Reginald Sidney Fletcher v Commissioner of Taxation

[1992] FCA 729

Re: REGINALD SIDNEY FLETCHER and ORS
And: COMMISSIONER OF TAXATION
No. N G200 of 1992
FED No. 729
Taxation - Practice and Procedure
(1992) 92 ATC 4611, (1992) 24 ATR 194
(1992) 38 FCR 137

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Wilcox(1) and Burchett(1) JJ.

CATCHWORDS

Taxation - Appeal from Administrative Appeals Tribunal - practice and procedure - evidence before a Tribunal - appropriate method of reception of evidence before a Tribunal once matter remitted - consequence of tendering previous transcript and calling no fresh evidence - consequence of unavailability for cross-examination - possible application of Jones v Dunkel.

Practice and Procedure - Sufficiency and timing of reasons under s. 43 Administrative Appeals Tribunal Act 1975 (Cth) - what constitutes the Tribunal's reasons.

Practice and Procedure - Test of bias - whether member of previous Tribunal should have disqualified himself.

Administrative Appeals Tribunal Act 1975 (Cth): s. 43.

HEARING

SYDNEY

#DATE 14:9:1992

Counsel for the Applicants: S.J. McMillan

Solicitors for the Applicants: J.W. Walker and D.K.L. Raphael

Counsel for the Respondent: I.V. Gzell QC and D.B. McGovern

Solicitors for the Respondent: Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The applicants pay the costs of the respondent of this appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is the hearing of an appeal by the applicants from the decision of the Administrative Appeals Tribunal constituted by Dr Paul Gerber, Deputy President and two other senior members. There is also before the Court a motion of the respondent seeking orders that the appeal be dismissed pursuant to s. 23 of the Federal Court of Australia Act 1976, or Order 20 rule 2 of the Federal Court's Rules, together with certain other orders sought in the alternative. By consent both the appeal and the motion have been heard together. Counsel for the applicants (this being a matter which is within the Court's original jurisdiction) relies upon three principal submissions in support of the appeal.

1. The first submission concerns the course taken at the hearing before the Tribunal with respect to the reception of evidence. The second relates to the sufficiency of the Tribunal's reasons, an argument based on s. 43 of the Administrative Appeals Tribunal Act (Cth) 1975 ("the AAT Act"), and the third concerns the question whether Dr Gerber should have sat as a member of the Tribunal on the basis of alleged reasonable apprehension of bias.

2. The applicant's first point is that the Tribunal applied the rule in Jones v Dunkel (1958-59) 101 CLR 298 in circumstances where it was inappropriate to do so, especially as it had not seen the witnesses. The Tribunal was the third Tribunal to sit on this matter, which has a long curial history. The High Court remitted the matter to the Tribunal, the reasons for judgment of the High Court are reported at (1991) 173 CLR 1, where the relevant history of the matter is mentioned by their Honours. The High Court allowed the appeal from a Full Bench of this Court and in lieu of this Court's orders, ordered that the matter be remitted to the Administrative Appeals Tribunal for further hearing. The High Court said (at 25):
   

"It will be a matter for that Tribunal whether, if any application is made to it in that regard, either party should be permitted to lead further evidence on that re-hearing."

1. In essence the High Court remitted the matter to the Tribunal to find further facts with respect to the question of the deductibility of interest incurred by a partnership on moneys borrowed as part of a wider annuity scheme. The High Court stated (at 24) that the Tribunal (to which we will refer as the second tribunal because it was the second of the three occasions on which the Tribunal has heard this matter) had failed to determine whether on a common sense assessment of all the evidence the contractual arrangements to which the partnership became a party were intended and expected to run their full course.

2. In its reasons for decision the Tribunal, from whose decision this appeal is brought, said:
   

"4. At the hearing before this Tribunal, Mr Raphael, appearing for all applicants advised the Tribunal that none of his four clients were available to give evidence. Several reasons were advanced, the main one being the issue of costs. Mr Raphael said that the substantial outlays involved in this litigation to date had left the parties without the means to pay for their representation. Mr Raphael was at pains to point out that he was appearing on a 'fee declined' basis as amicus tribunalae

(sic.) Mr Fletcher, a builder, had recently suffered considerable loss due to a fire in his business premises and could not afford to take the time off to give evidence at this hearing, and Mrs Dunlop suffers from multiple sclerosis to an extent that requires the constant attendance of her husband.

5. Whilst the Tribunal is sympathetic to the parties plight, Mr Raphael failed to provide any reason why none of these applicants appeared on the occasion of the proceedings before 'the second Tribunal' (Case W118 89 ATC 922) at a point in time when the parties and their advisers must have been aware that their intention had become a key issue in these proceedings.

6. In the result the Tribunal is once again asked to determine 'intent' from the bare bones of the transcript without the opportunity of observing the witnesses who gave their evidence."

1. The implication of reliance upon the rule in Jones v Dunkel asserted by the applicants is said to arise in particular from paragraph 5. This is not in our view a fair reading of the reasons for decision of the Tribunal, either gleaned from the paragraphs we have quoted and upon which reliance was placed on behalf of the applicants or when read in the light of the reasons as a whole. The matter having been remitted for a limited purpose to the Tribunal by the High Court, it was bound to do the best it could in dealing with questions of purpose or intent.

2. As a consequence of the applicants choosing to call no fresh oral evidence before the Tribunal, there was in the circumstances little else, in practice, the Tribunal could do on the material before it than what it in fact did. We do not see any application of Jones v Dunkel, express or implied by the Tribunal. All that the Tribunal did in paragraph 6 was to state what its task was and we do not think it fell into error in making that statement. An additional limb of this first attack of the applicants is related to the first limb and it too goes to the question of the course of the proceedings before the Tribunal. In this second limb of the argument it is asserted by the applicants that the Tribunal could not and should not have determined questions of purpose or intent merely on the written record before it, and in particular on the transcript of the evidence of witnesses who had given evidence before the First Tribunal.

3. Yet the applicants themselves tendered the transcript to the Third Tribunal and they now complain that the respondents should not have consented to the tender so the applicants would have had to decide for themselves whether to call oral evidence or not. It is plain from the reasons of the Tribunal, in particular paragraph 4, that the four applicants were not available to give evidence. When faced with this conundrum from the Bench, counsel for the applicants argued that if the respondent had objected to the tender of the record without the calling of fresh oral evidence then the applicants would have been, to use his expression, "snookered".

4. We were referred in support of this argument to a number of authorities. In The Commissioner of Taxation v Students World Australia Pty Limited (1977-78) 138 CLR 251, especially at 260, 261 and 271 both Mason J. and Aickin J., considered the difficulties that are raised in tax appeals from decisions of Boards of Review (now the Tribunal) to higher courts if parties rely simply on the evidence that was before the Board of Review and called no fresh oral evidence where questions of credibility, purpose or intent may be involved.

5. Mason J. said:
   

"There is an initial difficulty in dealing with this question which arises from the manner in which the proceedings were conducted in the Supreme Court and the approach taken by his Honour to the issues of fact. Although in form an appeal, the proceedings in the Supreme Court were an exercise of original jurisdiction in which it was for the judge to decide issues of fact, without being constrained to accept the findings made by the Board of Review: see Federal Commissioner of Taxation v Finn (1960) 103 CLR 165 and the cases there cited. The issues of fact in this case evidently involved questions of credibility of witnesses, yet the parties contented themselves with presenting the transcript of evidence taken before the Board. No oral evidence was called, the case before his Honour being conducted exclusively by reference to the materials before the Board. How his Honour could adequately determine questions of credibility in these circumstances does not readily emerge. It is not surprising that the judge seems to have embraced the evaluation of the witnesses and the findings of fact made by Mr O'Neill in the Board of Review. I am not suggesting that on appeal from the Board the Supreme Court is not at liberty to conduct the case by reference to the materials before the Board. But where there is an issue of fact involving credibility it is desirable that the witnesses whose evidence is in question should be recalled -see, e.g., Moruben Gardens Pty Limited v The Federal Commission of Taxation

(1972) 46 ALJR 559 at 560-561 - so that the judge may evaluate the oral testimony and form his own impressions of what it is worth. If this course is not pursued the judge will be restricted in deciding whose evidence is to be accepted. Certainly it will not be easy for a party who seeks to show that findings of fact made by a Board of Review are erroneous."

1. In similar vein were the observations by Aickin J. at p 271. The Court was referred to the later decision of the High Court in McCormack v The Commissioner of Taxation (1979) 143 CLR 284, in particular at 292, 296, 304, 306 and 323. In McCormack's Case the judgments contain statements to substantially the same effect as those cited in Students World. The Court was also referred to the judgment of Sheppard J. in E.A. Greenwood (NSW) Pty Limited v Commissioner of Taxation, unreported, 13 September 1979, when his Honour was a judge of the Supreme Court of New South Wales sitting in its Administrative Law Division. His Honour there referred to Students World and McCormack and decided that it was inappropriate in that case for him to merely accept the material that had been before the Board of Review and made it clear that in his view it was desirable for witnesses to be called. All these cases stress the fact that where questions of credibility are involved, it is better that the Tribunal has before it the witnesses themselves so it can form its own assessment of them and not merely rely on a bare record of the administrative body below. However, there is no absolute proposition that, if parties choose to call no fresh evidence so that all the Tribunal, in fact, has before it is the written record of the proceedings below, it is debarred from making findings or assessments of credibility.

2. Indeed, that would appear to be contrary to certain of the passages to which we have already referred and indeed would also be in conflict with the observations of the High Court in Fletcher's Case in the passage previously mentioned. Clearly, the High Court envisaged that what could occur before the Tribunal upon remission of the limited question was, in fact, what actually occurred.

3. It cannot be right that a second deliberate decision of applicants not to call oral evidence before the Tribunal can result in the Tribunal's decision being set aside yet again, when it did the best it could by adopting the procedure that it was invited to adopt by the parties.

4. We turn then to the second attack made by the applicants upon the Tribunal's reasons. It was asserted that the Tribunal made its decision on 26 February 1992 and failed to give a sufficient statement of its reasons as required by s. 43 of the AAT Act. It is necessary to set out the facts surrounding the giving of the Tribunal's decision. On 25 February, the Tribunal heard argument in the case and the Deputy President, Dr Gerber said at the conclusion of argument:
   

"Yes, thank you, Mr Raphael. Gentlemen, I see the issue and I think my colleagues concur on this, the section on 51 argument is virtually a threshold question, and I think we may be able to resolve that for the rest of the day and overnight one way or the other. If that decision is in favour of the applicant then clearly the issue of section 82KL and Part IV(a) becomes relevant and Mr Gzell will be given an opportunity to respond adequately to Mr Raphael's submission on that. What I propose to do at this stage is to adjourn the matter to 10.15 tomorrow morning, by which stage we may have reach (sic) a concluded view as to the effect of the evidence as it emerges from the various transcripts, and the effect it has in terms of section 51(1). On one view it concludes the matter, on another it then invites you on behalf of the Crown to put a submission in and the additional arguments that Mr Raphael has submitted. So at this stage the matter is adjourned to 10.15 tomorrow morning. Thank you both for your helpful submissions."

1. The solicitor then appearing for the applicants requested that the Tribunal not sit because for personal reasons he could not attend on the following day. The Tribunal said that in all the circumstances it was not necessary for him to attend but one of his clerks could do so as it was purely a formal matter. The Deputy President said:
   

"If we hand down a decision no doubt you'll get a copy, if we invite further submissions on part IV(a) and KL you'll be informed in due course, so in either event your presence, although highly esteemed, is not essential."

1. Thereupon the matter was adjourned until 26 February 1992.

2. On 26 February 1992, the Tribunal gave what it described as "short reasons" for its decision. No transcript appears to have been taken of the proceedings that day, which is regrettable. Nevertheless the Court is able to reach a reasonably clear view as to what actually occurred.

3. It is not necessary to read everything the Tribunal said, but we shall read part of it. The Tribunal said this:
   

"Notwithstanding the careful submissions made on behalf of the applicants by Mr Raphael, the applicant's solicitor, and in particular the passages from the transcript relied on by him, a common sense assessment of all the evidence, including the structure of the scheme, its intended fiscal benefits and the mechanism built into the plan whereby its adverse consequences to the taxpayers could be avoided, has led us to the conclusion that the participants did not intend that the contractual arrangements to which the partnership became a party were intended and expected to run their full course. On that finding, applying the decision of the High Court, the adjusted partnership outgoings of interest are not deductible under sub-section 51(1) of the Act to the extent that they exceeded the partnership's assessable income in each of the years in dispute. In view of the substantial implications of our decision we will publish full reasons in due course."

1. Then on 16 March the Tribunal released its full reasons for decision. In our view what occurred is plain. The decision of the Tribunal was given on 16 March when it gave its full reasons, whilst 26 February was merely the occasion for a short statement of the reasons of the Tribunal which does not answer the description of the decision itself. It follows that the argument on behalf of the applicants must fail because the written reasons of the Tribunal of 16 March (which incidentally covers 37 paragraphs) could not themselves be said to fall short of the requirements of s. 43.

2. It also follows that as the decision of the Tribunal was not given on 26 February it is not strictly necessary to consider whether the short reasons given by it on that date complied with the standards required by s. 43 of the AAT Act. We are not persuaded that they do not so comply. Before leaving this branch of the argument of the applicants we would simply add that there was a passage of some days before 26 February and 16 March when the Tribunal considered its full reasons and before it gave them. It could not be suggested, in our opinion, that was an unreasonable passage of time for the Tribunal to hand down reasons.

3. The final submission on behalf of the applicants was that, as Dr Gerber had already sat as a member of the Second Tribunal and expressed views in relation to the applicants on that occasion, then the Tribunal when re-hearing the matter for the third time should have been differently constituted, that is without Dr Gerber. It was said in reliance upon well established principles, that in all the circumstances an observer might have entertained a reasonable apprehension that Dr Gerber might not have brought an impartial and unprejudiced mind to the resolution of the matter.

4. The seminal case in this area of discourse is Livesey v The New South Wales Bar Association (1983) 151 CLR 288 where the High Court held that if a fair minded observer might entertain apprehension of bias by reason of the prejudgment of the issues or the creditability of a witness then the Judge against whom that apprehension might be held should not sit. It is accepted that the same principles apply to Tribunals such as the Administrative Appeals Tribunal with which this case is concerned. Livesey has been cited many times since by the High Court and this Court and other courts: see Vakauta v Kelly (1989) 167 CLR 568; Re Polites; Ex Parte The Hoyts Corporation Pty Limited (1991) 173 CLR 78; Northern NSW FM Pty Limited v Australian Broadcasting Tribunal (1990) 26 FCR 39 (a judgment of a Full Court of this Court) and Australian National Industries Limited v Spedley Securities Limited (In Liquidation), unreported, 19 March 1992, New South Wales Court of Appeal.

1. The material relied on to found this submission by the applicants has its genesis in certain observations of the Second Tribunal whose decision was given on 10 November 1989. The Second Tribunal of which Dr Gerber was a member said this (at paragraph 15):
   

"Turning to the law, we are satisfied that the appropriate test to be applied is not to look for the subjective intention of the taxpayers but to ask: what was the impugned expenditure intended to achieve? When the question is posed in that way, what the Fletchers and Dunlops intended or believed becomes irrelevant once it is found that the clear purpose of the expenditure, as revealed by the evidence, was to obtain a tax deduction. In a case such as this, the acts (and intentions) of the agents must be imputed to the principals; the maxim qui facit per alium facit per se applies alike in the field of income tax as it does in other areas of the law of agency. At the same time, we feel bound to add that the bare bones of the transcript do not inspire us with any degree of confidence that Messrs Dunlop and Fletcher were as naive as they gave the appearance - sight unseen - in the witness box. In short, we are highly sceptical of their assertion that their primary concern was to protect their future by way of 'superannuation' or 'annuities'."

1. Reliance was also placed upon a passage from the affidavit of Mr Raphael sworn 10 September 1992 which was part of the fresh evidence which the Court allowed to be used in support of this third ground of appeal pursuant to the Amended Notice of Appeal which the Court granted leave to have filed today. Mr Raphael in his affidavit in relating a conversation between himself and Dr Gerber of 22 November 1991 attributes to Dr Gerber the following statement:
   

"I have been accused of not finding all the necessary facts in this matter and I'm going to do so as quickly as possible. This matter has gone on far too long now. I propose to set it down on 22nd. Have you any comment to make on that, Mr Poulos?"

1. This is a reference to a three-way telephone conversation which then took place involving the solicitor for each party and Dr Gerber. Reliance is also placed upon a portion of an affidavit of Mr Poulos himself sworn on 11 September 1992, where he said this:
   

"On 29 November 1991 a directions hearing in this matter was conducted, Dr Gerber presiding. Mr B.R. Pape of counsel appeared for the applicants and Mr D.B. McGovern of counsel appeared instructed by me. During the course of the directions hearing Mr Pate said: 'One other matter arises, a delicate one. In view of the history of the matter no member who sat on the Tribunal in this matter should sit on it for the re-hearing.' Dr Gerber said: 'I will hear Mr McGovern, there has been a deficit on the findings and the matter is to be dealt with only through transcript.' Mr McGovern said: 'I do not see any preclusion of Second Tribunal members sitting on the matter. Witnesses haven't been heard, there is no suggestion of prejudgment. A finding of fact is outstanding and no opinion has been expressed in relation to that finding.' Dr Gerber then said: 'I don't think limited permutations of members allow such a course. Your solicitor may of course make an application.' Mr Pape then said: 'The submission is made out of an abundance of caution, for a general impression of fairness. The first Tribunal had an infected atmosphere and it would be preferable if possible not to have previous members sit.' Dr Gerber said: 'I take note of your submissions but if a member who was a part of the first or second Tribunal sits, his presence will be outnumbered. I am not sure if I am available to sit and at this stage it appears it will be Dr Grbich and two other floating members."

1. The matter was then set down for hearing on 25 February.

2. Reliance is also placed by the applicants upon a file note of Mr Poulos with respect to that same discussion which we need not set out but which we have taken into account. We are of the opinion that the matters upon which the applicants have placed reliance do not give rise to any reasonable apprehension that Dr Gerber might not have brought an impartial and unprejudiced mind to the resolution of the third hearing before the Tribunal and this attack is not made out. We would therefore dismiss the appeal with costs. As to the motion of the respondent in the circumstances we do not find it necessary to deal with it.