John, Delma, Greg and Craig Smith as Trustees for the JD and DJ Smith Superannuation Fund and Commissioner of Taxation and Anor

[2009] AATA 747

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 747

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No 2009/2535–8

TAXATION APPEALS DIVISION		)
Re		JOHN, DELMA, GREG AND CRAIG SMITH AS TRUSTEES FOR THE JD & DJ SMITH SUPERANNUATION FUND

Applicants

And COMMISSIONER OF TAXATION

Respondent

And CLEARY HOARE SOLICITORS

Third Party

INTERLOCUTORY DECISION

Tribunal  M J Carstairs, Senior Member

Date29 September 2009

Place Brisbane

Decision

The Tribunal revokes the summons dated 1 September 2009 insofar as it relates to two opinions of Queen’s Counsel (dated 10 February 1999 and 17 June 1999).  Those documents are to be returned to Cleary Hoare Solicitors.

Insofar as the summons relates to the Deputy Commissioner of Taxation’s letter, dated 9 April 1996, to Cleary Hoare Solicitors, the applicants are granted leave to inspect and copy that document.

…………..[sgd]…………..…….. 

Senior Member

CATCHWORDS

PRACTICE AND PROCEDURE – summons to produce documents – directed to third party – relevance – legitimate forensic purpose – counsel’s opinions – summons set aside in part.

Administrative Appeals Tribunal Act 1975 (Cth), ss 2A, 25(4A), 33, 37, 40

Income Tax Assessment Act 1936 (Cth), s 273

WT95/13-14 and Commissioner of Taxation (AAT 10766, 19 February 1996)

Re Confidential and Australian Prudential Regulation Authority [2005] AATA 1264

Trade Practices Commission v Arnotts Ltd (No 2) (1989) 21 FCR 306

Cosco Holdings Pty Ltd v Federal Commissioner of Taxation (1997) 37 ATR 432

KLGL and Australian Prudential Regulation Authority [2008] AATA 452

Australian Prudential Regulation Authority v VBN [2005] FCA 1868

REASONS FOR INTERLOCUTORY DECISION

29 September 2009  M J Carstairs, Senior Member     

1.      This application to the Tribunal concerns the amended assessment of income of a Superannuation Fund (“the Fund”) for the tax years ended June 2004, 2005 and 2006. The income concerned was from distributions from a fixed trust. The respondent decided that this was “special income”: effectively, income resulting from non-arm’s length transactions with a view to obtaining concessional tax treatment within the Fund.  The Fund’s trustees dispute the Commissioner’s decision as well as the penalties imposed.  

2. The matter is yet to go to hearing. However, in the course of the Tribunal’s pre-hearing processes, the applicants applied for summonses under s 40 of the Administrative Appeals Tribunal Act 1975  (“the Act”) for the following documents:

§ written opinion(s) obtained by Cleary Hoare Solicitors from Queen’s Counsel (referred to in letters from Cleary Hoare to the applicants), being opinions on the operation of (then) s 273 of the Income Tax Assessment Act 1936 (“the ITAA”) particularly with reference to “special income” (or, if Counsel’s opinion was not now in Cleary Hoare’s possession, any document containing or recording those written opinion(s));

§ a letter from the Australian Taxation Office (“ATO”) dated 9 April 1996, in answer to Cleary Hoare’s request for a “private ruling” on the possible taxation consequences (under s 273 of the ITAA) of a distribution from a trust to a superannuation fund; in particular whether this involved “dealing”.

3.      To make more understandable the nature of the dispute here, Cleary Hoare was the applicants’ former solicitor handling the Fund’s affairs and providing advice to the trustees.  The applicants have put their affairs in the hands of new solicitors for the hearing.  The Tribunal issued the requested summons, returnable on 14 September 2009.  At that time, Cleary Hoare’s principal solicitor, Mr Michael Hart, was absent on leave.  He has returned since and Cleary Hoare resists the summons.   Thus the summons issued to a third party, as Cleary Hoare is neither a party to the proceedings nor acting for such a party.

4.      Cleary Hoare resist the summons:

§on grounds of relevance;  and

§on grounds that the documents are subject to legal professional privilege. 

5. Counsel for Cleary Hoare, Mr J Griffin QC, produced the documents pursuant to s 40(1B) of the Act at the directions hearing, but requested that the Tribunal refuse the applicants leave to inspect the documents under s 40(1D) of the Act. The documents having now been produced for Tribunal inspection, it is clear that there are two opinions of Counsel, both dating from 1999 (ahead, that is, of amendments to s 273 of the ITAA); and one letter to Cleary Hoare from the ATO, dated 9 April 1996.

THE LEGISLATION

6. The power of the Tribunal to issue summonses appears in s 40(1A) of the Act. Only authorised persons may authorise a refusal of a requested summons: s 40(1C) of the Act. Here, the third party seeks an order revoking these summonses. It is accepted that the Tribunal has the power to revoke summonses: WT95/13-14 and Commissioner of Taxation (AAT 10766, 19 February 1996).

7.      It is helpful, before considering the matters raised, to restate the nature of the review conducted by this Tribunal.  I regard the question of the documents’ “relevance” as determinative of the outcome, and it is this concept that informs the conclusions that I have reached.

8. The charter of this Tribunal is to carry out its functions by providing a mechanism of review that it fair, just, economical, informal and quick, an objective set out in s 2A of the Act. The Tribunal may determine the scope of the review by limiting the questions of fact, the evidence and the issues that it considers: s 25(4A) of the Act. Section 33(1)(b) of the Act provides that the proceedings shall be conducted with as little technicality and as much expedition as the requirements of the Act and proper consideration of the matter permit.

9. Ultimately, it is the decision under review which determines the parameters of what will be canvassed at the hearing and what will be “proper consideration” as referred to in s 33 of the Act. Identifying the decision under review also helps to determine what is relevant and what is not. In that context, it also needs to be recalled that the Tribunal conducts “merits review” and is not concerned with the reasons of prior decision-makers or with the processes of review they conducted. The Tribunal rehears the matter and reaches the correct or preferable decision taking into account the evidence at the hearing.

10.     In that regard, I note Deputy President Barnett’s observation in WT95/13-14 that the Tribunal would not ordinarily be interested in whether the decision under review was consistent with previous decisions that the respondent might have made.  It is up to the parties to call evidence and make submissions about what the preferable decision is for the Tribunal to make in a particular case.   Those matters are ultimately for the member(s) at the hearing to decide.   I will return to this when considering the submissions about the “adjectival relevance” of the material the subject of the summons.

AFFIDAVIT OF MICHAEL JAMES PATRICK HART

11.     Michael Hart, as principal of Cleary Hoare, filed an affidavit[1] attesting to, amongst other things, the firm’s activities in providing advice on taxation, stamp duty, and superannuation issues. One of the ways Cleary Hoare provides such advice is through an information service to accountants and financial planners, called a Legal Resource Club (“the Club”).  Through the Club, Cleary Hoare runs seminars and presents and discusses case studies, as well as giving “preliminary” free advice on issues to do with tax and superannuation.  The benefit to Cleary Hoare of these activities appears to be that the firm has secured work on referral from participants of the Club on behalf of their clients.

[1]  Exhibit 2.

12.     According to Mr Hart, Cleary Hoare has had occasion to obtain Counsel’s opinions and private rulings from the ATO in the context of the Club’s activities. Mr Hart noted in his affidavit that such opinions were paid for by, and such rulings made for the benefit of, Cleary Hoare so that the firm might give advice more confidently and also in anticipation of legal challenges to opinions provided by the firm.  The latter was said to be a dominant purpose.  Mr Hart observed that both categories of documents – that is, Counsel’s opinions and the private ruling in question - were confidential communications between client and legal adviser, and he claimed both were subject to legal professional privilege.

13.     Mr Hart stated that when Cleary Hoare wrote to Mr Smith[2] (one of the trustees of the Fund) mentioning the ATO private ruling, that ruling related to a strategy different from that which Cleary Hoare proposed and implemented for the applicants.  In that sense, Mr Hart suggested, the private ruling was not relevant to them and was mentioned in the letter “only as an indication that the Commissioner had taken a certain view on the law relating to special income”.

[2] Attachment to T20:  Letter of Cleary Hoare dated  30 June 2000 to John David Smith (as trustee).

14. It is as well to note here the letter of June 2000, which referred to the commencement of the BE Fixed Trust and the provision made in its Deed to ensure that it was a beneficiary of the hybrid trust(s) and that the Fund was an absolute beneficiary of the BE Fixed Trust. The letter went on to describe a view of the operation of s 273 of the ITAA in relation to “special income”, and went into some detail as to why the arrangements between the trusts and the Fund would not fall foul of that provision. The letter further stated that “(t)his position was confirmed by the opinion of Queen’s Counsel held by us, and by private rulings received from the ATO in 1996 and earlier”.

15.     To sum up the reasons, as stated in Mr Hart’s affidavit, why Cleary Hoare resists giving the applicants leave to inspect the documents:

§  as to Counsel’s opinion,

i.Cleary Hoare relies upon the opinions being confidential to Cleary Hoare and paid for by the firm, not the clients;

ii.Cleary Hoare says the material is not relevant on substantive matters, as the Tribunal is required to reach its own conclusions on matters of law; and

iii.Cleary Hoare states the material could not be relevant to penalty, as the applicants never saw the opinion and their knowledge of it was limited to a mere reference in Cleary Hoare’s letter, which they have already.

§  as to the “private ruling”, this was sought with a view to possible later legal challenges and attracts privilege. 

CONSIDERATION OF ISSUES

16.     I am grateful to Counsel for supplying me with the authorities upon which they submit this matter falls to be decided.   I will only refer to those authorities that have assisted me in the conclusions that I have reached.  I will deal firstly with the so-called “private ruling”, being the ATO letter to Cleary Hoare, as it is the simpler issue of the two.

the ato letter to cleary hoare  9 april 1996

17.     Mr Griffin acknowledged in submissions that this document was simply a letter from the ATO, rather than a private ruling as such.  I note that Mr Griffin, quite rightly in my view, did not press in submissions Mr Hart’s view that the document was subject to privilege.   He addressed more closely the circumstances under which the document came into existence as well as its relevance now.

18.     In that regard I note that, on its face, the ATO letter is not in the same category of document as Counsel’s opinion(s).  I accept the submission of Counsel for the applicants, Mr B Porter, that it is not a document that attracted legal professional privilege.   So the question as I see it is whether this letter is sufficiently relevant to the matters before the Tribunal.  Or is it the case, as Cleary Hoare assert, that providing it serves no legitimate forensic purpose (or should be withheld on grounds that it is confidential to Cleary Hoare)?

19. I am satisfied that the applicants ought to be allowed leave to inspect the ATO letter. In reaching this conclusion, I took into account the submissions made by Mr Griffin about the document’s relevance. Nevertheless, this is the respondent’s document and it presents a view that may well have a bearing on matters in this case. It seems to me that in expressing a view held by the respondent at one time, this document is capable of providing the Tribunal hearing the matter with some insight into the application of s 273 of the ITAA, perhaps pre- and post- amendment of the section.

20. I have no reason to doubt that had the Tribunal requested that the respondent provide the document (under provisions in the Act other than by way of the applicants’ request under s 40—say, for instance s 37(2) of the Act), the respondent would have been unlikely to refuse such a request. I do not think that matters change simply because the request is now made upon Cleary Hoare rather then on the respondent.

21. In that regard, I would refer again to the nature of the Tribunal’s review of the objection decisions. The ATO letter of 9 April 1996 is a document that expresses a considered conclusion of the respondent in relation to s 273 of the ITAA. I appreciate that the letter was not drafted to address the applicants’ particular case. I appreciate also that the letter is quite dated, and significantly predates relevant amendments that have come into effect in the tax years under review. But I nevertheless regard as apt the comments of the President of the Tribunal, Downes J, in Re Confidential and Australian Prudential Regulation Authority [2005] AATA 1264, albeit that case dealt with documents to be produced under s 37 rather than s 40 of the Act. In that case, Downes J referred to the role of the Tribunal in merits review, which often needs to take into account policy matters in order to ensure consistency in decision making. As the President said, this is not in order to bind the Tribunal to some directed course, but to inform the Tribunal of relevant matters of policy.

22. Any view expressed by the respondent might usefully inform the Tribunal about issues in this case, as pertain to both substance and penalty. I cannot anticipate whether the Tribunal constituted to hear the matter would regard the contents of the document that way, but nor do I need to be fully satisfied of that. It is sufficient that the ATO letter, coming from the respondent and expressing certain views in relation to s 273 of the ITAA at one point in time, might assist the Tribunal in the ways described by the President in Re Confidential and APRA.

23.     For those reasons, I would allow leave for the applicants to inspect and copy the ATO letter dated 9 April 1996.

counsel’s opinions

24.     Mr Porter submitted that Counsel’s opinion(s) had relevance—in particular for issues of penalty.  Mr Griffin submitted that the summons was a fishing exercise, going beyond what was essential to obtain evidence to support the case.  The parties agree that these documents were covered by legal professional privilege.  The question in that regard became whether privilege had been waived by the extensive references made to Counsel’s opinion within the June 2000 letter from Cleary Hoare to the applicants.

25.     On the view I have taken, it is unnecessary for me to decide the question on this ground so I will not express a concluded view on whether the contents of the 2000 letter amounted to waiver of privilege. 

26.     I have decided that Mr Griffin is correct in his submission that these two documents fail the test of adjectival relevance as referred to by the Federal Court in Trade Practices Commission v Arnotts Ltd (No 2) (1989) 21 FCR 306 and Cosco Holdings Pty Ltd v Federal Commissioner of Taxation (1997) 37 ATR 432.

27.     Spender J, in Cosco Holdings Pty Ltd, said that adjectival relevance refers to whether what is sought is capable of throwing light on the issues or has arguable relevance to the proceedings.  This has been referred to as being a test of whether the documents are likely to inform the review process: Re KLGL and Australian Prudential Regulation Authority [2008] AATA 452.

28. On this question Mr Griffin has the better argument. I accept Mr Griffin’s submission that the two opinions would be of no assistance to the Tribunal deciding the matter and that, as to questions of penalty, the Tribunal already has before it ample evidence to indicate that Cleary Hoare were presenting to the applicants a view of the operation of s 273 of the ITAA (albeit one relying on Counsel’s opinions in that regard). In other words, there is sufficient evidence to show (on matters of penalty) that the applicants were relying on advice as set out in letters from Cleary Hoare. There is no need to go behind these letters to consider the opinions of Counsel relied upon by Cleary Hoare in formulating the letters.

29.     It is important to bear in mind, as Mr Griffin submitted, that the two opinions of Counsel were in existence before the applicants became clients of Cleary Hoare; and that the applicants never saw the two opinions but merely relied on Cleary Hoare’s references to the effect of those opinions.  

30. I agree that it is for the Tribunal to decide the effect of s 273 of the ITAA in the tax years under review and to decide all matters relating to penalty under the legislation. The legal opinions of others are not relevant, as the Tribunal is called upon to decide the legal issues under review. This is particularly the case when the legal opinion was not one provided to the original decision maker: Australian Prudential Regulation Authority v VBN [2005] FCA 1868.

31.     I would agree with the comment by Senior Member Taylor in Re KLGL and APRA that relevance must be decided by taking into account the context and the nature of the task at hand. Here, taking into account the role of the Tribunal in merits review, the opinions of Counsel on the operation of the Act were not opinions that were taken into account in the original decision making process. Those opinions are therefore of limited relevance. Within the context of the already ample evidence available—that the opinions existed and that they were referred to in other documents—there is no justification to require the opinions themselves to be produced.

32.      For these reasons, I revoke the summons as it related to the two opinions of Queen’s Counsel and refuse leave for the applicants to inspect those documents.  I will direct the registry to return the documents to Cleary Hoare.

I certify that the 32 preceding paragraphs are a true copy of the reasons for the decision herein of  Senior Member M J Carstairs.

Signed:.........................[sgd]......................................................
  Mátyás Kochárdy, Associate

Date of Hearing  16 September 2009       
Date of Decision  29 September 2009
Counsel for the Applicants       Mr Bernard Porter
Solicitor for the Applicants        McInnes Wilson Lawyers 
Solicitor for the Respondent     Australian Government Solicitor
Counsel for the Third Party      Mr John Griffin, QC
  Mr Jason Ward
Solicitor for the Third Party       Cleary Hoare Solicitors