James v Chief Commissioner of State Revenue (No 2)

[2011] NSWSC 654

Supreme Court

New South Wales

Medium Neutral Citation:	James v Chief Commissioner of State Revenue (No 2) [2011] NSWSC 654
Hearing dates:	4 May 2011
Decision date:	24 June 2011
Jurisdiction:	Equity Division
Before:	Gzell J
Decision:	Reasons published that one notice was bad on its face but none were issued in bad faith and matter stood over.
Catchwords:	TAXES AND DUTIES - Payroll tax - notices under the Taxation Administration Act 1996, s 72 to provide information, to produce documents and to attend and give evidence - whether notices bad on their face - whether notices issued in bad faith
Legislation Cited:	Taxation Administration Act 1996 Income Tax Assessment Act 1936 (Cth) Payroll Tax Act 2007 Pay-roll Tax Act 1971 Sales Tax Assessment Act 1992 (Cth) Evidence Act 1995
Cases Cited:	James v Chief Commissioner of State Revenue [2011] NSWSC 331 Federal Commissioner of Taxation v Australian and New Zealand Banking Group Ltd (Smorgon's Case) [1979] HCA 67; (1979) 143 CLR 499 Industrial Equity Ltd v Deputy Commissioner of Taxation [1990] HCA 46; (1990) 170 CLR 649 McCormack v Commissioner of Taxation [2001] FCA 1700; (2001) 114 FCR 574 Fieldhouse v Commissioner of Taxation [1989] FCA 397; (1989) 25 FCR 187 Cassaniti v Tax Agents' Board (NSW) [2009] FCA 619; (2009) 179 FCR 1 One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 O'Reilly v State Bank of Victoria [1983] HCA 47; (1982-1983) 153 CLR 1
Category:	Principal judgment
Parties:	David Anthony James (Plaintiff) Chief Commissioner of State Revenue (First Defendant) Rabobank Australia Ltd (Second Defendant) Bruce Adams (Third Defendant) Boonchoo Suriyachan (Fourth Defendant) Kevin Graham Johnson (Fifth Defendant)
Representation:	Counsel: B Coles SC/D Allen (Plaintiff) G Lindsay SC/S Kaur-Bains (First Defendant) Solicitors: Hunt & Hunt (Plaintiff) Crown Solicitor (First Defendant)
File Number(s):	2010/128672

Judgment

1. The Plaintiff, David Anthony James, challenges the decision of the First Defendant, the Chief Commissioner of State Revenue, to issue notices under the Taxation Administration Act 1996, s 72. So far as is relevant for present purposes that provision was in the following terms:

"(1) The Chief Commissioner may require a person, by written notice, to do any one or more of the following:

(a)   to provide to the Chief Commissioner (either orally or in writing) information that is described in the notice,

(b)   to attend and give evidence before the Chief Commissioner or an authorised officer,

(c)   to produce to the Chief Commissioner an instrument or record in the person's custody or control that is described in the notice.

(2) The Chief Commissioner must, if the requirement is made of a person to determine that person's tax liability, indicate in the notice that the requirement is made for that purpose, but the Chief Commissioner is not otherwise required to identify a person in relation to whom any information, evidence, instrument or record is required under this section.

.....

(8) The person to whom the notice is given must comply with the notice within such period as is specified in the notice or such extended period as the Chief Commissioner may allow.

Maximum penalty (subsection (8)): 100 penalty units."

1. While there are no cases that have considered the validity of notices issued under this section, both sides drew comfort from reference to a large number of authorities dealing with the validity of notices under the Income Tax Assessment Act 1936 (Cth), s 264, which was in the following terms:

"(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:

(a) to furnish him with such information as he may require; and

(b) to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto.

(2) The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose he or the officers so authorized by him may administer an oath or affirmation.

(3) The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend."

1. Mr James buys companies or assets from liquidators or administrators if he feels he can build up the business. He becomes a director of the purchasing entity and finds somebody with the necessary skills to operate the business for him. He may offer financial assistance or business advice.

1. The background to the service of the s 72 notices was summarised in James v Chief Commissioner of State Revenue [2011] NSWSC 331 as follows:

"19 The affidavit of Michael Sofiak of 3 September 2010 establishes that the Chief Commissioner is investigating Mr James and his relationship to a number of companies to ascertain whether there has been a failure to declare for payroll tax purposes wages paid by entities that might constitute members of a group of entities for payroll tax purposes.

20 Mr James claimed that one such company, Liquor National Pty Ltd, did not trade and did not employ staff. Information obtained from the ATO showed that it did trade and did employ staff.

21 Mr James maintains that BAS statements for Liquor National and Liquor National Wholesale Pty Ltd disclosed wages for employees who worked for Brodav Pty Ltd.

22 There was a large discrepancy between wages in the financial statements of Print National Pty Ltd with disclosures to the ATO for the year ended 30 June 2007. Mr James said that the wages for Brodav were incorrectly included in BAS statements for Print National.

23 Mr James informed Mr Sofiak that under business licence agreements between Brodav and Print National and between Brodav and Liquor National Wholesale, Brodav ran the operations of the two companies. Mr Adams was the manager who operated the logistics side of the business of Liquor National Wholesale and the Chief Commissioner has issued a notice under s 72 to him.

24 Financial statements for the year ended 30 June 2007 of Wine National Pty Ltd disclosed wages far less than those revealed to the ATO. Mr James said that Wine National disclosed wages to the ATO for employees who worked for Douglas Hawkins Pty Ltd. No BAS or PAYG summary statements have been lodged with the ATO. Mr James informed Mr Sofiak that the contact person for Wine National was Mr Suriyachan and a s 72 notice has been issued to him.

25 Mr James informed Mr Sofiak that a new company, FPT Operations Pty Ltd, took over the offset printing side of the business conducted by Print National after the licence agreement with Brodav ended.

26 A charge over FPT Operations in favour of Rabobank Australia Ltd to a maximum liability of $100 M was guaranteed by Mr James and a number of companies associated with him.

27 A charge in favour of Rabobank to a maximum liability of $1 B over Killara 10 Pty Ltd was also guaranteed by Mr James and a number of companies. This was during a period when Mr James was not an officer. A notice under s 72 has issued to Rabobank.

28 Mr James said that Executive Brands Pty Ltd was never party to an agreement to do anything. Information supplied by the ATO revealed that in the 2009 financial year, bank account details of Executive Brands are the same as for Liquor National. Mr Johnson is shown in ASIC records as the shareholder of Executive Brands and a s 72 notice was issued to him."

1. Mr James challenges the decisions to issue the s 72 notices to Mr Adams, Mr Suriyachan, Mr Johnson and Rabobank on the basis that the purported exercise of the power or function conferred on the Chief Commissioner to issue the notices was so unreasonable that no reasonable person charged with the power or function could have caused the notices to issue; that the purported notices went beyond the purpose for which the power or function had been given in that they are confusing, imprecise, oppressive, directed at gaining information unconnected with a taxation law and wholly disproportionate in what they require; and that the purported exercise of the power or function was for an improper purpose and in bad faith in that it was made to inconvenience Mr James, in retaliation to Mr James taking issue with previous notices, and without sufficient regard to the purpose for which the power or function had been given, namely, the purpose of a taxation law.

1. The proceedings were conducted on the affidavits of Mr James and Mr Sofiak and the documents annexed or exhibited to them. Neither Mr James nor Mr Sofiak was cross-examined. I was invited to reserve objections to the affidavits to Mr James. I deal with those objections in an Appendix to these reasons.

1. Most of the argument centered on the s 72 notice to Rabobank. It was in the following terms:

"The Proper Officer

Rabobank Australia Limited

Level 16, 201 Sussex St

Sydney NSW 2000

Private & Confidential

NOTICE UNDER SECTION 72(1)(a)&(c)

THE TAXATION ADMINISTRATION ACT 1996

TAKE NOTICE that I, David Morse , an Authorised officer pursuant to section 68 of the Taxation Administration Act 1996 , ("the Act) and a Delegate of the Chief Commissioner of State Revenue under section 67 of the Act, HEREBY REQUIRE YOU to provide to me in writing, or any other authorised officer, by 10.00 am on 28 May 2010, at the Security Desk, ground floor, 132 Marsden Street, Parramatta or unless alternative agreement is agreed to by this office, the following information listed in Annexure "A" which is under your custody and control.

I understand that if the requested documentation/information is provided, it must not be further disclosed except as permitted under section 82 of the Act.

Failure to comply with this Notice may constitute an offence under section 72(8) of the Taxation Administration Act 1996, and render you liable to a penalty not exceeding 100 penalty units ($11,000).

Dated this 29 th day of April 2010

DAVID MORSE

SENIOR INVESTIGATOR

DELEGATE OF THE CHIEF COMMISSIONER

OF STATE REVENUE Annexure "A"

Names of companies covered by this Notice :

• FPT Operations P/L
• Print National P/L
• Liquor National P/L
• Wine National P/L
• Sundara P/L
• James Estate Wines P/L
• Killara 10 P/L
• James Australia Group P/L
• James Estate (Sales) P/L
• Any other entities whereby David James has been signatory to a loan agreement

List of information & records to be provided:

Rabobank Australia Ltd has or had registered charges lodged with each of the above mentioned companies. In order to satisfy this Notice copies of the following information is required for each of the companies:

1.Application form lodged with your bank to obtain the finance.

2.Full list of assets held as security in respect of the fixed & floating charges.

3.Specify in writing your banks process in approving finance for the amounts that these entities have borrowed.

4.Specify the bank officer or officers, who approved the loan.

5.A copy of the original registered charge and any variations to this loan.

6.Specify what documentation would be signed by the borrower.

7.Specify what identity checks were obtained to ensure that the appropriate company officer had the authority to sign for fixed & floating charges.

8.All correspondence, financial statements, cash flow projections, bank securities, bank authorisation forms, group and personal asset lists, file notes, searches, application forms and any other documents in respect to dealings with the company and David James.

9.Copies of all bank statements and loan accounts for monies borrowed.

10.Detail what monies were advanced to each entity as a result of the charge specifying the amounts, dates & the name of the entity receiving the loan since the loan commenced.

11.Detail what repayments were made for each entity these loans specifying the amounts, dates & name of entity making the payment.

12.Specify the account name(s) and account number(s) of any operating accounts held by any of the companies (if any).

13.Specify in respect of each of the charges did Rabobank Australia Ltd deal directly with David James or some other company representative(s). If a company representative(s) detail their names, position and what actions were performed by them.

14.In respect of each of the charges did Rabobank Australia Limited deal directly with David James or a company representative(s). If a company representative(s) was/were involved what were their names, position and what actions were performed by them.

15.With respect to the registered charges lodged for FPT Operations P/L, Liquor National P/L and Wine National P/L:

a.   The name(s) of the Rabobank Australia Ltd bank staff who were responsible for the signing of the documents.

b.   In respect of point (a) above, the names of the Rabobank Australia Ltd bank staff who witnessed the signing of the documents by David James.

c.   In respect of point (b) above, if the signing of the documents were not witnessed in person by staff from Rabobank Australia Ltd, how were the documents signed and who handed the signed document to the bank.

d.   Explanation as to why Rabobank Australia Ltd believed David James was the sole director of the company at the time they were created."

1. In Federal Commissioner of Taxation v Australian and New Zealand Banking Group Ltd (Smorgon's Case) [1979] HCA 67; (1979) 143 CLR 499 at [15]; 535 Mason J identified the purpose of the power in s 264(1)(a) by which that power is to be circumscribed as enabling the Commissioner to perform his functions under the Act:

"Except in one respect the powers given by s. 264 should be circumscribed only by reference to the limitations which are expressed in that section. Thus, in s. 264(1)(b) the power to compel evidence is restricted to evidence "concerning his or any other person's income or assessment" and the power to require production is confined to documentary records "relating thereto", that is, to "his or any other person's income or assessment". However, the power to require information contained in par. (1)(a) is not similarly limited. As it is a power given to the Commissioner for the purpose of enabling him to perform his functions under the Act it must be circumscribed by reference to this purpose."

1. His Honour went on at [25]; 537-538 to explain that a valid notice under s 264(1)(b) must be formulated so that the limitation on the Commissioner's authority under that provision is drawn to the attention of the recipient:

"As the Commissioner's coercive power to require production is limited, any notice given in exercise of the power must in terms conform to the statutory limitations if it is to be valid. It will in my view conform to those limitations only if it clearly confines the documents to be produced to the class of which the Commissioner is authorized to require production, though it may go on to include particular documents on the footing that they fall within that class. If not so limited, the notice fails on its face to express the limitation which the section places on the Commissioner's authority. Because the exercise of the power casts onerous obligations on the recipient of a notice, and because the recipient (not being the taxpayer) is only justified, vis-a-vis the taxpayer, in producing the taxpayer's documents without his consent in response to a valid demand, it is for the Commissioner so to formulate his notice that this limitation on his authority is drawn to the attention of the recipient."

1. Section s 263(1) of the Income Tax Assessment Act 1936 provided:

"The Commissioner, or any officer authorized by him in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act, and for that purpose may make extracts from or copies of any such books, documents or papers."

1. In Industrial Equity Ltd v Deputy Commissioner of Taxation [1990] HCA 46; (1990) 170 CLR 649 at [18]; 659 the words "for any of the purposes of this Act" in the above provision were construed by reference to the performance of the Commissioner's functions under that Act:

" The question whether a purpose is a purpose of the Act should be considered in the context of s.17. That section provides for the levy of tax upon the taxable income of a person derived during a year of income and it is by reference to this primary purpose that all other purposes of the Act are to be determined. Section 8 charges the Commissioner with the general administration of the Act which includes the due making of assessments to tax (s. 169) and the recovery of tax payable by taxpayers pursuant to the Act (Pt VI, Div.1). Sections 263 and 264(1) each confers on the Commissioner a power to enable him to perform his functions under the Act. Therefore, the power "must be circumscribed by reference to this purpose": Smorgon's Case (1979) 143 CLR at p. 535."

1. Section 72 does not contain a limitation of the type in s 264(1)(b) so that the circumscription of the Chief Commissioner's powers under it would, in the absence of a specific provision, be analogous to that with respect to the power in s 264(1)(a): circumscription to the purpose of the Act, that is, to enable the Chief Commissioner to perform his statutory functions under the Act.

1. But one does not need to adopt by analogy the circumscription imposed upon the general power in s 264(1)(a) because there is a specific provision in the Taxation Administration Act . Section 71 of that Act provides that a function conferred under Pt 9 Div 2, which includes s 72, may be exercised only for purposes of a taxation law. The term "function" is defined in s 3(1) to include a power, authority or duty. A "taxation law" is defined in s 4 to include the Taxation Administration Act and the Payroll Tax Act 2007. It used to include the Pay-roll Tax Act 1971. In the circumstances of this case, the powers or functions in s 72 are thus circumscribed by reference to the purposes of these three Acts.

1. The process adopted in Industrial Equity in deciding whether a purpose is a purpose of an Act commences with the taxing provisions for they are the fundamental purposes to which all other purposes of the three Acts are subservient.

1. Under the Payroll Tax Act 2007 payroll tax is imposed on all taxable wages by s 6. The employer by whom taxable wages are paid or are payable is liable to pay payroll tax on the wages under s 7. Part 5 applies to groups of employers. Section 81(1) provides that if a member of a group fails to pay an amount that the member is required to pay under the Act in respect of any period, every member of the group is liable jointly and severally to pay that amount to the Chief Commissioner.

1. Under the Pay-roll Tax Act 1971 wages liable to pay-roll tax were defined in s 6(1). Pay-roll tax was charged, levied, collected and paid on all taxable wages by s 7(1). Section 8 provided that pay-roll tax was to be paid by the employer by whom the taxable wages were paid. Part 4A contained grouping provisions. Section 16LA(1) was in identical terms to s 81(1) of the later Act.

1. No tax is levied under the Taxation Administration Act but its provisions enable the Chief Commissioner to discharge his statutory duties under the taxing Acts.

1. Under s 8(1) in Part 3 of the Act the Chief Commissioner is empowered to make an assessment of the tax liability of a taxpayer. The term "assessment" is defined in s 3(1) as an assessment made by the Chief Commissioner under Part 3 of the tax liability of a person under a taxation law. So the power in s 8(1) is in aid of the Chief Commissioner's statutory obligations to collect tax under taxing Acts including the Payroll Tax Act and the Pay-roll Tax Act .

1. Tax is payable to the Chief Commissioner under s 43 and if the whole or part of the tax has not been paid, the Chief Commissioner may recover it as a debt under s 44.

1. If a corporation fails to pay an assessed amount of tax and a compliance notice is served on a director who fails to rectify in accordance with the provision, the Chief Commissioner may recover the amount from the director under s 47B.

1. Section 61 confers the general administration of taxation laws on the Chief Commissioner. Section 125 sets out how proceedings for an offence against a taxation law are to be commenced and dealt with.

1. In that context, s 72 confers a power or function on the Chief Commissioner for the purpose of the Taxation Adminstration Act , the Payroll Tax Act and the Pay-roll Tax Act to enable him to perform his functions under those Acts. The power is circumscribed by reference to that purpose.

1. Mr Sofiak delegated the formulation of the s 72 notice to Rabobank to David Morse. In his affidavits Mr Sofiak twice stated that he informed Mr Morse that the purpose of the notice was to find out who were the true owners of FPT Operations and Killara 10.

1. Reference was made to what Sackville J had to say about a stated purpose of a notice under s 264(1)(a) in McCormack v Commissioner of Taxation [2001] FCA 1700; (2001) 114 FCR 574 at [73]; 595-596:

" In determining whether the power to issue a notice under s 264(1)(a) has been exercised for a permitted purpose (that is, for the purpose of enabling the Commissioner to perform his or her statutory functions), it is necessary to take account of all relevant circumstances. These are likely to include the terms of the notice, the nature of the information sought, the material before the decision-maker and the decision-maker's stated reasons for issuing the notice. The decision-maker's reasons will be relevant to the inquiry and, perhaps, depending on the circumstances, they may be very important in assessing the ultimate purpose. But they will not necessarily be determinative."

1. It was submitted that Mr Morse went beyond Mr Sofiak's purpose in compiling the s 72 notice and it was bad on its face because the excessive requirements could not be severed.

1. But Mr Sofiak instructed Mr Morse in far more detail and in relation to inquiries that went beyond the true ownership of FPT Operations and Killara 10. Mr Sofiak gave Mr Morse a copy of a summary of the David James investigation together with summaries in relation to Messrs Adams, Suriyachan, Johnson and Rabobank together with, in the case of Rabobank, draft s 72 notices.

1. The David James investigation was to ascertain whether there had been a failure to declare for payroll tax purposes wages paid by entities that might constitute members of a group of entities for payroll tax purposes; the existence of any anti-avoidance scheme; checking that there were no other companies within the James group not identified and also to consider possible prosecution arising from the provision of false and misleading information concerning directorships .

1. The documents supplied to Mr Morse included Mr Sofiak's instructions as follows:

"A s 72 Notice should be served on Rabobank requesting the following:

• Copies of all correspondence, financial statements, cash flow projections, group and personal asset lists, file notes. searches, application forms, original charge documents in respect to dealings with David James and the companies listed above plus variations.
• Copies of all bank statements and/or loan transaction summaries/statements for David James and the companies listed above.
• Summary of monies advanced as a result of the charge detailing amounts, dates & name of entity receiving the loan.
• Summary of repayments detailing amounts, date & name of entity making the payment.

A statement should also be obtained from the responsible bank officer(s) who have had dealings with David James & are able to produce the above in Court if necessary. The statement should specifically explain the circumstances concerning the signing of the fixed and floating charge lodged for FPT Operations P/L, Liquor National P/L and Wine National P/L and who they believed to be the directors & shareholders of the companies.

It will also be important to establish exactly what assets the bank believed the group & David James had to secure the bank facility.

Obtaining the above-mentioned documentation and information is required for the following reasons:

1.Obtaining evidence for a posssible prosecution ie: providing false and misleading information concerning directorships.

2.Obtaining evidence to establish the existence of an anti avoidance scheme.

3.Checking that there are no other companies within the group that OSR has not yet discovered. What is a major concern is that the size of the charges ($100M & $1B), appear to be greatly out of proportion with the assets held by the companies which we at the moment believe are part of the group."

1. Mr Morse followed his instructions. I reject the submission that the s 72 notice to Rabobank should be limited to an inquiry as to the true ownership of FPT Operations and Killara 10.

1. The powers or functions in both s 72(1)(a) and s 72(1)(c) are circumscribed by their purpose of enabling the Chief Commissioner to perform his statutory functions. But s 72(1)(c) contains a limitation that is not present in s 72(1)(a).

1. The s 72 notice to Rabobank misstates that limitation. It requires the provision in writing of information under Rabobank's custody and control. But the limitation of custody or control applies to documents required to be produced under s 72(1)(c). The recipient of a notice under that provision is required to produce an instrument or record in that person's custody or control that is specified in the notice. There is no such limitation with respect to information sought under s 72(1)(a). The recipient of a notice under that provision must provide, either orally or in writing, information described in the notice.

1. The confusion between information and documents in the custody or control of the recepient of a s 72 notice is further entrenched in the notice to Rabobank by the heading "List of Information & records to be provided" and the statement that the following information is required for each of the specified companies.

1. It is not possible to determine what information is required under s 72(1)(a) and what instruments or records in the custody or control of Rabobank are sought under s 72(1)(c). For example, the requirement to provide a full list of assets held as security in respect of the fixed and floating charges may be limited to a document in Rabobank's custody or control or it may require the bank to provide information by creating a list.

1. And where it is clear that information in writing is sought, the limitation in the notice to information under Rabobank's custody and control is meaningless.

1. What the draftsman of the notice should have done was to specify information that was sought under s 72(1)(a) separately from the documents in the custody or control of Rabobank that were sought under s 72(1)(c).

1. The confusion between information and documents is so ingrained in the s 72 notice to Rabobank that portions cannot be severed and the notice is bad on its face.

1. The notices to Messrs Adams, Suriyachan and Johnson do not suffer this problem. Each of them required the recipient to attend and give evidence under s 72(1)(b). They did not seek information or the production of documents.

1. To assist the Chief Commissioner should he decide to reissue a s 72 notice to Rabobank I will deal with the other objections raised by Mr James.

1. Complaint is made that the Rabobank notice is headed "Private & Confidential" and the notices to the three individuals are headed "Confidential."

1. In my view that is no more than the recognition by the draftsman of the notices that tax officers are subject to prohibition on disclosure of information under s 81 to s 85A of the Taxation Administration Act .

1. This conclusion is enforced in the case of the Rabobank notice by the statement by Mr Morse:

"I understand that if the requested documentation/information is provided, it must not be further disclosed except as permitted under section 82 of the Act."

1. The suggestion that the words "Private & Confidential" and the word "Confidential" cast an obligation on the recipient not to discuss the matter with Mr James is far fetched and not a reasonable interpretation of the notices.

1. It is complained that the s 72 notice to Rabobank speaks of producing the documents to Mr Morse or any other authorised officer at a security desk. It was submitted this imposed the requirement that the recipient inform itself as to who was an authorised officer and what was the security desk.

1. This is a carping complaint. Mr James would find a desk manned by a security officer on the ground floor. He would ask for Mr Morse and if he was not available he would ask for Mr Sofiak. And if he was not available he would ask for an officer authorised to receive the information and documents he was required to produce.

1. This was the type of objection about which Hill J warned when dealing with a notice of s 264(1) in Fieldhouse v Commissioner of Taxation [1989] FCA 397; (1989) 25 FCR 187 at [22]; 208:

" Where information is required by the section to be furnished, the request for information should be so framed as to be sufficiently clear to convey to the addressee what information is sought and a notice which was unintelligible would obviously be bad. However, it does not follow from this that the question of the validity of a notice should be approached carpingly by engaging in a narrow analysis of each word in an attempt to find some latent ambiguity in it. Rather the approach to be adopted is to ask in respect of any particular request whether a reasonable man in the position of the addressee of the notice can fairly comply with it and not be thereby exposed to the possibility of penalty for non-compliance having regard to the manner in which the notice is formulated."

1. The Rabobank notice spoke of an alternative agreement by the office to a time and place to produce the information and documents. The submission was that there was no entity known as the office.

1. The notice is headed Office of State Revenue. Clause 31(1) of the current Administrative Changes Orders provides that: "The Office of State Revenue is removed from the Treasury and added to the Department of Finance and Services."

1. Section 60(1) of the Taxation Administration Act provides that there is to be a Chief Commissioner of State Revenue. Section 60(2) provides that the person for the time being holding office or acting as Executive Director, Office of State Revenue, is also to hold office as Chief Commissioner.

1. The submission is rejected.

1. The companies to which the Rabobank notice relates include: "Any other entities whereby David James has been signatory to a loan agreement". That goes too far, in my view. It requires Rabobank to inquire of third parties without limit. It is inconsistent with the later statement that Rabobank had registered charges lodged with each of the companies. Rabobank would not have a registered charge with respect to a loan agreement between Mr James and a third party.

1. The requirement to produce copies of information with respect to the companies not only involves the distinction between information and documents. It is ambiguous. It could require copies of documents as distinct from originals to be produced. That could mean existing copies or it could mean that copies were to be made. But seeking copies of information is confusing. For example, paragraph 3 of the notice requires the specification in writing of the bank's process in approving finance. That seems to require the bank to reduce to writing its process and provide that writing to Mr Morse. That does not sit comfortably with the introduction that requires production of copies of the following information.

1. If a notice is ambiguous in that it leaves the recipient unsure whether production of copies already existing is called for or whether copies of originals are to be made, a notice is bad for uncertainty ( Cassaniti v Tax Agents' Board (NSW) [2009] FCA 619; (2009) 179 FCR 1 at 16; [67] citing Gibbs CJ in Smorgon's Case (1979) 143 CLR 499 at 525 and Lockhart, Burchett and Hill JJ in Fieldhouse (1989) 25 FCR 187 at 193, 204, and 210).

1. It is complained that there is no temporal limitation to the required information and documents. But if inquiry is limited to the registered charges lodged with the named companies, and this could be expressed more clearly, the event has temporal limitation.

1. It is objected with respect to the requirement in paragraph 2 of the Rabobank notice to produce a full list of assets that the Chief Commissioner is not entitled to dictate the form in which information is to be provided.

1. In One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 Burchett J considered a provision similar to s 72(1)(a). Section 108(1)(a) of the Sales Tax Assessment Act 1992 (Cth) provided that the Commissioner might direct a person to do all or any of three things. The first was to provide the Commissioner with such information as the Commissioner required. Section 108(2)(a) provided that the Commissioner might direct that the information be given either orally or in writing.

1. At [15]; 559 his Honour said that the Commissioner might require the information to be given in writing but he was not entitled to dictate the manner in which the information should be given.

1. But Mr Morse did not dictate the manner in which the full list of assets was to be provided. The assets could have been listed item by item or in tabular form. Either method would satisfy the requirement.

1. It was submitted that the requirement in paragraph 4 of the Rabobank notice to identify the bank officer or officers who approved the loan was not for the purpose of enabling the Chief Commissioner to perform his statutory functions under a taxation law.

1. I agree. It is the identification of any loans by Rabobank to a specified company and the terms of the loan that assists the Chief Commissioner to perform his statutory functions. The identity of the approving officer is irrelevant.

1. The same submission was made with respect to paragraph 3 of the Rabobank notice, the request for the bank's process in approving finance for the amounts that the specified entities borrowed. I think the seeking of that information was proper. These were very large facilities guaranteed by Mr James and the specified companies and the requirements of the bank before making the loan facilities available was a proper head of inquiry.

1. With respect to paragraph 5, which sought a copy of the original charge and any variations to the loan, the submission was made that the power to require the production of an instrument or record in s 72(1)(c) does not entitle the Chief Commissioner to require copies of documents to be made.

1. The production of an instrument or record in a person's custody or control relates to documents in existence at the time the notice is served. As Lockhart J observed in Fieldhouse (1989) 25 FCR 187 at [15]; 194-195:

"Section 264(1)(b) only extends to documents in the custody or under the control of the recipient when he receives the notice and does not support a construction that requires copies to be brought into existence."

1. To similar effect was the statement of Hill J at [26]; 209:

"No reference at all is made in s 264 to copies and I think that it is clear that the legislature did not intend in s 264 to empower the Commissioner to require the making of copies."

1. In my view similar considerations apply because s 72(1)(c) is similar to the concluding words of s 264(1)(b). The result is that Rabobank was only required to produce copies in existence upon service of the notice of the original charge and any variation of the loan.

1. Mr Morse could have sought information with respect to any variations in the loan facilities. But he did not. He sought a copy of any variations to the loan and that suffers that same problem of copying.

1. With respect to paragraph 6, which required a specification of the documents that would be signed by a borrower, it was submitted that the requirement was too vague as it lacked context.

1. I reject that submission. As with paragraph 3 it seems to me that information about required documentation is within the purpose of enabling the Chief Commissioner to perform his statutory functions under the Taxation Administration Act , the Payroll Tax Act 2007 and the Pay-roll Tax Act 1971. It is a request for information rather than the production of documents under the custody or control of Rabobank.

1. With respect to paragraph 7 of the notice, requiring the specification of the identity checks carried out to establish the authority of the person who signed the charge, it was submitted that information about internal identity check procedures did not relate to any taxation law.

1. Avenues of inquiry by the Chief Commissioner were the identity of the persons in control of the companies; whether there were dummy directors and shareholders; whether Mr James controlled the companies although not a director of some at the relevant time; and whether a prosecution should be laid for providing false and misleading information concerning directorships and control. The identity checks were relevant to those issues.

1. As to paragraph 8 of the notice, which sought production of correspondence and financial documentation, Mr James complained that the requirement was excessive as there was no time constraint. But, for the reasons expressed above, if the required documentation was limited to the registered charges, there was a time constraint and the request was not excessive.

1. Paragraph 9 sought copies of all bank statements and loan accounts for the borrowed funds. It suffers from the problem of copying but is not excessive if limited to the registered charges.

1. As to paragraph 10, requiring a detailing of monies advanced to each entity, the submission was that it required Rabobank to undertake a task. That might be so but a requirement to provide information will involve the performance of a task.

1. It was further submitted that the information did not relate to a taxation law. But the Commissioner is entitled to investigate whether sums were drawn under the loan facilities and whether they were utilised to pay wages. The interrelationship between the companies is clearly complex.

1. Paragraph 11 of the notice seeks information as to the origin of reductions in loans. It is the obverse of paragraph 10.

1. As to paragraph 12 which sought information as to operating bank accounts of the companies, the objection was that that information was available from the bank statements referred to in paragraph 9.

1. But that does not prevent the Chief Commissioner from requiring the information and paragraph 12 may relate to bank accounts other than for moneys borrowed to which paragraph 9 is limited.

1. With respect to paragraph 13 of the notice which asked whether Rabobank dealt only with Mr James and if not asked the bank to identify the person or persons with whom it dealt, the submission was that the requests did not relate to a taxation law.

1. But it is relevant to the question whether false or misleading information has been provided about directorships and who is in control of the companies.

1. Under the Payroll Tax Act 2007, s 72(1) if a person or set of persons has a controlling interest in each of two businesses the persons who carry on those businesses constitute a group. A controlling interest is defined in s 72(2). It provides, amongst other bases, that a person or set of persons has a controlling interest in a business if, in the case of a business carried on by a corporation, a director or set of directors of the corporation entitled to exercise more than 50% of the voting power at meetings of directors is under an obligation, whether formal or informal, to act in accordance with the direction, instructions or wishes of that person or set of persons. The Chief Commissioner is entitled to investigate whether this provision applies to Mr James.

1. Paragraph 14 of the notice is an unnecessary repetition of paragraph 13.

1. Paragraph 15 by and large suffers the same disability as paragraph 4. It seeks the identity of Rabobank staff who participated in the bank's provision of the facilities. It is beyond the performance of his statutory functions for the Chief Commissioner to seek the identity of Rabobank staff involved in the creation of the loan facilities.

1. But it seems to me that the paragraph 15(d) is a permissible question if Rabobank was of the view that Mr James was the sole director of a company. It goes to the issue of control and whether there should be a prosecution for providing false or misleading information as to directorships.

1. It was submitted that the Rabobank s 72 notice and the notices to Messrs Adams, Suriyachan and Johnson were beyond power because they did not identify the Chief Commissioner's purpose in issuing the notices.

1. This submission was based upon what had been said by Gibbs ACJ in Smorgon's Case (1977-1979) 143 CLR 499 at [12]; 525:

" To be valid a notice to produce documents under s. 264 (1) (b) must of necessity identify with sufficient clarity the documents which are required to be produced. However the notice must in my opinion go further: it must show the person to whom it is addressed that any document which he is required to produce is one whose production the Commissioner is entitled to require. Where a notice is addressed to a taxpayer who is required to produce documents which relate to his own income or assessment, the very description of the documents (for example, "your books of account") may be enough to show that the notice is within the power conferred by the section. Where however the notice is addressed to one person, requiring him to produce the documents of another, the notice must show that those documents relate to the income or assessment of a particular person, who must be identified. The power is confined to giving a requirement of a particular kind - a requirement to produce documents relating to the income or assessment of some person - and a notice requiring the production of documents not so related is beyond the scope of the power."

1. I have pointed out that s 264(1)(b) contains a circumscription that is absent from s 72. There is in the latter provision no limitation of production of documents to those concerning the recipient's or any other person's income or assessment. In the absence of some such limitation there is no requirement that a s 72 notice identify the circumscription on its face.

1. Mason J in Smorgon's Case (1977-1979) 143 CLR 499 at [25]; 538 agreed that it was for the Commissioner to so formulate his notice that the limitation in s 264(1)(b) is brought to the attention of recipient.

1. But that does not mean, as was submitted on behalf of Mr James, that the Chief Commissioner must give a notice in terms that enable the recipient to determine whether the documents sought are within the Chief Commissioner's powers. As Mason J said in Smorgon's Case (1977-1979) 143 CLR 499 at [23]; 537, having spoken of the hazard of a recipient of a notice under s 264(1)(b) wrongly deciding which documents answered the description in the notice:

" The existence of this hazard is not a sufficient basis for the conclusion that the section requires the Commissioner to give a notice in such terms as would enable the recipient on reading it and on examining the documents in his custody or control to determine whether they fall within the ambit of the Commissioner's powers. To so hold would be to impose an impossible burden on the Commissioner. In many, if not most, cases he will be unaware of the contents of the documents of which he seeks production. And there will be cases in which a recipient who is not the taxpayer will lack the degree of knowledge of the taxpayer's affairs and of the Commissioner's approach to his assessment that is necessary to determine whether the documents relate to the taxpayer's income or assessment. Not only would the suggested requirement frustrate the object of conferring the power, it would be inconsistent with the section as I have explained it ."

1. If it be thought that there is any inconsistency between these statements, Murphy J in Smorgon's Case (1977-1979) 143 CLR 499 at [14]; 547 agreed with the conclusions of Mason J.

1. In my view the Chief Commissioner was not obliged to state on the face of the s 72 notices to Messrs Adams, Suriyachan and Johnson the purpose of issuing the notices and if the Chief Commissioner chooses to reissue a s 72 notice to Rabobank it need not, on its face, state the purpose for which it was issued.

1. It was submitted that the s 72 notice to Rabobank was excessive or oppressive.

1. Reference was made to O'Reilly v State Bank of Victoria [1983] HCA 47; (1982-1983) 153 CLR 1 at 48 where the court said:

" Like all statutory powers, that power must be used bona fide for the purposes for which it was conferred and that involves that its exercise be not excessive in the circumstances of the case."

1. But as Sackville J observed in McCormack [2001] FCA 1700; (2001) 114 FCR 574 at [60]; 592:

"Care must be taken not to treat the dictum in O'Reilly as creating an independent ground of review of administrative decisions."

1. The bases for the submission relate to the following issues with which I have already dealt: the requirement to keep the notice private and confidential; the requirement to copy documents; the requirement to perform functions; the requirement to give information concerning the bank as opposed to the taxpayer; information unrelated to any taxation law; no temporal limitation; the extension to any entity where Mr James had been the signatory to a loan agreement; and the stated purpose of the notice to Rabobank.

1. Some of those matters I regard as beyond the power of the Chief Commissioner: the notice to Rabobank is bad because of its attribution of the limitation in s 72(1)(c) to the seeking of information under s 72(1)(a); the request for information about any other company for which Mr James signed a loan agreement goes too far; the ambiguity in the request for copies renders the notice bad; and the request for the identification of Rabobank officers involved in the grant of the loan facilities also goes too far. But I would not conclude that the Rabobank notice was excessive or oppressive for those reasons. The remainder of the complaints I have dismissed and they formed the bulk of the submissions relied upon to establish excess or oppression.

1. Complaint was also made that the Rabobank notice did not specify a reasonable time for compliance. It provided a month from its issue. No evidence was called on the question of reasonableness and in the absence of such evidence the ground is not made out.

1. It was submitted that the decision to issue the s 72 notice to Rabobank was unreasonable, illogical and disproportionate.

1. The bases for this submission are the same as those relied upon to ground the submission that the notice was excessive or oppressive. I have dealt with those bases.

1. Those were also the bases for the submission that the s 72 notice to Rabobank was ambiguous.

1. Finally, it was submitted that the Rabobank notice was issued for an improper purpose or in bad faith.

1. It was submitted that the Rabobank notice was an intrusion into the affairs of Mr James unassociated with any investigation and that a reasonable person would have known that receipt of the notice by Rabobank would cause Mr James embarrassment and harm. It was submitted that Mr Morse had taken the direction to issue a notice to Rabobank as an opportunity to inflict embarrassment and harm on Mr James and to ruin Mr James' relationship with his banker. Unless it is assumed that Mr Morse is completely incompetent, improper purpose is the appropriate inference to be drawn from the face of the notice, it was submitted.

1. I reject that submission. There is no evidence to support it. The suggestion that Mr Sofiak was seeking retribution was denied by him and the contemporaneous diary notes of the conversations at the meetings support his version of events. In the absence of cross-examination I am unable to resolve this issue, the onus of proof of which lay with Mr James.

1. For the reasons I have expressed, a large part of the information and instruments or records sought by the notice were within the power conferred on the Chief Commissioner by s 72(1).

1. The confusion in the notice between information and documentation is hardly a basis for an implication that Mr Morse issued the notice for an ulterior purpose.

1. I have dealt with the submission that the stated purpose for the issue of the notice was limited to determining control of FPT Operations and Killara 10.

1. It was submitted that the Chief Commissioner had sufficient information to include FPT Operations and Killara 10 in a group making a conclusion of improper purpose easier to reach. But the purpose of the issue of the Rabobank notice was not limited to these two companies for the reasons I have explained.

1. I have also explained that a reasonable interpretation of the Rabobank notice would not require it to be kept confidential by its recipient.

1. Nor does the history of section 72 notices in relation to FPT Operations form a proper basis to conclude that Mr Morse issued the Rabobank notice in bad faith.

1. Two notices were issued to the FPT Operations. An internal review of the decision to serve the notices was rejected on the basis that the decision was not amenable to review. Relief was then sought in this court and resulted in the notices being withdrawn and the Chief Commissioner paying Mr James' costs.

1. A fresh notice, in the same form as the second notice, addressed to Mr James was then issued. That notice is the subject of an application to the Administrative Decisions Tribunal. The Chief Commissioner was advised that this would occur and it was submitted that the Chief Commissioner responded by issuing the Rabobank notice seeking details sought in the earlier notice addressed to Mr James.

1. I reject the submission that the inference should be drawn that the Rabobank notice was issued as the Chief Commissioner was frustrated with Mr James hampering the investigation into FBT Operations by taking points he was entitled to take about the validity of the notices and to overcome the frustration he retaliated by issuing the Rabobank notice.

1. I decline to draw the inference. The allegation of bad faith is a serious one for which Mr James bears the onus. I am not satisfied that Mr Morse acted in bad faith. The Rabobank notice was ill drawn but the scope of the information and documentation sought by it was, with the exception of the confusion between the power in s 72(1)(a) and the power in s 72(1)(c), the request for information about any other company's loan agreements signed by Mr James, the problem of copying and the identity of Rabobank officers, appropriate to the investigation being conducted by the Chief Commissioner. And I do not regard the exceptions as leading to an inference of bad faith.

1. Mr James is entitled to no relief with respect to the s 72 notices served on Messrs Adams, Suriyachan and Johnson.

1. While I have found that the s 72 notice to Rabobank was bad on its face it was not bad in terms of any of the declarations sought by Mr James.

1. I will publish my reasons and hear from the parties as to the course of action I should take and the relief, if any, I should grant.

James v Chief Commissioner of State Revenue (No 2)

Appendix

1 I deal with the objections to the affidavits of Mr James.

2 As to Mr James' affidavit of 21 May 2010, objection was taken to the last two sentences of paragraph 10. They alleged that Mr Sofiak gave a warning not to provide false answers in an aggressive manner. I allow those sentences. They may have some relevance to the submission that Mr Morse's issue of the Rabobank notice was in retaliation for the conduct of Mr James in taking legal objections.

3 I have struck out all but the first two sentences of paragraph 19. The balance is hearsay.

4 I have struck out paragraph 21. It is a submission.

5 Mr James' affidavit of 13 July 2010 annexes the conditions of borrowing by his companies from Rabobank that have applied since September 2008. They included a term and condition requiring the borrower to indemnify Rabobank's costs of responding to any requirement to produce documentation. I have struck out the affidavit as irrelevant.

6 As to Mr James' affidavit of 21 April 2011, objection was taken to paragraph 58. It swore to a conversation between Mr Sofiak and Mr James in which Mr Sofiak allegedly said: "You know, I am going to get you". The objection was on the ground of relevance. Again, it may have some relevance to the allegation of retaliation by the Chief Commissioner. I allow the paragraph.

7 Paragraph 78 deals again with Mr Sofiak's warning and I allow the paragraph.

8 Paragraph 84 swears to an alleged conversation between Mr Sofiak and Mr James at the end of a meeting when Mr Sofiak is alleged to have said he would be continuing to investigate until he got enough evidence against Mr James. Again because it has some bearing on the alleged retaliation I allow the paragraph.

9 Paragraph 120 is hearsay and is struck out.

10 Paragraph 123 refers to tab 54 of Exhibit B. It is an email from a Rabobank officer to Mr James giving an estimate of the cost of responding to the Rabobank notice. I have struck out of the paragraph and the document under tab 54 as hearsay. The email is not within the exception to the hearsay rule for business records because it was made in connection with an investigation relating or leading to a criminal proceeding within the Evidence Act 1995, s 69(3)(b).

11 The same applies to paragraph 124 and tab 55. I have struck them out.

12 I have struck out on the ground of relevance and as submission paragraphs 125 to 128 complaining that what was sought under the Rabobank notice was not the subject of any request to Mr James to supply the material; information about the charges was readily available from ASIC; Mr James had provided all documents in his possession; and the notice was issued after he had advised the Chief Commissioner that he had applied to the Administrative Decisions Tribunal.

13 The same applies to paragraphs 131 to 140 which catalogue what Mr James had done and his assertion that he had provided all necessary information. That does not prevent the Chief Commissioner from seeking information from Rabobank to test the assertions. The paragraphs are struck out.

Gzell J

24 June 2011

Decision last updated: 28 June 2011