not produced. In that way, there would be no risk to the revenue. Mr Fletcher laughed at the proposition and said that:
“It was accepted industry practice that once people had an ATO licence they put it in the ground. No doubt about that.”[38]

Mr Fletcher had a list of five instances in which he said that the ATO had issued a PL before the producer had been granted TCV membership and in which the producer had planted tobacco before the grant of TCV membership.

[38] Transcript at 43

Mr Fletcher said that he was aware that the ATO had earlier imposed a condition that the producer obtain TCV membership within three months and that it then imposed an absolute prohibition on growing tobacco seed, plant or leaf until the attainment of TCV membership. Mr Fletcher said that he understood that it was a total prohibition. When asked whether total prohibition meant what it said, Mr Fletcher said:
“No, not in practice it didn’t. … It has been ignored for a number of years. I would think three. … I believe that had been ignored the whole time. … I believe the total prohibition clause has always been there but as I said I don’t have the material and I think it has always been there.”[39]

Mr Fletcher said that this had been in his state of mind at all relevant times in his dealings with Mr Hazim.

[39] Transcript at 65-66

Mr Fletcher said that Mr Hazim usually attended at his offices with a relation. He did not think that Mr Hazim had a good grasp of English but he seemed to be able to get through to him. Mr Fletcher said that he was concerned to explain the conditions on the PL to Mr Hazim but he also explained the industry practice. Mr Hazim’s reaction had been one of delight to get the PL.

Mr Fletcher’s experience in advising those engaged in the tobacco industry

Mr Fletcher said in his statement that the changes in the licensing regimen in the tobacco industry led him and the only other solicitor in Myrtleford experienced with the issue, Mr Gary Nevin, and Mr Fred Neal, to arrange a meeting with the ATO to discuss the new requirements. That meeting took place in or about August 2003 and was attended not only by representatives of the ATO but by senior members of the TCV. The solicitors expressed their concern that the processes for obtaining a PL and membership of the TCV created much uncertainty and delay. The cost and delay associated with the ATO’s probity checks was specifically discussed but the TCV gave no indication it was considering the introduction of its own probity checks. Contracts of Sale for tobacco farms were expressly subject to a condition that the ATO issue a PL but that introduced an inherent uncertainty in the settlement date.

Mr Fletcher said that he received a letter from the ATO in August 2003 stating that it was becoming concerned about growers who had dubious business and financial backgrounds. From the ATO’s point of view, this heightened the potential risk to the revenue by diversion of the crop to the illicit trade. Consequently, the ATO required business plans, details of skills in growing, curing and disease control and evidence of the legal market for the tobacco by a purchase or lease of TCV shares approved by the TCV.

Inspections of the Gapsted property by ATO officers before the purchase

Mr Hazim said in his statement that ATO officers, including Mr Michael Christopher Livingston, who is a field officer with the ATO’s Excise Business Line, inspected the farm after he had lodged his application for a PL. They did so in order to determine its suitability for the production of tobacco. The ATO wrote to Mr Fletcher advising him as to the work that Mr Hazim had to undertake as a condition of his being granted a PL.

Mr Keat said that he liaised with the ATO as to the work that was to be done and that he assisted Mr Hazim by obtaining quotations for it to be carried out. On 26 November 2003, he wrote to Mr Campbell at the ATO advising of the work that would be carried out and the quotations for it.

Mr Livingston confirmed that he had visited the Gapsted property on 21 October 2003. He met with Mr Keat, Mr Geoffrey Warren York, who is an ATO officer, and Mr Hazim. Mr Livingston said that he explained that he was inspecting the property on behalf of the licensing area within the Excise business line of the ATO. He said that he:
“… further advised the applicant, in the presence of Mr Keat, that until a licence is granted to him for that property, he could not plant, grow or cure tobacco. The applicant nodded, indicating to my mind that he understood the contents of the discussion.”[40]

Mr Livingston, Mr York and Mr Hazim also discussed security arrangements for the shed, the need for an alarm and the need to repair the kilns as well as other general issues related to tobacco production. He said that Mr Hazim spoke with him in English and asked questions in English. Mr Livingston believed that Mr Hazim had an understanding of English and could understand what was said and his requirements.

[40] Exhibit 6 at [4]

Mr York said in his statement that he had been present during the conversation. He noted that Mr Livingston “… further advised the applicant that until a licence is granted to him for that property he could not plant, grow or cure any tobacco.”[41] Mr Hazim had nodded and this led Mr York to think that he had understood what Mr Livingston had said to him. The same had occurred when they had talked about the security arrangements for the shed and the broken kilns. In a file note that Mr York wrote on 22 October 2003, he referred also to Mr Hazim’s being asked where he would source his seedlings.[42] Mr Hazim had replied that he had made some enquiries of Greg Saric but that was all he could provide. The need to keep records was also mentioned during the conversation.
[41] Exhibit 8 at [4]
[42] T documents at 115

Mr Livingston recalled the conversation about the seedlings but did not recall Greg Saric’s name being mentioned although it might have been. It was of no concern to Mr Livingston that Mr Hazim did not have his seedlings at that stage. He was concerned about the plant and equipment on the Gapsted property as it is part of the field staff’s role to ensure that growers have facilities to produce and cure tobacco and to store it securely. Mr Livingston did not necessarily accept that these concerns were consistent with the ATO’s understanding that, once a PL was issued, the grower would start to grow. He contemplated that the grower would wait until he had TCV membership.

On 25 November 2003, Mr Livingston said, he again visited the Gapsted property. Mr York also visited and both Mr Hazim and Mr Keat were present. Mr York and Mr Livingston discussed with Mr Hazim the improvements that would be required to meet the conditions on the licence. They included upgrading the kilns and the need for a secure and alarmed storage facility.

Mr Hazim said in his evidence that “Jeff” had asked him whether he was going to plant the next block as the Gapsted property is divided into two blocks. Mr Keat and Mr Livingston had also been present. He had replied that he was and no-one had complained. This was before he received the PL.

During November and before he received his PL, Mr Hazim said that he negotiated for the purchase of seedlings. When “Jeff” and Mr Livingston were at his property one day, the man with whom he had negotiated the purchase came to the farm and returned his deposit as he did not have a PL. Mr Hazim said that the man then said the following:
“He actually told me ‘The moment you get your producer licence - not the share licence but the producer licence, then come to see me because it is a very well-known fact that anyone who is obtained the producer licence, that he has the right to start planting." Mick Livingston was present at the time, he was - he listened to all the conversation that had happened. He did not enter into the conversation, he did not give - he did not advise of any contrary to what was said, nor did he give me any contrary instruction at the time. They did check the farm, both of them, and Jeff told me that they are going to send a letter to Sydney and I should be getting my licence very soon.”[43]

Correspondence among ATO officers and between ATO officers and Mr Hazim’s advisers before the issue of the PL

[43] Transcript at 159

An email dated 31 October 2003 and written by Mr Livingston to Mr Ross Campbell and Mr Sam Isaac and copied to others including Mr Crowe recorded that he had advised Mr Fletcher and Mr Keat that:
“… we have serious concerns in relation to:
Storage security;
Kilns needing upgrade;
Lack of tobacco growing/curing knowledge;
No plant and equipment needed for soil preparation;
No order for seedlings;
No tobacco having been grown on the property for 15-17 years.
There are no living quarters on the property.
Both the real estate agent and the solicitor have suggested a licence be issued with conditions addressing the above being included. They have indicated that it is unreasonable to expect a potential buyer to carry out improvements or purchase capital equipment before a licence is issued.
The Victorian tobacco planting season occurs in the next couple of weeks (November). The applicant is still a resident of Melbourne, has no knowledge whatsoever of tobacco production and has not organised any assistance from experienced tobacco growers.
I suggest Licensing write to the solicitor detailing our concerns.”[44]
[44] Applicant’s Book of Documents at 251

Mr Livingston said during cross-examination that his expectation at this time was that Mr Hazim would begin planting if he was granted a PL. It would be a standard term of the PL that he had membership of the TCV.

Mr Crowe had said that the ATO had been aware that some applicants for PLs would not be able to produce tobacco in the approaching season if they did not have their TCV membership approved in time. If that were the case, he was asked by Dr McEvoy, why would the ATO have any concerns that Mr Hazim had not placed an order for seedlings. Mr Crowe responded that the ATO had never ruled out the possibility that Mr Hazim might have his application for membership approved in time and the ATO was dealing with that possibility. It did not strike him as odd that Mr Livingston would be concerned that Mr Hazim had not placed an order for seedlings.

For his part, Mr Livingston did not disagree with Mr Crowe’s assessment that the ATO was aware that some applicants would not be able to produce tobacco in the approaching season if they did not have their TCV membership approved in time. It was not wrong if people abided by their licence conditions. That was so even though he had conceded that some growers would plant before they obtained TCV membership and that the position would be regularised when they obtained TCV membership. The position in the field was inconsistent with the ATO’s policy at the time. In the field, the officers were in a compliance monitoring phase waiting on instruction from the TIG in relation to suspension or cancellation. As to whether Mr Crowe’s assessment was correct, Mr Livingston said:
“… You cannot stop people growing tobacco unless you – if they have breached their licence condition – unless you formally go and suspend and cancel the licence, and seize the tobacco. Or destroy the tobacco in the field. That is the reality.”[45]
[45] Transcript at 311

On 28 October 2003, the ATO wrote to Mr Fletcher referring to a conversation between him and Mr Isaac of that office. The letter advised Mr Fletcher that:
“… we can only further consider you clients [sic] application when:-
1 -The Kilns are operational.
2 -There is adequate Storage facility for storing of tobacco bales.
3 -Security system is installed on the Storage sheds.
4 -There is plant and equipment to assist in the growing, curing or baling of the tobacco.”[46]

Mr Isaac asked Mr Fletcher to advise the ATO of his client’s intentions.

[46] Exhibit A, Exhibit BF 1

Mr Hazim said that Mr Fletcher spoke with him about the ATO’s letter. He was concerned that the season was about to start but he said that he wanted to act within the law. His evidence on this point appears below.[47]
[47] see [91] below

Mr Fletcher replied to the ATO on 6 November 2003 when he wrote that items 1, 2 and 3 “could be handled by a conditional licence being issued.”[48] Mr Fletcher had begun his letter by asking the ATO to send its letters by facsimile and then stating that “The matter at this stage is urgent as the applicant desires to grow tobacco for this current tobacco season.”[49] Mr Ross Campbell replied to Mr Fletcher on 10 November 2003:
“I refer to your correspondence of 6 November 2003. I appreciate your client’s desire to grow tobacco for the current season, but I must inform you that we are not in a position to grant a licence until at least items 1 & 2 of our letter of 28 October 2003 are addressed.
Granting a licence conditional on the kilns being made operational and a storage facility constructed at some later time is not appropriate since if, for whatever reason, these matters are not fully addressed within the proposed time-frame, the Australian Taxation Office could be faced with high compliance costs to deal with leaf that cannot be cured and/or stored appropriately.
Your client may not be able to comply because of the nature of the work (cost or technical feasibility) or when it could be completed by. Furthermore, your client may be unable to comply because of a failure of a third party to provide the appropriate services within the necessary time-frame.
I do not anticipate any issues other than the points raised in our letter of 28 October will preclude the granting of a tobacco producer licence.”[50]
[48] Exhibit A, Exhibit BF 2
[49] Exhibit A, Exhibit BF 2
[50] Applicant’s Book of Documents at 254

The following exchange took place between Dr McEvoy and Mr Crowe:
“… I suggest to you that this letter suggests that the ATO expects Mr Hazim to start growing as soon as it gives him his licence, what do you say to that? --- You might read it that way. I suppose all other things being equal it may be read that way.
So you accept that that letter is open to that construction, do you? --- Well I
think the letter is ..... recognising that the applicant wished to grow tobacco
during that season.
Can you just answer my question. You accept don't you that that letter is
capable of being construed in that way? --- It's capable of being construed in
that way, yes.”[51]

Mr Crowe himself did not interpret the letter in that way.

[51] Transcript at 203-204

On 11 November 2003, Mr Campbell wrote an email to Mr Livingson and Mr Isaac and copied it to, among others, Mr Crowe and Mr York:
“I received a phone call from Barry Fletcher this morning about the letter I had sent him declining to issue a conditional licence (see attached). He thougt (sic) it unreasonable that we would insist on the kilns being operational and a secure storage facility being in place before a licence was granted. I reiterated my view that if his client was unable to comply (it could be for reasons outside his control) then the ATO could be saddled with significant compliance costs. Fletcher said that his client can’t prepare/plant and fix the ckilns (sic) and shed with a timeframe to meet the planting season & I responded my (sic) saying that if Hazim was serious about this venture he may need to get in a contractor to fix the shed etc while he prepares the ground.
It came down to Fletcher thinking it unreasonable for his client to have to incur an additional expense. I said that the we would attempt to facilitate applications but that attaching a string of conditions was not an appropriate response for some shortcomings.
Fletcher hung up in a ‘huff’ so may well want to complain further.”[52]
[52] Applicant’s Book of Documents at 255

The following exchange occurred between Dr McEvoy and Mr Crowe with particular reference to the reference to preparing the ground:
“And what about the reference to preparing the ground, what do you make of that? --- It would - well, it could lead to the expectation that if the kiln and shed is fixed a licence would be issued. It could lead to the expectation that there is further work to be done before he can plant out his seeds anyway so he has got time to get those remedies undertaken.
I suggest to you, Mr Crowe, that this email is sent on 11 November 2003, in a context where everyone involved in this enterprise, namely the tax officers considering the application, Mr Hazim himself, and those advising Mr Hazim, are working as hard as they can to ensure that a licence is granted and that Mr Hazim can then put tobacco seedlings in the ground. What do you say to that? --- I would say we could try and facilitate his application so that he could plant for the upcoming season, given that everything - requirements are in place.
But you accept that was most unlikely to be the case don't you? --- I - as I said before, the only impediment I think in the end, or I can't even comment on that before, but certainly that there were still things to be done. I think there may have still been something to do with the kiln to be fixed when the licence was issued, but I am not sure that - certainly the issue of TCV membership would have been an impediment, not the issuing of the licence but the condition of the licence.”[53]
[53] Transcript at 206

Mr Campbell wrote to Mr Keat on 20 November 2003. He advised that, although Mr Livingston would need to inspect it and verify that all was in order, the issue of shed security appeared to have been fixed. The alarm could be installed later as a condition of the licence. The concerns regarding the kilns, he continued, left little margin for error. That came about because they were not due for completion until the end of January and curing was likely to start at about that time. Mr Campbell required Mr Hazim to have a firm commitment from the contractor that the work would be completed by that time and that he had an alternative plan to deal with the green leaf. He told Mr Keat that “If these points can be adequately addressed, the granting of the licence may be considered. …”[54]
[54] Applicant’s Book of Documents at 243

Mr Crowe understood that the Board of the TCV met monthly. He was not aware that it would not meet until the end of January 2004. Mr Crowe had been given a copy of an email sent by Mr York to Mr Campbell and Mr Isaac on 25 November 2003. That email reported on work that had been undertaken on the Gapsted property. That work included:
“Fuel tanks, tractors, sprayers and associated equipment are also being organised and will be available shortly;
The land has been cleared both around the dwelling and the two paddocks making up the growing/planting areas.”[55]
[55] Applicant’s Book of Documents at 261

The following exchange took place between Dr McEvoy and Mr Crowe:
“Do those matters suggest to you that the ATO expects the applicant to start growing as soon as he gets his licence? --- It appears that the applicant is trying to be ready to begin growing at the start of the season.
Well, tobacco can really only be planted in the October-November and at the very latest early December period, can't it, Mr Crowe? --- Yes, it won't - in that environment - - -
In that particular environment, yes. That is the position, isn't it? --- That is correct.
Now, as at 25 November, the licence still hasn't been issued, so you would accept that if Mr Hazim is going to be able to plant in that season, he has to plant within the next week to a fortnight, wouldn't you? --- I would think so, in the normal course, yes.
Now, you accept, don't you, that the two dot points in that email tend to suggest that the ATO expects he is going to plant within that season. You accept that, don't you? --- ..... it is obvious he is trying to get ready for that season. He intends to plant, but - it is, yes.
And as at 25 November, that season, in terms of planting tobacco, really only had another couple of weeks to run, didn't it? At the most? --- Yes, yes.
I suggest to you, Mr Crowe, that this is another illustration of a conception by the Tax Office, an understanding by the Tax Office, an acceptance by the Tax Office, that Mr Hazim would grow tobacco for the 2004 season the moment he got his licence, because he didn't have any choice but to do that if he was going to grow in that season. How do you respond to that? --- That is not correct.”[56]
[56] Transcript at 208-209

In an email dated 26 November 2003, Mr Livingston advised a number of ATO officers including Mr Crowe and Mr Mark Stephenson that the TCV had not yet made a decision regarding share transfers but that it was of the opinion that it should take a hard line on share transfers to new growers.[57] At the time, Mr Mark Thomas Stephenson was the senior person managing a field team and would spend two weeks in four there. The team comprised compliance officers who would be given a task to go on field visits. They would be given some background information to talk to the “client” but he was “… not privy to a lot of that discussion with the client before the field activity occurs.”[58] Their main role was to report what they detected in the field and to maintain some sort of independent thinking from “clients”. They are divorced from the decision-making process and so give that person the benefit of the doubt. They make a recommendation on what they see but another officer makes any decisions regarding what will happen.[59]

Correspondence among ATO officers and between ATO officers and Mr Hazim’s advisers after the issue of the PL

[57] Applicant’s Book of Documents at 279

[58] Transcript at 264

[59] Transcript at 282

Mr Crowe copied his email dated 1 December 2003 to, among others, Mr Livingston, Mr Robinson, Mr Campbell and Mr Stephenson.[60] He advised that four growers affected by the TCV’s position would be visited to establish if they were growing and, if so, how much. If it assisted, the TIG might be able to provide correspondence where all four agreed to the licence conditions before the PLs were granted. In cross-examination, Mr Crowe said that there was no hesitation amongst ATO officers that they might have led Mr Hazim astray. There was hesitation as to whether they should act before the TCV decided his application.
[60] Applicant’s Book of Documents at 278

On 28 November 2003, Mr Livingston sent an email to Mr Andrew Lambert and copied it to others including Mr Crowe, Mr Stephenson and Mr York. It read:
“In short, don’t know. I would prefer to wait on the TCV decision first. I know they are breaching a condition however if the TCV decide to approve the share transfer (which I think they will), then when objecting against cancellation, they can demonstrate a market.
The decision to plant is dictated by the season - they can’t wait til say January to plant because the plant will not ripen before winter (frosts, cold weather, etc).
I guess the bottom line is that if we cancel the licence because of a breach of a licence condition, is this defendable in the AAT??”[61]
[61] Applicant’s Book of Documents at 276R

In cross-examination, Mr Livingston said that his expectation at this time was that Mr Hazim would receive TCV membership. It was also his expectation “… that if he was determined to grow a 2004 crop that he would start planting prior to Christmas 2004 (sic).”[62] That expectation was based on Mr Livingston’s experience in the industry. If Mr Hazim obtained membership, there would be no problem with his having planted the crop. His expectation that the problem would be solved did not detract from there having been a contravention of the PL’s conditions.
[62] Transcript at 308

On 8 December 2003, Mr Crowe circulated amongst ATO officers a draft of the letter that was later dated 15 January 2004 and sent by facsimile to Mr Fletcher. The letter requested an explanation of events on the Gapsted property within 14 days. On 9 December 2003, Mr Stephenson reported that Mr Hazim had claimed not to understand the conditions of his licence. It was a matter that might need to be pursued through his solicitor.[63] In cross-examination, Mr Stephenson maintained that he was surprised when he saw the seedlings being planted but said that the peripheral factors that Mr Hazim explained to him affected the decision about whether to direct him to stop planting or to pull the crop. As he had no further role to play in making a decision, Mr Stephenson gave the matter no further thought.
[63] T documents at 45-46

Had he had his way, Mr Crowe said, his draft letter would have been sent on 8 December 2003. Mr Crowe did not agree with the description of the letter as an “ACL”.[64] It was a serious letter requiring a response. As to why it was not sent at that time, Mr Crowe advanced several possible explanations: the letter had to be circulated for comment; they had to decide whether to suspend or go straight to cancellation; what would happen if they did either; the reaction of Serious Compliance Branch in the ATO had to be ascertained; the Director had to brief senior management as there were a few growers involved and the Christmas period intervened.
[64] see [151] below

Mr Crowe said that, when the ATO did send its letter on 15 January 2004, it should have received a response by 7 February 2004. As it was, it did not receive one until early May. In that time, Mr Crowe was concerned about the threat to the revenue. When it was suggested to him that there could not have been quite the degree of concern that he stated, Mr Crowe disagreed and explained that it took time to get the right procedures in place. Once a PL has been suspended and is likely to be cancelled, it takes time to co-ordinate the response. The ATO was not content to await the outcome of Mr Hazim’s application for membership with the TCV. A lot of people in the ATO were concerned about what the office’s reaction would be and what ramifications its actions would have. The ramifications were that it would take a man’s livelihood away from him and that is not a step to be taken lightly.

Once it had seized the tobacco, Mr Crowe acknowledged that the ATO could have dealt with the matter by allowing the tobacco to go to a bond store and doing nothing about cancelling the PL. It would have been difficult to grow tobacco between May and October 2004. Mr Fletcher had mentioned in his letter of 14 May 2004 to the ATO that Mr Hazim would not be producing any further tobacco until the matter had been resolved.[65] Mr Crowe accepted that and that Mr Fletcher was trying to find an alternative place to store the tobacco.
[65] see [203] below

In a minute dated 18 February 2004 to Mr Robinson, Mr Campbell summarised the events to that time. He recommended that:
“1. Suspension action will need to be considered if the share transfer is not forthcoming
2.A letter of admonishment be sent (assuming no response is received which would mitigate this) to document the infraction
3.Investigate compliance with all licence conditions at next TTF or Regional Office visit”[66]

The minute concluded with a note that a firm indication would be obtained from the TCV as to their intentions to approve the shareholding or otherwise.

[66] Applicant’s Book of Documents at 288

On 23 April 2004, Mr Crowe sent an email to other ATO officers including Mr Livingston and Mr Stephenson and copied it to Mr York. He noted Mr Stephenson’s report of what had transpired on 22 and 23 April 2004.[67] At the conclusion of his email, Mr Crowe wrote:
“As you will be aware I am putting up a case against Hazims [sic] licence for the ACs [Assistant Commissioner’s] attention on Tuesday. In the interim I strongly recommend that the SNC [Serious Non Compliance] keep a close watch on Hazim’s property until we take action on his licence or his bales are secured elsewhere.”[68]

Mr Crowe denied that this meant that he necessarily had in mind two courses of possible action. If the bales were secured elsewhere, the SNC would not need to keep a close eye on the property but otherwise it would. When a PL is suspended, the former licence holder has a period in which to move the goods to an appropriate storage.

[67] see [187] below

[68] T documents at 240

Mr Crowe’s email had been preceded by two earlier emails. The first had been written by Mr Brian Blundell on 22 April 2004. He had spoken with another ATO officer, Mr Shane Reardon, who had updated two Commissioners. Mr Reardon had asked a number of questions and Mr Blundell had advised him that “… they would be covered in the Excise/SNC strategy that goes forward next week.”[69] Mr Blundell noted that:
[69] T documents at 241
“… Some of the issues he covered were:
-Suspend or straight to cancellation
-Timing of notices and seizures
-Individual circumstances of the growers
-Status of warrant applications
-What offences might they be charged with/how to achieve condemnation
-What the growers have on hand
-Logistics and support for dealing with seized tobacco
-Other storage options
The question is what needs to be resolved for this to happen?”[70]

Mr Crowe agreed with Dr McEvoy that management was saying that the situation had gone on too long and something needed to be done about it. It also contemplated that some individual circumstances might be relevant.

[70] T documents at 241

Mr Crowe said that the ATO rarely suspended a PL. Each case is judged by its own merits. Generally, a licensee is given “… a reasonable opportunity to bring himself down the compliance pyramid so that the risk is diminished sufficiently for us to allow him to continue. …”[71] What was a reasonable time depended on the circumstances and the level of risk.
[71] Transcript at 228

With hindsight, Mr Crowe said, the ATO might have asked Mr Fletcher for his views before it cancelled Mr Hazim’s licence but he questioned whether there would have been any response different from that the ATO had received to its January letter.

Mr Crowe described as severe the risk that was being managed by the ATO after 27 February 2004. Mr Hazim did not have TCV membership and had 66 bales of tobacco. There was no method of licit disposal and the only way to dispose of it for reward was by way of the illicit market so leading to the evasion of a significant amount of excise revenue.

Once the licence was cancelled, the ATO could no longer inspect the tobacco, Mr Crowe said. It no longer had the right to enter the Gapsted property. The only way that the ATO could get the 66 bales under its control was to seize them during the period of suspension. SNC agreed to deal with seizure. Seizure and cancellation had to be as contiguous as possible. There is no power under the suspension provisions for the ATO to take possession of the tobacco although it would seek to have the licensee move it to an approved place. Two approaches were made regarding approved places but neither was acceptable to the ATO. There was no apparent possibility of the bales being moved elsewhere and the ATO had no confidence in the long-term storage of the tobacco on the Gapsted property.

Mr Stephenson was becoming concerned at this stage. There had been some potential shortfalls in bale production and some anomalies concerning storage. The risk to the revenue was increasing and Mr Stephenson thought that they should bring the matter to a close. When he visited the Gapsted property on 23 April 2004, Mr Stephenson said, he found Mr Hazim to be extremely upset and in a poor mental state. Mr Hazim was talking about moving the tobacco from the Gapsted property but there was nothing definite. He was talking about the possibility of robbery. Mr Stephenson really had some concerns about the protection of the revenue at that time. Although he had had concerns from the beginning, they had by then reached the stage where Mr Stephenson thought that the ATO needed to do something about the storage of the bales for the protection of the revenue. Insurance was another relevant factor and there was none on the Gapsted property. Up until this time, Mr Stephenson had not recommended suspending Mr Hazim’s licence. After his rejection by the TCV, Mr Hazim had told him that he was still trying to trying to lease shareholding or to sell through another grower. He accepted that Mr Hazim was trying to sell his tobacco through the licit market. Had the bales not been stored on the Gapsted property, that would have alleviated a lot of the ATO’s concerns. Mr Stephenson was not aware of any instances in which tobacco, other than imported tobacco, was stored in approved facilities.

Mr Livingston considered that there was no option but to suspend Mr Hazim’s PL as he did not have a legal Australian market on which to sell his tobacco.[72] He was aware that there was an ongoing action between Mr Hazim and the TCV. If he were successful, he could apply once more for a PL.

Mr Fletcher’s advice to Mr Hazim and correspondence between him and the ATO before the issue of the PL

[72] Transcript at 317

Mr Hazim said that Mr Fletcher had advised him that, if he were to grow and sell tobacco, he would need to obtain a PL from the Excise Department of the ATO. He said in his statement that Mr Fletcher told him that he would also need to obtain membership of the TCV. He could do that by purchasing at least 8,000 shares. In his statement, Mr Fletcher reflected Mr Hazim’s view of the advice he had given him but did so more fully:
“… I told him that once he had completed negotiations with the vendor of the property, Contracts of Sale would need to be prepared and signed. I said that he would need to engage an accountant to prepare a business plan for the ATO. That business plan and a copy of the Contract and other relevant documentation would then need to be submitted to the ATO, along with an application for a Producer Licence.
12. I told him that once a Producer Licence was issued, it would then be necessary to apply to the TCV for membership and approval of shareholding. I said that an Applicant for membership of the TCV must hold a minimum quota of 8,000 shares before applying for membership of the TCV. I did not envisage difficulties in obtaining a share quota for Mr Hazim. Shares are readily available because there are a significant number of growers who are not using the shares and shares can readily be leased or purchased. The shares cost about $5.00 per share, so a minimum allocation of 8000 shares would cost in the order of $40,000,00. Share prices do fluctuate in price from time to time but essentially they remain relatively stable in price.”[73]
[73] Exhibit A at [11]-[12]

Mr Hazim said that Mr Fletcher spoke with him about the ATO’s letter of 28 October 2003. He was concerned that the season was about to start but he said:
“… I wanted to do it within the law, actually within my right, and Mr Fletcher had explained to me that all the licence come with condition, you are not the only one that receive condition on the licence, and planting is not an issue, and receiving the TCV is not an issue either.”[74]
“… Well, the moment he called me in his office and we had discussed the condition and we went through the issues, and I then ask him should I go and plant? He said "Go and do your plant, this - you are the same as every other farmer in the area and it shouldn't be any different, it should not have any issue.’”[75]
[74] Transcript at 165
[75] Transcript at 166

Mr Fletcher replied to the ATO on 6 November 2003 when he wrote that items 1, 2 and 3 “could be handled by a conditional licence being issued.”[76] As no tobacco would be picked on the property until at least the end of January 2004, they believed that the condition would be satisfactory to both the ATO and Mr Hazim. As to item 4, Mr Hazim proposed to subcontract the preparation of the ground and then to purchase the equipment required.
[76] Exhibit A, Exhibit BF 2

The Contract of Sale for the Gapsted property, which was signed on 12 November 2003, permitted Mr Hazim to take possession of the property, including the kiln area, on his paying the deposit. The purposes for which he was entitled to take possession were limited to cultivating the ground, sowing and planting tobacco, repairing the kilns and repairing and installing a security system in the sheds.

Mr Hazim said that he was anxious to plant his first tobacco crop as soon as possible as he needed to generate income. Tobacco crops must be planted by mid December to allow for the crop to grow and be picked before potentially damaging frosts occur. Frosts occur in the Myrtleford area as early as April. Mr Fletcher gave evidence in a similar vein.[77]
[77] Exhibit A at [23]

On 26 November 2003, Mr Sam Isaac, an officer of the ATO, wrote to Mr Fletcher advising him that he intended to grant Mr Hazim a PL subject to various conditions.[78] Mr Isaac asked Mr Fletcher to consult with his client “… and advise of any concerns with these conditions (e.g. any inability to comply).”[79] Among the conditions specified were the following:
“Acquire (within 3 months of the date of commencement of this licence), and then maintain, a shareholding in the TCV which has been approved by the TCV (the approved shareholding).
Provide documentary evidence of the approved shareholding to the Tobacco Industry Group of the ATO within 7 days of the licence holder acquiring such evidence.
Not produce tobacco seed, tobacco plant or tobacco leaf without the approved shareholding.”[80]
[78] T documents at 32-36
[79] T documents at 32
[80] T documents at 34

On 26 November 2003, Mr Hazim’s solicitors referred to the letter and advised that their client was agreeable to the terms and conditions specified in it.[81] The next day, the ATO sent Mr Fletcher written notification that it had granted Mr Hazim PL 2763.[82]
[81] T documents at 37
[82] T documents at T5, 38

The letter written on 26 November 2003 made no reference to Mr Hazim’s intention to plant a crop. In cross-examination, Mr Fletcher explained the reasons for his decision not to include any reference to that intention:
“And you decided not to include any reference to that, for what reason? --- Well, a couple of reasons. (a) I believe it was accepted industry practice what he was going to do; (b) the time factor. We couldn't get into you never get a quick reply from the Tax Office on anything. We couldn't afford to get into a lengthy discussion on - as at 26 November about the terms and conditions of the licence, we just didn't have time.
You didn't have time? --- No.
So commercially the important thing was that here is an offer of a licence on certain terms and conditions, let us grab that and get on with it? --- Yes, yes.
And did you effectively tell Mr Hazim that that was the way that you were approaching it, it was necessary to do this because you had no choice, given the time? --- I don't know whether I communicated it to Mr Hazim or not, no.
I see. In any event that was very much part of your motivation? --- Yes, certainly mine. Whether I communicated it to him or not I can't recall.”[83]
[83] Transcript at 78

Mr Fletcher said that he had explained to Mr Hazim that he could not plant tobacco before he received his PL even though Mr Hazim had wanted to. His reasons for advising him not to were:
“… He was keen to run and I said, well, look, you know, they will probably cop you putting it in the ground after you have got your ATO licence, but don't put it in the ground beforehand, no way known they are going to cop that and for two reasons; one, I don't think the Tax Office would have wore it, and secondly, I think it could have even prejudiced his getting his licence and if they had gone down there and he had tobacco in the ground before he got a licence I don't think it would have helped his cause much good.”[84]
[84] Transcript at 79

When Mr Fletcher told him that he had been granted a PL, Mr Hazim said, he also told him that it had been granted subject to a number of conditions. He understood that by either 30 or 31 January 2004, the kilns had to be made operational, there had to be adequate storage facilities for storing tobacco bales, a security system had to be installed on the Gapsted property, he had to engage persons with experience in tobacco growing to assist him during the first 12 months after the grant of his PL and obtain a share quota and membership in the TCV.

Once Mr Hazim had been granted a PL, Mr Fletcher’s view of what he could do was totally different from what he could do before.[85] Mr Fletcher said that he told Mr Hazim in November 2003:
“… in my lengthy experience, once an Applicant had been granted a Producer Licence, the TCV always acceded to the granting of membership and approval of the transfer of shares quota. I told Mr Hazim he must obtain his TCV shares as soon as possible. At that time, I was not aware of any person granted a Producer Licence who had been denied membership of the TCV. I informed Mr Hazim of all this.”[86]
[85] Transcript at 79
[86] Exhibit A at [22]

From Mr Hazim’s point of view, he agreed that “… in summary the position is … that in relation to the decision to plant tobacco, … [he] followed Mr Fletcher’s advice.”[87]
[87] Transcript at 177

Mr Keat’s advice

Mr Keat recalled meeting Mr Livingston and other ATO officers on the Gapsted property on or about 25 November 2003. The purpose of the meeting was to ascertain what the ATO required of Mr Hazim so that he could commence planting immediately on the PL’s being issued.

On 27 November 2003, Mr Hazim told him that he had been issued with a PL and told him the conditions to which it was subject. In Mr Keat’s experience the TCV usually took about a month to approve membership and it had always approved all applications for it. Mr Keat believed that, once Mr Hazim had been granted a PL, approval of the transfer of TCV shares and TCV membership were mere formalities.

Mr Fletcher’s advice regarding Mr Hazim’s application for membership of the TCV

Mr Fletcher, Mr Hazim continued, advised him that membership of the TCV would be a formality if he were able to satisfy the probity checks required by the ATO. It would take approximately a month to obtain the TCV’s approval. Mr Fletcher told him that, to his knowledge, no applicant for membership had ever previously been declined. Mr Hazim said that he asked Mr Fletcher whether he could commence planting. Mr Fletcher told him, he said, that he could go ahead and plant his tobacco plants.

Mr Fletcher confirmed that this was indeed his advice when he said:
“In late November I advised Mr Hazim that it was usual and accepted practice in the tobacco industry for crops to be planted by tobacco farmers upon the receipt of a Producer Licence notwithstanding that membership of the TCV had not yet been obtained. I informed Mr Hazim that to my knowledge no Applicant had ever been denied membership of the TCV once they have been granted a Producer Licence. I was not aware of any Applicant having previously been refused membership and did not see any reason why Mr Hazim would not be granted membership by the TCV.”[88]
[88] Exhibit A at [24]

Allowing for Christmas, Mr Fletcher expected Mr Hazim’s TCV application, which he had lodged on 8 December 2003, to be approved in a little over a month as was the TCV’s usual practice. Mr Fletcher said that he was unaware that the TCV had changed its rules in late November 2003 and now carried out its own probity checks on applicants for membership. On 16 December 2003, Mr Nevin wrote to the TCV asking that it defer the introduction of its new requirements as there was the potential to cause considerable hardship to those in the middle of transactions. Mr Nevin referred also the meeting that he and Mr Fletcher had attended with representatives of the ATO and the TCV. He considered that it had been “… reasonable for us to conclude that your Co-Operative would favourably consider applicants if they obtained a Tax Licence because of the checks and processes that the Tax Office were subjecting applicants to.”[89] Mr Fletcher echoed these sentiments in his letter to the TCV dated 17 December 2003.[90]
[89] Exhibit A, Exhibit BF 4 at 2
[90] Exhibit A, Exhibit BF 5

In cross-examination, Mr Fletcher said that he had tried to negotiate with the directors of the TCV to forego the probity checks that it had introduced. He felt that it created a bad impression and required applicants for membership to incur expenses completing the same form they had already completed for the ATO. The TCV was meant to be a growers’ representative organisation and they were treading on the toes of the ATO which was administering the industry. Mr Fletcher said that the TCV would not change its position and his lobbying delayed Mr Hazim’s application by a few days.

Mr Fletcher acknowledged in cross-examination that, by the time he wrote the letter to the TCV on 17 December 2003, he knew that it would be highly unlikely that Mr Hazim would be able to comply with the condition to obtain TCV membership within three months of being granted a PL.[91] He thought that his failure to do so could lead to problems with the ATO and those problems would take the form of another letter saying that this and that had not been done. He expected nothing more than that but they were treading new ground. He had put these problems to the TCV in his letter to persuade them that the system was not working. Mr Fletcher also thought that Mr Hazim’s failing to comply with the conditions of the PL could lead to problems with the ATO but he did not know how big because they were breaking new ground. It was a new era but it had never cancelled a PL before.
[91] Transcript at 87

Engaging persons with experience in tobacco growing to assist Mr Hazim during the first 12 months

Mr Fletcher said that Mr Hazim had a letter from Majed Ali Kanj in Lebanon attesting to Mr Hazim’s being “… very skilled and expert in the domain of plantation and investment of tobacco and tombacco”.[92] He also stated that Mr Keat had over 25 years’ experience as a local tobacco farmer. Mr Keat had told him that he would assist Mr Hazim in tobacco farming including locating plants and liaising with regulatory authorities.
[92] Exhibit A, Exhibit BF 3

[154] (1988) 19 FCR 342

[155] (1988) 19 FCR 342 at 344-345

The evidence to which regard may be had in determining the correct or preferable decision is not confined to the evidence that was before the Commissioner’s delegate when she made her decision on 24 May 2005. That evidence must be directed to the question decided by the delegate and, if the decision is to be made by reference to a particular point in time, to that point in time.[156] That is not to say that the Tribunal is confined to the historical position but may be entitled to receive evidence as to prospective developments as they appear at the date of the decision. The reason is that, in evaluating the effect of a decision, account can be taken of predictable developments. The evidence must be related back to the date of the change.[157]
[156] The Hospital Benefit Fund of Western Australia Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225 at 234 per Wilcox, Burchett and French JJ; Comptroller-General of Customs v Akai Pty Ltd (1994) 50 FCR 511 at 521
[157] The Hospital Benefit Fund of Western Australia Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225 at 234

The relevance of the ATO officers’ actions

Much has been made of the ATO officers’ actions including their not preventing Mr Hazim from continuing his planting tobacco seedlings, not requiring him to pull up those he had planted, measuring the crop and not suspending his PL as soon as they realised that he was in breach of a condition not to plant until he had TCV membership. Dr McEvoy submitted that actions of this sort encouraged Mr Hazim to think that it was permissible for him to commence and then continue growing tobacco while he waited for TCV membership. He supported his submission by reference to a number of documents including correspondence between the ATO and Mr Fletcher and Mr Keat, conversations with Mr Hazim and internal correspondence within the ATO.

I will return to these matters but it is important to note that a representation made by an officer of the Commonwealth, whether explicit or implicit in any action or inaction, cannot over-ride the provisions of the Act. That follows from the fact that such a representation cannot limit the operation of a discretion unless the terms of the Act permit it to do so. Executive action is subordinate to legislation. The doctrine of estoppel that might, in another context, protect any legitimate expectation that was raised by a representation cannot be used to reverse that relationship. As Gummow J said in Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic:
“Estoppel cannot operate to prevent or hinder the performance of a positive statutory duty, or the exercise of a statutory discretion which is intended to be performed or exercised for the benefit of the public or a section of the public …”[158]
[158] (1990) 92 ALR 93 at 109

That is not to say that that any representations are irrelevant. They will not hinder the exercise of the statutory discretion but they may be relevant in assessing Mr Hazim’s actions and whether his PL should have been cancelled. If his actions, or any of them, have been influenced by the representations of the ATO’s officers, that influence may be relevant in deciding how his actions should be viewed. Actions that, standing alone, may point to there being a threat to the revenue may have a different complexion if influenced by such representations.

How should the discretion be exercised in relation to Mr Hazim’s PL?

In answering this question, I will begin with events before Mr Hazim was granted a PL. It is true that there were discussions that suggested that it might be possible for Mr Hazim to plant his crop in November or December 2003. That is apparent when a number of things that were said over the course of the visits by the ATO officers to the Gapsted property are considered together and against a background of the conversations or correspondence with Mr Hazim’s representatives. Those matters date back to October 2003. On 22 October 2003, for example, Mr Hazim was asked where he would source his seedlings. That question was repeated as one of a number of questions asked of Mr Fletcher and Mr Keat on 31 October 2003. On its own, the question might be thought to mean little. Regard must, however, also be had to other matters that show that the ATO officers were very much focused on the preparation of the Gapsted property for planting. I take as an example Mr Campbell’s conversation with Mr Fletcher on 11 November 2003. He spoke in terms of Mr Hazim’s possibly needing to get in a contractor to fix the shed and the kilns while he prepared the ground. That followed on from his letter dated 10 November 2003 in which he told Mr Fletcher that he did not anticipate any issues other than those relating to the kilns, storage, security systems and adequate plant and equipment to preclude the granting of the PL. Mr Campbell’s note to Mr Keat on 20 November 2003 also focused on practical matters concerned with security and readiness to grow and cure the crop. Those sorts of statements do suggest that the officers thought, or even expected, that Mr Hazim would be planting his tobacco that season.

It was never, I find, an unqualified thought or expectation either in the m the minds of the officers or in any expression of it to Mr Hazim and his advisers. Mr Campbell made it clear in his note to Mr Keat on 20 November 2003 that, if the matter of the kilns could be resolved, the granting of a licence might be considered. He did not indicate that it would be considered and did not indicate the terms to which it would be subject if it were issued. In Mr Campbell’s conversation with Mr Fletcher and Mr Keat, I find that both suggested that the PL be issued subject to conditions. That was on 31 October 2003. The question of conditions was again touched upon in Mr Campbell’s letter to Mr Fletcher of 10 November 2003. Certainly, they were contemplating conditions related to storage security and to plant and equipment but it was clear that the terms of any PL that was granted were still very much an open question at that time. There is nothing in the material that persuades me that, at any time before the PL was granted, ATO officers took any action that could reasonably be expected to give Mr Hazim the impression that he would be granted an unconditional PL or a PL that was not subject to a condition the purpose of which was to ensure that his crop would have a licit market when grown.

When the PL was granted, it was subject to two very clear conditions. The first was that he acquire a shareholding and the TCV’s approval of that shareholding and that he do so within three months of 27 November 2003. The second was that he not produce tobacco seed, tobacco plant or tobacco leaf without the approved shareholding. These conditions were quite clear on their face. That clarity was not clouded by anything that the ATO officers said or did before it was granted. Their focus had been entirely on practical issues related to crop production and curing. It had not been upon marketing the tobacco once it had been cured and that was the subject to which the condition was directed.

Having said that, the inclusion in the PL of a condition relating to marketing should not have come as a surprise to Mr Hazim or, if it did, to his advisers. Both Mr Fletcher and Mr Keat, I find, had long experience in the tobacco industry. In the case of Mr Keat, he had been a grower and later a real estate agent selling properties used to grow tobacco. Mr Fletcher had been advising those engaged in the tobacco industry for many years. Both knew, I find on the basis of their evidence, that tobacco could only be sold through the TCV. It provided the only licit market. Both knew that Mr Hazim would only be able to sell his tobacco through the TCV if he held shares in the TCV and if the TCV approved his holding those shares. Mr Hazim had arranged to acquire the appropriate shareholding but both Mr Fletcher and Mr Keat knew that if it were not approved by the TCV, he would not have a licit market to which to sell his tobacco if he were to grow it. I find that in August 2003, Mr Fletcher knew from a letter written by the ATO that it required evidence of a licit market by the purchase or lease of TCV shares approved by the TCV. Certainly, neither Mr Fletcher nor Mr Keat knew in November 2001 that the TCV would introduce its own probity checks but, on the basis of his own evidence, I find that he knew that there was much uncertainty and delay in the whole process of obtaining a PL and membership of the TCV.

Knowing that it was a condition of Mr Hazim’s PL that he not produce tobacco seed, tobacco plant or tobacco leaf without the approved shareholding, I find that Mr Fletcher advised him that he could plant the seedlings before the TCV approved his membership. In making this finding, I note that Mr Fletcher took what he regarded as a practical position. That is, the TCV had always acceded to the application for approval and it was the usual practice of growers in the area to plant their crop once they had their PL even if they did not yet have approval. On the basis of his own evidence, I find that Mr Fletcher did not base his advice on the law. He had never read the Act.

Mr Hazim, I find, has some understanding of English but I find, on the basis of his evidence that his understanding is not sufficient to handle the paperwork in English, that his understanding is insufficient to make him feel confident in establishing himself in the tobacco industry without advice. His own view of his capacity is supported by the evidence of Mr Stephenson who thought on 8 December 2003 that Mr Hazim had not understood the impact of his licence conditions on his planting activities. It is supported also by the evidence of Mr Smith who witnessed the conversation. With regard to the legal requirements, Mr Hazim very sensibly decided that he needed professional assistance. He thought that he had found the appropriate person to give it in Mr Fletcher. On the basis of his own evidence, I find that he trusted him to do the right thing on his behalf. In light of that trust, he acted on Mr Fletcher’s advice and I find that he did not question it. He preferred his advice to any information to the contrary given by the ATO’s officers.

Taking Mr Hazim’s point of view alone, it might have been reasonable for him at one level to think that visits by the ATO officers on and after 8 December 2003 showed approval of his having planted his seedlings. Indeed, it is apparent from Mr Livingston’s email to Mr Andrew on 28 November 2003 that the ATO knew the day after it had granted his PL that Mr Hazim had started planting seedlings. That one level would, though, be a very superficial level. It would have at its foundation two pillars. The first was his acceptance of Mr Fletcher’s advice or his own view, as the case might be, that it was appropriate for him to plant the seedlings before obtaining TCV membership. That would colour his view of the ATO’s actions but only if he ignored, as I find that he did, the statements made to him by Mr Stephenson on 8 December 2003 that he appeared to be in breach of his licence conditions by planting the seedlings and if he failed to understand the role of those officers who attended. I find that Mr Stephenson was quite clear when he told Mr Hazim that that he was in breach of his PL in planting the seedlings. Mr Hazim sought advice from Mr Fletcher and that was an appropriate thing to do. Mr Fletcher effectively maintained his position that planting was a perfectly normal thing to do and that all difficulties with the PL would be worked out in the end. Mr Hazim was swayed by Mr Fletcher’s advice but that does not detract from Mr Stephenson’s having clearly told him of his breach.

The second pillar could have been a lack of understanding of the role of the ATO officers who visited him. Once he had been given a PL, he was a licensed producer. It became a responsibility of the ATO to monitor what he was growing. If it disappeared, for example, before it reached a licit market, Mr Hazim would be liable under s. 105 of the Act to pay duty on the missing amount as if it had been manufactured into excisable goods and entered into home consumption. One way in which the ATO officers could check whether any tobacco leaf was missing was by monitoring the crop from seedling stage, measuring its growth, recording loss through disease and mishap and through to measuring the cured leaf. The Tobacco leaf producer’s book and the labels are no more than tools used in this monitoring process.
The officers had no power at this time to order the destruction of the crop or to order Mr Hazim to destroy his crop. The Act makes no provision for them to have that power unless the PL is cancelled.

Looking at the matter from an objective level, I do not accept that the ATO officers’ failure to take immediate action when they realised Mr Hazim’s breach and their continuing to monitor the growth of the crop should be seen as an acceptance of any industry practice to plant tobacco seedlings before the time permitted by the conditions on his PL. It should not be seen as acceptance of Mr Hazim’s planting seedlings in breach of his licence conditions. Their actions had to be seen in light of the licence conditions, to which they referred, and their role. As to the latter, Mr Fletcher should have been able to advise his client as his client had turned to him for professional advice. He did so when the officers attended his Gapsted property on 8 December 2003 and he suggested that they telephone Mr Fletcher. Mr Fletcher could have had the necessary background had he read the Act or attempted to gain anything other than a purely superficial knowledge of the regulatory regimen that was introduced in 2000.

There can be no doubt that the fact that Mr Hazim did plant a crop in breach of his licence conditions caused a quandary for the ATO. I am satisfied that the officers knew that the TCV had historically approved all applications for approval of shareholdings but they also knew that the usual order of events had changed. Whereas the TCV had historically made its decision before the ATO, the order had reversed. At the same time, they knew that Mr Hazim was in breach of a condition of his PL. Mr Hazim’s adviser, Mr Fletcher, also knew that the order of events had changed even if he did not, as I accept, know that the TCV would now require its own probity check. Given that change, Mr Fletcher should have been on notice that all might not be in the tobacco industry as it had been in the past.

The quandary was apparent to all in the ATO from very early days. It was apparent on 28 November 2003 when Mr Livingston wrote to Ms Lambert. They knew that the crop should not have been planted but they also knew that it was possible that, by the time the crop was grown, approval might well have been obtained and so a licit market found. Had they acted earlier in suspending and then cancelling his PL, Mr Hazim might have been in a position in which he could have ploughed the seedlings into the earth and in which he would not have been confronted with the problem of securing tobacco leaf.

To criticise the ATO officers for not putting Mr Hazim in that position is unfair. They were faced with a person who had planted seedlings in breach of the conditions of his PL. At that time, he had a little under three months within which to gain his TCV membership. The seedlings were small and leaf that could be cured yet to be produced. They were a long way short of the stage at which they could be sold and manufactured into excisable goods. The risk to the revenue was very small, if present at all, at that stage although the risk gradually increased as the seedlings grew. In delaying any action, they effectively gave Mr Hazim every opportunity to gain TCV membership and to establish himself in the industry. That was a matter between Mr Hazim and the TCV and not a matter that the ATO could hasten. Although it is not my role to make any decision on the matter, delaying any decision to suspend or cancel Mr Hazim’s PL seemed to be a reasonable step for them to take in the circumstances in which his actions had placed them. It was reasonable given that they did not simply ignore those actions but asked Mr Hazim for an explanation of them in their letter of 15 January 2004 and to show cause why his PL should not be suspended. They gave him 21 days (i.e. until 7 February 2004) in which to respond. I do not accept that the letter was in any sense a sham.

Mr Hazim, I find, relied on Mr Fletcher to attend to the letter of 15 January 2004. By not responding to it, Mr Fletcher did not meet Mr Hazim’s expectations. From his pragmatic view of the law, he saw a reply as unnecessary. The difficulty with his taking this position was that it left Mr Hazim appearing as if he cared little for attempting to comply with the conditions of his PL. It was compounded in retrospect by the fact that Mr Hazim, through Mr Fletcher, did not seek any extension of the time in which he was permitted to obtain his TCV. The condition on his PL had given him until 27 February 2004. It was not until early March 2004 that he was given the TCV’s decision set out in its letter of 5 March 2004. Rather than caring little about compliance with the law, I accept that the opposite was true. That is, notwithstanding that he did not understand English or the intricacies of the industry in which he wanted to participate, he wanted to do the right thing and had relied on Mr Fletcher to do whatever was required. This is supported by the fact that Mr Hazim was quite open with Mr Thornton and Mr Drummond on 10 March 2004 when he told them of the TCV’s having refused his application. Rather than hiding his situation, he was quite open with them and sought their advice.

When the time for responding to the letter of 15 January 2004 had passed, the internal minute of 18 February 2004 showed that the ATO continued to feel in some sort of a quandary but had resolved to wait for the outcome of the TCV’s consideration. At the same time, the risk to the revenue had increased somewhat for by this time the leaves were being picked and cured by Mr Hazim. Once they were baled, the risk had increased even more. The Commissioner took the step of suspending Mr Hazim’s PL on 6 May 2004. This was some two months after the TCV had made its decision.

Once the TCV had made its decision, Mr Hazim and Mr Fletcher had time to take steps to secure the crop. With his experience in advising those engaged in the tobacco industry, Mr Fletcher had to have known that tobacco could be sold only through the TCV. He would have known that, if membership were not obtained, Mr Hazim would need to secure the crop. In the two month period, he advised Mr Hazim to challenge the TCV’s decision and his application to do so had been referred to VCAT. As to securing the crop, Mr Hazim had approached Mr Borsi to store the bales on his property. As Mr Borsi did not have a dealer’s licence, he was prevented by the Act from assisting Mr Hazim in that way. A week or so later, Mr Fletcher approached the TCV to store it and had been refused. That had occurred on 29 April 2004. A few days later, Mr Fletcher sought permission to move the tobacco to Securaway and was waiting for advice from the ATO as to whether it would be approved. On the evidence, I am satisfied that Mr Fletcher and Mr Hazim did little else to try to secure the tobacco before the ATO suspended the PL. This is apparent from Mr Fletcher’s letter written on 14 May 2004 and so after the suspension. He referred to Mr Hazim’s being more than happy to secure the tobacco in a bond store but made no reference to any arrangements or enquiries that he had made apart from those with the TCV. If Mr Fletcher did make many telephone calls trying to find a suitable bond store, he did not keep a note of them. Whatever efforts he made did not produce any results.

After the suspension of the PL and before its cancellation, the situation remained fairly much as it had been. I find that Mr Livingston told Mr Fletcher that storing the tobacco with Securaway was inappropriate in a conversation on 11 May 2004. Mr Fletcher said that he had approached a lot of places but there was no file note to support that he had done so or why they were inappropriate. On the basis of his evidence, I do find that he wanted the ATO to advise him of those storage companies authorised to store tobacco. He said that he would approach them but the evidence of those he approached apart from Securaway and TCV remains too sketchy for me to find that Mr Fletcher made many solid enquiries himself. The only other proposition that was put forward was put forward by Mr Hazim. That was that he store the tobacco in the garage at his home in Melbourne. Living in Melbourne would enable him to take up other work but did not provide satisfactory security for the tobacco.

Whether or not the ATO could have been more helpful and, if so, should have been more helpful was not explored at any length. At the same time, Mr Hazim’s ability to pay the storage costs was also not explored. If he could not pay, it is redundant to ask whether the ATO should have been more helpful.

I find that security of the tobacco on Mr Hazim’s Gapsted property was open to question once his PL had been suspended. I base that finding in part on Mr Hazim’s being absent from the property 12, 20, 21, 22 and 23 May 2004. In that regard, I accept the evidence of Mr Macklin, Mr Livingston and Mr Stephenson. That is not to say that there was no presence on all of those occasions for there was on 20 and 22 May 2004. I accept the evidence of Mr Livingston and Mr Stephenson on that point. It may be that a person other than Mr Hazim was also present on 23 May 2004 but that does not seem to have been addressed. The other basis for my finding is Mr Hazim’s state of mind. His own evidence is that he was concerned about his own safety and that of his family. I accept that it was his wish that somebody would secure the tobacco for him. He had to sleep rough and felt that he could not light a fire lest he alert others to his presence.

Having regard to the situation overall at the time that the delegate of the Commissioner cancelled Mr Hazim’s PL, I am satisfied that the security of his tobacco crop was vulnerable. The arrangements for its security on the Gapsted property could not continue given Mr Hazim’s understandable state of anxiety and his unsatisfactory personal arrangements. There were no satisfactory alternative arrangements that had been made or that were either imminent or even on the horizon. Certainly, there had been a complaint to the Equal Opportunity Commission and it had been referred to VCAT. At the time, the time and manner of the resolution of the complaint was unknown. As it was, it was not resolved until November 2004. That was almost six months after the PL had been cancelled on 24 May 2004. In some ways, that was quite a quick resolution of the matter but that was not known on 24 May 2004. In other ways, it represented a lengthy period of time during which the security of the tobacco was questionable and no arrangements had been made to improve that security. There was no reason to expect that there would be adequate arrangements made for the security of the tobacco in the meantime. Mr Fletcher’s previous attempts and those of Mr Hazim had not led to any. On 24 May 2004, they had no new proposals and there was no reason to think that they would be able to put forward new proposals. Mr Fletcher had put none forward and given no indication that he had any more in the offing.

There was no question in this case that Mr Hazim had kept proper records. What I have described as his integrity has never been questioned and I do not question it now. The conclusions that I have reached regarding the security of the tobacco on Mr Hazim’s Gapsted property persuade me that, on 24 May 2004, the decision that is both the correct and preferable decision was that of cancellation. It was the only manner in which there could be some reasonable degree of certainty that the tobacco would not find its way to the illicit market and so deprive the Commonwealth of the excise duties to which it would be entitled were it to be entered for home consumption on the licit market. There is no question that the consequences for Mr Hazim are serious but, for the reasons that I have given, I do not consider that I can balance those consequences against the statutory considerations to which I have referred.

For these reasons, I affirm the objection decision of the respondent dated 12 August 2004.

I certify that the two hundred and forty-seven preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie,

Signed: ...............................................................

Nathaniel Wills Associate

Dates of Hearing  11 to 14 October 2005 and 19 October 2005
Date of Decision  30 November 2005
Counsel for the Applicant             Dr T.J. McEvoy
Solicitor for the Applicant            Mr B. Potenza,
Juliano, Furletti & Scott

Counsel for the Respondent Mr E. J. Lorkin
Solicitor for the Respondent Mr W. Stewart and Ms M. Russell,
ATO Legal Services Branch