The Mining Holding Company and Commissioner of Taxation
[2006] AATA 491
•7 June 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 491
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2005/13
TAXATION APPEALS DIVISION ) Re THE MINING HOLDING COMPANY Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr Julian Block, Deputy President Date
7 June 2006
Place
Sydney
Decision
The Respondent must give the Applicant access to the withheld documents or (where relevant) part thereof in accordance with Part Q of the reasons for decision. The Respondent is not obliged to give the Applicant access to any other withheld documents or parts of documents. The effect of this decision is suspended for a period of two months from this date; if there is an appeal the effect of this decision is suspended until the resolution of the appeal.
.......................................................
Mr Julian Block, Deputy President
CATCHWORDS
FREEDOM OF INFORMATION – decision under review is decision which refused access in whole or in part to a number of documents falling within a request for access made by the Applicant under the Freedom of Information Act 1982 (FOI Act) – some concessions made by both parties and in consequence some withheld documents released – some documents withheld on the basis that the Respondent is entitled to maintain a claim for legal professional privilege (LPP) – issue as to whether Respondent has in respect of those documents waived privilege – considerations of section 36 (internal working documents), 37 (documents affecting enforcement of law and protection of public safety) and 42 (documents subject to legal professional privilege) of the FOI Act – consideration of why the Applicant wants the withheld documents – discussion of settlement negotiations – consideration of the finding of evasion – assessment of evidence at hearing from parties – consideration of case law and legislation – discussion of waiver of LPP outside “without prejudice meetings” – assessment in detail of the FOI Act – decision under review is affirmed in part and set aside in part – decision under review affirmed as to documents or parts of documents in respect of which the Respondent need not give access and set aside in respect of the documents or parts of documents in respect of which access must be granted.
Freedom of Information Act 1982; ss.36, 37 and 42
Income Tax Assessment Act 1936; Division 13, s.51
Field v Commissioner for Railways for NSW (1957) 99 CLR 285
Unilever Plc v The Proctor & Gamble Co [2000] 1 WLR 2436
Attorney-General v Kearney (1985) 158 CLR 500
Esquire Nominees v Commissioner of Taxation (1971 – 3) 129 CLR 177
Ronbipon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47
Tweddle v Commissioner of Taxation (1942) 7 ATD 186
Sharrment Pty Ltd and Others v Official Trustee in Bankruptcy (1988) 82 ALR 530
Re Howard and Treasurer of Commonwealth of Australia (1985) 3 AAR 169; 7 ALD 626
Mann v Carnell (1999-2001) 201 CLR 1
Nine Films & Television v Ninox [2005] FCA 356
Bennett v CEO Customs (2004) 210 ALR 238
Rio Tinto Limited v Commissioner of Taxation [2005] FCA 1336
Commissioner of Taxation v Rio Tinto Limited [2006] FCAFC 86
Re Alfred Gruber and Commissioner of Taxation [2005] AATA 1305
Commissioner of Taxation v Dalco (1990) 168 CLR 614
Syngenta Crop Protection Pty Ltd v Commissioner of Taxation [2005] FCA 1646
DSE (Holdings) Pty Ltd v Intertan Inc & Anor (2003) 127 FCR 499
Ampolex v Perpetual Trustee Company (Canberra) Limited (1996) (Ampolex No 2) 40 NSWLR 12
Ampolex Limited v Perpetual Trustee Co (Canberra) Limited (Ampolex No 3) (1996) 137 ALR 28
Australian Unity Health Limited v Private Health Insurance Administrative Council [1999] FCA 1770
Lombe v Pollak [2004] FCA 264
Re Chapman and Minister for Aboriginal and Torres Strait Islander Affairs (1996) 43 ALD 139
Re Purcell and VRB (2002) 72 ALD 754
Eccelston and Department of Family Services and Aboriginal and Islander Affairs (1993) 1 QAR 60
Murtagh v Federal Commissioner of Taxation (1984) 84 ATC 4516
News Corporation Ltd v National Companies and Securities Commission (1984) 5 FCR 88
REASONS FOR DECISION 7 June 2006
Mr Julian Block, Deputy President
PART A - introduction and background
1. The decision under review is the decision of the Respondent dated 30 November 2004 in terms of which he refused access in whole or in part to a number of documents falling within a request for access made by the Applicant under the Freedom of Information Act 1982 (the “FOI Act”); those documents or (as relevant) part of documents are referred to as the “withheld documents”.
2. The request for access was made on 8 July 2004. A primary decision was made on 23 September 2004 and in accordance with which access was granted to a large number of documents. A relatively small number of documents were withheld in whole or in part, the Respondent claiming that they were exempt. The decision under review as referred to in clause 1 above was made after a request for internal review made on 20 November 2004.
3. The Respondent in fact delivered eight volumes of documents (comprising in aggregate approximately 3,500 pages); some of the documents contained in the eight volumes were released in part in that parts were deleted; deletions from a page, and whether of paragraphs or otherwise, were suitably delineated; those documents or (as relevant) parts of documents are referred to as the “released documents”.
4. The Tribunal had before it three folders of withheld documents in respect of which release was withheld either in whole or, having regard to the preceding provisions, in part. In respect of the withheld documents referred to in this clause 4, the Tribunal granted a confidentiality order under s.64 of the FOI Act. When the hearings commenced, the documents withheld were set out in Exhibit A1 (and which replaced a previous exhibit having the same number) and entitled “Schedule 2 and 3 (Revised List of Documents in Chronological Order)”. Exhibit A1 contains a number of boxes, some of which are not relevant for the purposes of this decision; in particular the second box entitled “Folio No”, the third entitled “File No” and the final box entitled “Change from Initial Decision” are not relevant; Exhibit A1 but excluding the three boxes to which I have referred, is included in this decision as follows:
SCHEDULE 2
No. Type of Document Date Description/Deletion Decision Section 1. Report Undated The Mining Company: Tax Strategy Review. Partially exempt S36 2. Report 23/04/04 ATO Paper - [Company] Audit: Memorandum from Lorne Hunt to Peter Bonett. Partially exempt S36, S37 3. Legal Advice 17/11/03 Joint Advice-Capital Loss Issue from independent counsel. Exempt S42 4. Legal Advice 29/05/03 Joint Advice- Loan Issue from independent counsel. Exempt S42 5. Legal Advice 19/06/03 Extracts condensed from original advice on Joint Advice- Loan Issue from independent counsel. Exempt S36 S42 6. Legal Advice 23/06/03 Joint Advice-Interest Free Loans Issue from independent counsel. Exempt S42 7. Legal Advice 04/06/03 Joint Advice-Management Fees from independent counsel. Exempt S42 8. Legal Advice 09/02/04 Joint Advice-Avoidance of Tax- Management Fees from independent counsel. Exempt S42 9. Legal Advice 04/06/03 Extracts condensed from original advice on Joint Advice-Management Fees from independent counsel. Exempt S36 S42 10. Report 17/05/04 Information concerning counsel. Partially Exempt S36 S42 11. Report 17/06/04 Group Audit Recommendation – Addendum: Memorandum from Lorne Hunt to Peter Bonett. Partially
ExemptS36, S37 S42 12. Report 22/06/04 Group; Division 13 Determinations/Treaty Applications: Memorandum from Daryl Cornish to Lorne Hunt. Partially
ExemptS36, S42 13. Report 25/06/04 Group Audit Recommendation – Addendum Decision: Memorandum from Peter Bonett to Lorne Hunt. Partially
ExemptS36, S37 S42 14. 05/07/02 Referral of Loan Issue to Julie Coates: Message from Kurt Schenk to Kevin Carey. Exempt S 36; s42 15. Report 20/06/01 Group – Management Fees: Memorandum from Chandra Sharma to Kevin Piper, Kevin Carey and Kurt Schenk. Partially
ExemptS36 16. Report 15/07/02 Advice from ATO Tax Counsel. Partially Exempt S36 S37 17. Report 04/12/03 ATO Paper –Group: Management Fees Issue – Interim Analysis Paper, prepared for counsel Exempt S42 18. Report 04/05/04 ATO Position Paper –Group: Management Fees Issue – Final Position Paper.
- Group Audit Recommendation – Addendum – Memorandum from Lorne Hunt to Peter Bonett dated 17/06/04.
This is a copy of document 11 listed above.
This is a copy of document 13 listed above.
- Group Audit Recommendation – Addendum Decision – Memorandum from Peter Bonett to Lorne Hunt dated 25/06/04.
Partially Exempt S36, S37 S42
S36, S37 S42
19. Report 17/12/03 Losses & CGT Centre of Expertise: Memorandum of Advice from Grahame Hager to Geoff Rowse. Exempt S36, 20. Minutes of Meeting 04/04/01 Group: IARC Telephone Hook-Up – Minutes of Meeting held on 23/03/01. Partially
ExemptS 36 S37 21. Report 17/09/02 Section 80G ITAA and Tax Loss Transfers: Memorandum from Wayne Johns and David Hess to Anthony Marvello. Exempt S36, 22. Minutes of Meeting 17/02/03 Group: Telephone IARC. Partially
ExemptS36 S37 23. 30/07/03 Group Brief Div 13 Issues Group’s Comparability Argument: Message from Les Christou to Michael McCormack. Exempt S 36 S37 24. 05/09/03 Information concerning counsel. Partially Exempt S42 25. Report 06/07/04 Sensitive Issue –Group Audit: Briefing Paper from Lorne Hunt to Jennie Granger. Partially
ExemptS36, S42 26. Report 29/06/04 Issue of Manual Assessments –Group Audit: Memorandum from Lorne Hunt to Jim Killaly. Release in full 27. 10/02/04 Information concerning counsel. Partially Exempt S36, S42 28. 27/08/03 Group: Looming Section 170 Time Limit; Message from Elizabeth Lee to Kurt Schenk. S36, S42 29. Legal Advice 17/12/03 Joint Advice-Management Fees – Further Memorandum from independent counsel. Exempt S42 30. Legal Advice 06/02/04 Joint Advice-Penalties Issue from independent counsel. Exempt S42 31. Legal Advice 06/02/04 Joint Advice Loan, Interest Free Loans & Guarantee Fees “Comparability” and Applicable Provisions of S. 136AD from independent counsel. Exempt S42 32. Report 25/06/04 Group Audit Recommendation – Addendum Decision: Memorandum from Peter Bonett to Lorne Hunt. Partially
ExemptS36, S37 S42 33. Printout 22/10/91 Information concerning other taxpayers. These are microfiche print outs containing notice of assessment details for other taxpayers but which issued on the same day as Group entities. They are of the same type of documents 20, 35 & 38 of original decision. Partially Exempt RELEASED 34. Report 02/08/04 Information concerning counsel. Partially Exempt S36, S42 35. Report Undated ATO Position Paper –Group Consolidated Report of Penalties Applied:
ATO Paper - [Group] Audit: Memorandum from Lorne Hunt to Peter Bonett dated 23/04/04.
These folios are a copy of Document 2Group Audit Recommendation – Addendum: Memorandum from Lorne Hunt to Peter Bonett dated 17/06/04. These folios are a copy of document 11.
Information concerning counsel. These folios are a copy of document 10.
Group Audit Recommendation – Addendum Decision: Memorandum from Peter Bonett to Lorne Hunt dated 25/06/04. This is another copy of document 13.
Partially Exempt S36, S37
S36, S37 S42
S36 S42
S36, S 37 S42
36. Information Paper for counsel 16/12/03 Information paper prepared for counsel regarding circumstances to scope and length of audit. Exempt S 42 37. Memorandum 23/4/04 Memo prepared by D Cornish for P Bonett that Commissioner not exercise discretion under Div 13 for Guarantee Fees. Partially Exempt S 36;, s42 38. E-mails 25/11/02 Series of e-mails between L Chistou, K Schenk, K Piper & others re ITD review of taxpayer’s ability to pay argument. Exempt S 36 39. 26/5/04 E-mail from L Hunt to P Bonett discussing options for management fees and counsels advice at phone hook up. Exempt S 36, S37 S42
SCHEDULE 3
No._ Type of Document Date Description/Deletion Decision Section 1. 15/10/03 Email from Daryl Cornish Exempt S36 2. Legal Advice 24/6/03 Joint Counsel Advice re Guarantee Fees Exempt S42 3. Draft Documents 09/12/03 Draft Div 13 Income Tax Assessment Act 1936 Determinations and Treaty applications Exempt S36 4. Report LBI Sensitive Issues Report Exempt Ss 36 and 37 In including Exhibit A1, in this amended fashion, edits have been made in accordance with clauses 9 and 13 below.
5. During the course of the hearings, concessions were made by both parties and in consequence of which some of the withheld documents were released while in respect of others, the Applicant withdrew its claim. It is in this context that I include the orders made by the Tribunal on 28 April 2006 as follows:
IN THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN
THE MINING HOLDING COMPANY
AND -
COMMISSIONER OF TAXATION
THE TRIBUNAL ORDERS:-
1. Documents 15, 16 and 38 to Schedule 2 be released in full to the Applicant.
2. Document 23 to Schedule 2 be released as to pages 2, 3 and 4.
3. Documents 20 and 22 to Schedule 2 be released in the (redated) form provided to the Tribunal on 27 April 2006. (It should be noted that these orders were handed up by consent in handwritten form; I am not altogether sure that the word bracketed is “redated” or perhaps another similar word such as “redrafted” and that word has for this reason only been bracketed)
4. It is noted that the Applicant withdraws the application in respect of documents 28, 19 and 21 to Schedule 2.
DATED: 28 April 2006
___________________________
Mr J Block, Deputy President
6. In respect of the withheld documents, release was denied in accordance with one or more or all of ss.36, 37 and 42 of the FOI Act.
7. The Applicant was represented by Mr J Durack SC, Mr J Momsen and Ms R Seiden of counsel instructed by Mr Solicitor while the Respondent was represented by Ms M Kennedy SC and Mr R Niall of counsel instructed by the Australian Taxation Office Legal Services Branch (“ATO Legal Services Branch”).
8. The Tribunal had before it the T documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 together with exhibits as follows:
Exhibit A1:Comprising schedules 2 and 3 sets out a revised list in chronological order of the documents which were withheld in whole or in part. Exhibit A2 has been included previously in these reasons but omitting its content as contained in the second, third and final boxes unedited/and edited on the basis set out in clauses 9 and 13;
Exhibit A2:The eight large volumes of released documents and comprising approximately 3500 pages;
Exhibit A3:Consists of two blue folders containing (various) documents.
Exhibit A4:A transcript of some remarks at a meeting held in June 2003;
Exhibit A5:A letter dated 16 October 1995 by Deloitte Touche Tohmatsu to the Respondent;
Exhibit A6:A document prepared by the Applicant entitled “Transfer Pricing / Management Fees;
Exhibit A7:Refers to handwritten notes of the meeting in June 2003 made by Mr Solicitor;
Exhibit A8:The witness statement dated 9 May 2005 by Mr Solicitor;
Exhibit A9:A letter dated 20 September 2002 together with a Position Paper entitled “Management Fees Issues”;
Exhibit A10: A letter dated 11 October 2002 together with a Position Paper entitled “Loan Transactions Issue: Guarantee Fees Issue: Management Fee Issue: Final Statement of ATO position”
Exhibit A11: The ATO final position paper on the Loan Issue;
Exhibit A12: A document entitled “Review into Tax Office Audit timeframes”;
Exhibit A13: A document entitled “Large Business and Tax Compliance” (Address by Commissioner of Taxation on 13 October 2005)
Exhibit A14: Not referred to because it was withdrawn;
Exhibit A15: Not referred to because it was withdrawn.
Exhibit R1:Contains schedules 2 and 3 together with Exhibits A to E;
Exhibit R2:Witness statement by Mr Peter Bonett dated 6 April 2005;
Exhibit R3:Diagrammatic structure and abbreviations in respect of the Group;
Exhibit R4:A document entitled “ATO Corporate Structure Diagram”;
Exhibit R5:A statement by Ms Elizabeth Lee dated 6 April 2005;
Exhibit R6:A statement by Ms Elizabeth Lee - undated;
Exhibit R7:A statement by Mr Peter Charles Robinson dated 5 April 2005; and
Exhibit R8:A letter dated 11 August 2004 by the Respondent to the Applicant
9. At a very early stage of the hearings, Mr Durack applied for a confidentiality order in respect of the hearings and this decision; Ms Kennedy did not object and the application was granted. I intend to accede (but as to some of those suggestions only) to the Applicant’s suggestions as to the manner in which in respect of this decision, confidentiality is to be achieved. In particular:
(a)The term “Mr Smith” is used to denote the gentleman now resident in Monaco and who was formerly resident in Australia and who controls the Group;
(b)The term “Group” is used to refer collectively to all of the companies and trusts set out in Exhibit A3. It is not necessary to set out or to allot altered and anonymised (or abbreviated) names to all of the members of the Group. The Group can be divided into two strands; a number of such entities (and including the Applicant) are Australian entities while a number of entities (and including the Management Company) are resident outside Australia. The two strands are separately referred to as the “Australian Group” and the “Foreign Group” respectively;
(c)The term “Mining Company” refers to a member of the Australian Group which was at one time a listed company. The Mining Company is an important producer of the product mined by it in the State (referred to as “the State”) in Australia in which it operates.
(d)The term “Mining Business” refers to the mining business conducted by the Mining Company;
(e) The term “Management Company” refers to a company in the Foreign Group which has provided and continues to provide services described as “management services” inter alia to the Mining Company; The Management Company which provided and provides services has not, so I was informed, at all times been the same company in the Foreign Group. This term refers in particular to a company in the Foreign Group which changed its place of residence on two occasions; it was originally incorporated in a country which affords favourable tax treatment to residents of a particular kind and this is so also in respect of the first country to which it moved; the second move was made into the Turks and Caicos Islands and in respect of which favourable tax treatment is provided on a more general basis.
(f) The term “Sale Transaction” refers to a transaction entered into between a member of the Australian Group as seller and a member of the Foreign Group as purchaser in terms of which the seller sold and the purchaser purchased shares in two foreign companies for a substantial purchase price, a substantial part of which was left outstanding on an interest-free basis for a period of 15 years. At an early stage of the proceedings I was informed that the Sale Transaction was entered into in order to raise an amount of $50,000,000 provided by a bank and required in order to privatise the Mining Company; at a late stage of the proceedings Mr Durack informed me that in fact the money so raised was utilised in order to discharge debt and so as to avoid breaches of covenants to lenders;
(g) The term “Mr Solicitor” refers to the solicitor who acted for Mr Smith and the Group at all relevant times;
(h) The term “Mr Accountant refers” to the accountant who acted for the Group in relation to the audit referred to later in these reasons.
10. It may be noted at this early stage that the sheer volume of documentation before the Tribunal is by any standards enormous. Mr Durack estimated (and I have no reason to doubt his estimate) that there are some 10,000 pages. That estimate was provided at a comparatively early stage of the hearings; it is likely that the eventual number was greater. As to whether this number is inclusive or exclusive of the transcript and the submissions (and there were a large number of submissions) by the parties is not clear. The transcript alone runs to approximately 1,100 pages.
11. This matter was first listed for five hearing days commencing on 29 August 2005. The fourth day was not available for reasons which are not relevant. The matter was then listed for three days in November 2005. That period also was insufficient and a further two days in February 2006 were scheduled. That period also was insufficient and the matter was finally again listed and heard on 26, 27 and 28 April 2006. There were thus in the result 12 hearing days in all.
12. During the hearing days, oral evidence was given by Mr Solicitor for the Applicant and by Mr Peter Bonett, Ms Elizabeth Lee and Mr Peter Charles Robinson, all employees of the Respondent for the Respondent; by far the longest period was taken in respect of the cross-examination of Mr Bonett (a senior employee of the Respondent).
13. When including quoted material in these reasons it has been necessary to make alterations to ensure confidentiality. Exhibit A1 has been edited both in accordance with clause 9 (and also this clause 13) and so as to delete references to certain names (or in some cases the abbreviations of those names) of entities in the Group. The original Exhibit A1 contains a number of references to ‘the Group” which are preceded by the name or abbreviated name of a member of the Group; that name of abbreviated name has been edited so as to refer simply to “the Group” Similarly the words “Loan Issue” appear without a preceding name or abbreviation. A word which appears in square brackets indicates that a bland word such as “Company” or “Group” has been substituted for the name or abbreviated name of an entity in the Group. Other documents or submissions have been edited where necessary in similar fashion.
14. In addition to the exhibits listed in clause 8 above, the Tribunal received Statements of Facts and Contentions by both parties and it also received, and in particular from the Applicant, a host of submissions and in many cases dealing separately with different issues. Some of those submissions will be referred to in more detail later in these reasons.
15. Mr Durack suggested that it would be helpful if at an early stage I included by way of background, the content under the head of “Background” contained in the Applicant’s written submissions (“AWS”). Reference is made in this context to the document (which does not bear a date) numbering 107 pages. Ms Kennedy did not object to the inclusion of any part of that Background content other than the first sentence of clause 2. I also do not think it necessary to include clause 13 which is thus excluded. Accordingly, clauses 1 to 12 inclusive of the AWS (but omitting the first sentence of clause 2) are included in these reasons as follows:
…
Background
The Group
1.The Applicant and associated companies are members of a group, the Group, which, through separate but related structures in Australia and overseas, headed by a trust in Nauru; conducts a variety of businesses, including a significant coal mining business in the State. The Applicant and the Group are controlled by a Mr Smith, a fact which either was or became known to the Australian Taxation Office ("the ATO") by 1995, during the conduct of a Tax Strategy Review for the purpose of considering the issues which might be made the subject of an audit (See App's Vol1/121 at 126.6 and 128.7). Mr Smith was formerly a resident of Australia but had ceased to be an Australian resident before the period in question.
The Audit
2. … Mr Kurt Schenk who, under the supervision of a number of Case Managers, came to have the main role in the conduct of the audit. The Australian members of the Group were the subject of the audit until June 2004. During the audit the Group was represented by Mr. Solicitor who gave evidence in the proceedings and by Mr Accountant, The audit concluded with decisions made by Mr Peter Bonett, an Assistant Commissioner of Taxation who also gave evidence in the proceedings.
The Assessments
3.On 29 June 2004, and in accordance with Mr Bonett's decisions, the Respondent issued assessments and amended assessments in respect of the Applicant and other Australian company members of the Group, under the provisions of the Income Tax Assessment Act 1936 ("ITAA"). There were some forty-seven assessments and two of administrative penalty, dating back as far as 1986, and involving a total of $173m in primary tax, penalties and interest. The amount of penalties involved in the total exceeds $70m.
The Issues raised by the Assessments
4.The principal issues involved in the assessments have been referred to by the ATO and the Group as the "Sale Transaction", the "Loan Transactions" and "Management Fees". Adjustments made in respect of the Sale Transaction and the Loan Transactions, involving "imputed" interest, accounted for approximately $110m and $20m respectively of the tax, including penalties and interest, involved in the assessments. Disallowance of portion of the claims for Management Fees accounted for approximately $28.5m of the amount involved in the assessments and the remaining liability of approximately $12.5m was accounted for by four other issues, three of which involved disallowance of claims for deduction of expenses, and in one case a claim for portion of a capital loss.
5.Adjustments in respect of each of the Sale Transaction and Loan Transaction issues are based on determinations under Division 13 of Part III of the ITAA. The Sale Transaction involved a sale of assets by an Australian group company to a group company in Cyprus for a sale price payment of portion of which was deferred for fifteen years, without interest. The Loan Transactions involved interest free loans by Australian companies to overseas member of the Group. No tax avoidance purpose has been suggested by the ATO in relation to any of these transactions.
6.Adjustments to claims for Management Fees were made in respect of portion of amounts paid by Australian Group companies for the services of an international management team, headed by Mr Smith. The management companies to which the payments were made were, at different times, incorporated in a number of overseas countries, including tax haven countries such as the Turks and the Caicos Islands and countries, such as the United Kingdom and Ireland, which provided favourable tax treatment.
7.Although the adjustments in respect of Management Fees account for only about 16% of the total tax, penalties and interest involved in the assessments, the claims for these Management Fees have been responsible for the main areas of complaint by the Respondent as to non-disclosure and failure to substantiate on the part of the Group. In making assessments disallowing a proportion of the Management Fees paid, the Respondent has relied principally upon the view that the payments do not meet the tests of sec 51(I) of the IT AA. However, the Respondent also made determinations under Div 13 treating the payments as in excess of arms-length consideration for the services provided.
8.All of the issues the subject of the audit adjustments, with the exception of the claims in relation to preference shares and a capital loss of approximately $45.1m, of which only $267,226 had been claimed as a deduction, were the subject of a disclosure made by the Group at the time of the original Tax Strategy Review. The Respondent does not accept that the disclosure made in relation to the issues was a "full and true" disclosure, with the consequence that the Respondent has not applied to the relevant group companies the concessional rates of penalty which would otherwise have applied.
The Application made under the Freedom of Information Act 1992
9.After the issue of the assessments and before the objections were lodged, Group companies sought from the Respondent details of the reasons for the determinations made under Div 13 and for the decisions on the remission of penalties. The Respondent declined to do any more than refer to previous correspondence in relation to the issues (Statement of Mr Solicitor of 9 May 2005 paras 26 to 31).
10.The original application under the Freedom of Information Act ("FOI Act") was made by the Applicant on 8 July 2004, shortly after receipt of the assessments. The Respondent's primary decision on access was made by letter of 23 September 2004. On 30 November 2004, and following a request for internal review, the Respondent advised the Applicant of the decision on internal review. That decision was made the subject of an application for review in this Tribunal on 24 December 2004.
11.The internal review decision identified some thirty-nine documents in respect of which the Respondent claimed full or partial exemption. The Applicant ultimately did not press its claims for access to three of the documents (Documents 21, 28 and 19 in Schedule 2). An additional four documents (those in Schedule 3) were subsequently identified by the Applicant as not having been the subject of permitted access or of a claim for exemption. During the hearing in the Tribunal, a number of additional documents were identified as being in the same category (See App's Vol 2/609 and references to other documents in App's Vol 8/3198, 3199 and 3202). Access to all but one of these is to be provided. A claim for exemption is made in relation to the remaining document (Document 5, Schedule 3). The Respondent withdrew its claims for exemption in relation to three documents (Documents IS, 16 and 38, Schedule 2) and for all but the first page of one other document (Document 23, Schedule 2).
12.Following the commencement of proceedings in this Tribunal, the Respondent disallowed the objections which had been lodged by Group companies. Subsequently, two of the decisions on the objections lodged by Group companies were made the subject of appeals to the Federal Court. (The two appeals involve only a single adjustment in respect of the Sale Transaction in one case and a single adjustment in respect of one of the Loan Transactions in the other.) The remaining decisions on the objections, with the exception of those involving negligible amounts, were referred to this Tribunal for review.
16. I use the terms “Part IV C proceedings” or “tax proceedings” so as to encompass all of the proceedings to be heard by the Tribunal and by the Federal Court as referred to in clause 12 of AWS and quoted in the preceding clause.
17. At the very heart of this matter lies the tax dispute between the parties and which will be dealt with in the Part IV C proceedings. Forty-seven assessments amounting in aggregate to approximately $173,000,000 were issued against members of the Group. The review of the disallowance of the objections against those assessments has been sought in all cases (save two) by this Tribunal and to be heard by the President of this Tribunal, and in two cases by the Federal Court to be heard by Mr Justice Lindgren.
18. The Respondent has in respect of the relevant assessments made findings as to the applicability of Division 13 of the Income Tax Assessment Act 1936 (“the Tax Act”). Those findings relate in particular to four particular transactions or sets of transactions and which are referred to in more detail in this clause and clauses 19 and 20 below.
(a)In accordance with the Sale Transaction a member of the Australian Group sold assets in Fiji and Papua New Guinea to a member of the Foreign Group for a very substantial amount. $50,000,000 was paid at the time when the transaction was entered into; that amount so the Tribunal was originally informed was needed and used in connection with the privatisation of the Mining Company. The balance of $68,000,000 was payable free of interest 15 years thereafter. The outstanding price did not originally sound in Australian dollars but rather and at the risk of the purchaser in the currencies of the countries where the assets were located. At some point in time during the 15 year term, the outstanding liability was converted into a liability sounding in Australian dollars; it was thereafter settled in full at a discount. As set out previously, I was informed that the amount of $50,000,000 was needed to discharge amounts due to lenders to avoid breaches of certain loan covenants and not as was originally stated in order to privatise the Mining Company.
(b)It is relevant to remember that the Australian Group and the Foreign Group are separated from each other in the sense that no member of either the Australian Group or the Foreign Group has any interest in any member of the other of them. The Australian Group and the Foreign Group are linked in that they are both owned by a trust, resident in Nauru and which is referred to as “the Trust”; there is no dispute as to the fact that Mr Smith at all relevant times controlled and still controls the Trust.
(c)It is neither necessary nor desirable for me to express any view as to the Sale Transaction and more particularly whether Division 13 of the Tax Act can apply. Mr Durack agreed that it was a transaction between a resident and a non-resident but did not concede that the elements of the division were satisfied. In particular he said that although the parties might not have been arms length parties, it did not follow that the terms were not arms length terms. He described it as a financing transaction and not one of a very unusual nature; (I note in this context that although I was a banking and finance partner of a large firm for many years, I do not recollect a transaction having these particular features). At a very late stage of the hearings, Mr Durack noted that a sale of the assets on a different (and rather more conventional basis) might have resulted in a loss; as to why this might be so was not made clear to me. Arising from the Sale Transaction, the Respondent has assessed tax on amounts of notional interest.
(d)The Sale Transaction was in my view out of the ordinary. Mr Durack contended, as I have said, that it was a financing transaction. There is evidence before me more particularly related to a charge in favour of a bank which would suggest that there were elements of it which were aptly categorised as being of a financing nature.
19. The most controversial of the Division 13 applications related to management fees charged by the Management Company.
(a)When Mr Smith was resident in the State, he was the manager of the Mining Business at a salary, so I was informed, of $90,000 per annum. The Management Company receives fees for its services which are related, so I was informed, to the value of assets managed, and on a per annum basis has been, and is far in excess of $90,000 per annum. Mr Solicitor in his evidence said that that the management fees have ranged on a per annum basis between $2,000,000 and $5,000,000. Other evidence suggested that the management fees in later years were of the order of $6m per annum.
(b)The Management Company was originally a non-resident UK company. It then became a non-resident Irish company, and it is currently resident in the Turks and Caicos Islands. The identity of the Management Company has not always been the same.
(c)This particular aspect is of an on-going nature because notwithstanding the assessments the objections and the tax proceedings management fees of a high order are still being charged.
20. Division 13 of the Tax Act was applied also, it would seem, in relation to the non-payment of interest by members of the Foreign Group to the members of the Australian Group in respect of loans. Mr Durack said that there were indeed substantial loans free of interest but that the Australian Group had issued guarantees on behalf of members of the Foreign Group and had no option but to provide loans. There were references during the evidence to the absence of guarantee fees (also apparently at one time a Division 13 issue; I was informed that issues related to the absence of guarantee fees are no longer in dispute.
21. The tax proceedings relate also to the disallowance of deductions referable to an aircraft and a boat. There is also an issue in respect of a carry forward loss.
22. There are references, as will be seen from later provisions of these reasons, in one of the submissions by the Applicant to four Division 13 or transfer pricing issues; I take those references to relate to the Sale Transaction, the management fee arrangement, the interest- free loans issue and the guarantee fee issue although the last of those four issues is, as I have said, apparently no longer in dispute.
23. The penalties imposed through the assessments are substantial and interest is running. Mention was made during the hearings of the fact that in respect of the amounts assessed, an amount of $40,000,000 has been paid; as to the balance there is apparently an application for an extension of time on hardship grounds.
24. Mr Durack said that the Part IV C proceedings coloured the whole of the hearings. I consider that there was merit in that statement. It must be remembered that the evidence before the Tribunal related in the main to tax matters and so that this consequence was unavoidable. It does not however detract from the fact that the Tribunal must deal with the decision under review in accordance with law. The evidence before the Tribunal and the manner in which this case was run was not in all cases directly relevant to questions arising from s.42 of the FOI Act; it might well in my view be relevant relevance to the public interest considerations contained in s.36 of the FOI Act.
25. It is relevant to note that the FOI Act provides that on a prima facie basis there is a general right of access which is subject to the exceptions contained in the legislation. It is also relevant to note that where the Respondent alleges that it is entitled to withhold a document or part of that document under s.36 of the FOI Act it bears the onus of establishing that there is a public interest consideration which is such that the document or part as relevant should not be disclosed.
PART A - the main issues and the relevant legislation
26. In respect of the withheld documents some were withheld on the basis that the Respondent is entitled to maintain a claim for legal professional privilege (“LPP”). It appears to be common cause between the parties that the real issue between the parties is as to whether the Respondent has in respect of those documents waived his privilege.
27. There is also no dispute as to the fact that (where LPP is not relevant) the relevant withheld documents are deliberative in the sense that they reflect the deliberations of the audit committee which was constituted in respect of the audit of the Group. The Respondent claims that it is entitled to withhold those documents, in many cases pursuant to s.36 of the FOI Act; in respect of some of them the Respondent claims in addition that it is entitled to withhold them under s.37 of the FOI Act because (in particular) there are international and on-going dispute considerations; it seems clear however that the primary section relied on by the Respondent in this context is s.36 of the FOI Act and that reliance on s. 37 was to some extent of a secondary nature.
28. Sections 36, 37 and 42 of the FOI Act read as follows:
Section 36
Internal working documents
(1)Subject to this section, a document is an exempt document if it is a document the disclosure of which under this Act:
(a)would disclose matter in the nature of, or relating to, opinion, advice or recommendation obtained, prepared or recorded, or consultation or deliberation that has taken place, in the course of, or for the purposes of, the deliberative processes involved in the functions of an agency or Minister or of the Government of the Commonwealth; and
(b)would be contrary to the public interest.
(2)In the case of a document of the kind referred to in subsection 9(1), the matter referred to in paragraph (1)(a) of this section does not include matter that is used or to be used for the purpose of the making of decisions or recommendations referred to in subsection 9(1).
(3)Where a Minister is satisfied, in relation to a document to which paragraph (1)(a) applies, that the disclosure of the document would be contrary to the public interest, he or she may sign a certificate to that effect (specifying the ground of public interest in relation to which the certificate is given) and, subject to the operation of Part VI, such a certificate, so long as it remains in force, establishes conclusively that the disclosure of that document would be contrary to the public interest.
(4)Where a Minister is satisfied as mentioned in subsection (3) by reason only of matter contained in a particular part or particular parts of a document, a certificate under that subsection in respect of the document shall identify that part or those parts of the document as containing the matter by reason of which the certificate is given.
(5)This section does not apply to a document by reason only of purely factual material contained in the document.
(6)This section does not apply to:
(a)reports (including reports concerning the results of studies, surveys or tests) of scientific or technical experts, whether employed within an agency or not, including reports expressing the opinions of such experts on scientific or technical matters;
(b)reports of a prescribed body or organization established within an agency; or
(c)the record of, or a formal statement of the reasons for, a final decision given in the exercise of a power or of an adjudicative function.
(7)Where a decision is made under Part III that an Applicant is not entitled to access to a document by reason of the application of this section, the notice under section 26 shall state the ground of public interest on which the decision is based.
(8)The responsible Minister of an agency may, either generally or as otherwise provided by the instrument of delegation, by writing signed by him or her, delegate to the principal officer of the agency his or her powers under this section in respect of documents of the agency.
(9)A power delegated under subsection (8), when exercised by the delegate, shall, for the purposes of this Act, be deemed to have been exercised by the responsible Minister.
(10)A delegation under subsection (8) does not prevent the exercise of a power by the responsible Minister.
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Section 37
Documents affecting enforcement of law and protection of public safety
(1)A document is an exempt document if its disclosure under this Act would, or could reasonably be expected to:
(a)prejudice the conduct of an investigation of a breach, or possible breach, of the law, or a failure, or possible failure, to comply with a law relating to taxation or prejudice the enforcement or proper administration of the law in a particular instance;
(b)disclose, or enable a person to ascertain, the existence or identity of a confidential source of information, or the non‑existence of a confidential source of information, in relation to the enforcement or administration of the law; or
(c)endanger the life or physical safety of any person.
(2)A document is an exempt document if its disclosure under this Act would, or could reasonably be expected to:
(a)prejudice the fair trial of a person or the impartial adjudication of a particular case;
(b)disclose lawful methods or procedures for preventing, detecting, investigating, or dealing with matters arising out of, breaches or evasions of the law the disclosure of which would, or would be reasonably likely to, prejudice the effectiveness of those methods or procedures; or
(c)prejudice the maintenance or enforcement of lawful methods for the protection of public safety.
(2A)For the purposes of paragraph (1) (b), a person is taken to be a confidential source of information in relation to the enforcement or administration of the law if the person is receiving, or has received, protection under a program conducted under the auspices of the Australian Federal Police, or the police force of a State or Territory, for the protection of:
(a) witnesses; or
(b)people who, because of their relationship to, or association with, a witness need, or may need, such protection; or
(c)any other people who, for any other reason, need or may need, such protection.
(3)In this section, law means law of the Commonwealth or of a State or Territory.
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Section 42
Documents subject to legal professional privilege
(1)A document is an exempt document if it is of such a nature that it would be privileged from production in legal proceedings on the ground of legal professional privilege.
(2)A document of the kind referred to in subsection 9(1) is not an exempt document by virtue of subsection (1) of this section by reason only of the inclusion in the document of matter that is used or to be used for the purpose of the making of decisions or recommendations referred to in subsection 9(1).
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PART B - why does the Applicant want the withheld documents?
29. This question was present at least in my mind from an early stage. Put in other words, the relevant question might be more aptly put by asking what advantage the Applicant would gain if it were granted access to the withheld documents or some of them. At the end of the day, when the Part IV C proceedings are heard, this Tribunal and the Federal Court will be concerned with the issues arising from the Part IV C proceedings. It will be necessary in respect of the Part IV C proceedings to decide in particular (but not only) whether Division 13 does apply to any one or more of the transactions to which I have referred. The legal advice obtained by the Respondent and to which the Applicant seeks access will not in my view assist the Applicant. As to the deliberative documents, much the same could be said to apply subject only to this reservation and that is that they may have some bearing (albeit perhaps of a peripheral nature) on penalties.
30. The Applicant maintains that it will succeed in relation to the Division 13 considerations and in relation to the other tax matters in dispute. In that event penalties will fall away. But to the extent that the Applicant is not successful the Tribunal at least which will be hearing most of the Part IV C proceedings will have more than sufficient evidence before it for the purpose of determining the appropriate level of penalties. It is relevant in this context that penalties will also be a consideration in respect of the Part IV C proceedings before the Federal Court which does not have the same powers in respect of penalties, but those issues are, in the scheme of things, relatively minor.
31. At an early stage of the hearing I put it to Mr Durack that he knew exactly what the Respondent’s case was. He agreed that he did but then went on to say that Mr Smith having consulted him and other eminent counsel (subsequently judges), Mr Smith was naturally anxious to know whether the advice he had received was correct. It may be noted that prior to Mr Durack coming into this matter as lead counsel of the Applicant, the leader was Mr R Conti S.C, now Mr Justice Conti.
32. A little later in the hearing Mr Durack said that there were other reasons why his client required the documents withheld; he referred in this context to penalties; he referred also to the hardship application and pursuant to which the Applicant is seeking extensions of time within which to make certain payments. There is apparently an ongoing dispute between the parties as to hardship considerations. I should make it clear that this latter aspect is of no relevance so far as this Tribunal is concerned.
33. It is important that I emphasise that I accept that the reason why the Applicant wants the withheld documents is not relevant. If the Applicant is entitled to the withheld documents and in particular those in respect of which LPP is claimed, then it should have them regardless of whether or not they will in my view serve any useful purpose. This concept applies in respect of the documents in respect of which LPP is claimed and also the documents in respect of which exemption is claimed under s.36 (and where relevant s.37) of the FOI Act.
PART B.A - some aspects which either should or can desirably be disposed of at an early stage
34. There are a number of matters some of which were dealt with at great length, which can and in my view should desirably be dealt with at this early stage. They are dealt with in Parts E, F and G of these reasons.
35. As set out previously in these reasons, I do not think that the hardship aspects and the dispute between the parties referred to in clause 32 have any relevance so far as this Tribunal is concerned.
PART C - settlement negotiations
36. In March 2003 a meeting took place at which the parties and in the case of the Applicant its legal advisers (and in particular Mr Durack) were present, in an endeavour to reach a settlement of all of the outstanding tax disputes. It is common cause that that meeting was held on a without prejudice basis.
37. Mr Durack was present at the meeting in March 2003 on behalf of the Applicant. Mr Peter Bonett was present because he was by that time the senior officer of the Respondent’s audit committee. As to what exactly Mr Durack said to Mr Bonett at that meeting was not in evidence before the Tribunal. Nothing turns on the exact words because at no stage did Mr Durack deny allegations by the Respondent that he, Mr Durack, informed Mr Bonett in no uncertain terms that the application might bring a claim on the grounds of misfeasance if the Respondent did not obtain legal advice. The importance attached by Mr Bonett to that threat is demonstrated by the fact that the Respondent sought advice from Mr B Shaw SC and Ms M Gordon (now Ms M Gordon SC). A further meeting was scheduled in order to continue those negotiations. That meeting was, after a postponement eventually held late in June 2003. The Respondent was represented at that meeting by Mr Shaw and Ms Gordon and Mr Durack again represented the Applicant. Mr Bonett did not attend that meeting. It is common cause that that meeting too was held on a without prejudice basis.
38. By the time of the meeting in late June 2003 Mr Shaw and Ms Gordon had issued written opinions.
39. Between the two meetings in March and June 2003 there were two telephone conversations between Mr Piper, an employee of the Respondent, and Mr Solicitor and in which mention of the fact that opinions from counsel had been obtained. It is clear to me, although not expressly so stated, that those conversations formed part of the without prejudice negotiations; this is so because of the times at which they occurred and also because of the context, and in which Mr Solicitor was informed that counsels’ opinions had, following the meeting in March 2003, and the threats made at that meeting, been obtained.
40. As to what exactly was said by Mr Shaw and Ms Gordon at the meeting in June 2003 is not clear. It is possible that they addressed the issues in general terms; it is also conceivable that they made reference to the opinions which they had issued. The barristers involved are both eminent and it is likely that they would have avoided specific references to their written opinions if such references might have constituted waivers of LPP. This is pure speculation and I need not refer to these aspects further because I have come to the conclusion that evidence as to what occurred or was said during the course of the without prejudice negotiations and meetings should not be disclosed and that, as contended by the Respondent, it would be a gross breach of the rules of natural justice were I, utilising for this purpose s.33 of the Administrative Appeals Tribunal Act 1975 to rule otherwise.
41. In its submissions entitled “Communications made Without Prejudice” dated 29 August 2005 (“CWP”), the Applicant said in clause 1:
The Common Law Rule
1.Legal professional privilege is not merely a rule of evidence but rather is "... an important common law immunity": The Daniels Corporation Inter-National Pty Limited & Anor v Australian Competition and Consumer Commission (2002) 213 CLR 543 at [11].
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42. The Applicant went on in clauses 2 and 3 of CWP to refer to Field v Commissioner for Railways for NSW (1957) 99 CLR 285 and Unilever Plc v The Proctor & Gamble Co [2000] 1 WLR 2436 cases in the following terms:
“2.On the other hand, the "without prejudice" privilege is a mere rule of evidence having its dual foundation in public policy and on the express or implied agreement between the parties themselves. In Field v Commissioner for Railways for NSW (1957) 99 CLR 285, Dixon CJ, Webb, Kitto and Taylor JJ explained the nature of the rule and its foundation at 291-292:
The law relating to communications without prejudice is of course familiar. As a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered. This form of privilege, however, is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example, neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission. For some centuries almost it has been recognised that parties may properly give definition to the occasions when they are communicating in this manner by the use of the words "without prejudice" and to some extent the area of protection may be enlarged by the tacit acceptance by one side of the use by the other side of these words: see Thomas v. Austen [1] ; Kurtz & Co. v. Spence & Sons [2] , at p. 441; Paddock v. Forrester [3] , at p. 1411]; Hoghton v. Hoghton [4] , at p. 559]; In re River Steamer Co.; Mitchell's Claim [5] , at pp. 831, 832; Walker v. Wilsher [6] , at pp. 337 338. Needless to say, the privilege is a matter to be raised by objection to the admissibility of the evidence. For the purpose of deciding such an objection the judge may take evidence on the voir dire. (Footnote citations omitted) (Emphasis added)
3.The privilege is now recognized as extending beyond admissions made by one party to the other. In Unilever Plc. v The Proctor & Gamble Co [2000] 1 WLR 2436, Robert Walker LJ (Wilson J and Simon Brown LJ agreeing) said at 2448:
Whatever difficulties there are in a complete reconciliation of those cases, they make clear that the without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties, in the words of Lord Griffiths in the Rush & Tompkins case [1989] A.C. 1280, 1300: 'to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.' Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders. (Emphasis added)
See also JD Heydon, Cross on Evidence (7th Australian Edition) LexisNexis
Butterworths 2004 at [25-350].”
43. CWP refers to a number of other decided cases to which I need not refer because I have come to the conclusion that the two meetings and the telephone conversations between the two meetings, took place as part of the settlement negotiations and so that whatever was said at any of them was made on an entirely without prejudice basis, and I do not find that any of such communications constituted a waiver by the Respondent of LPP.
44. During the course of the hearings I expressed some surprise at the fact that (having regard in particular to Exhibit A4) Mr Durack should have sought in all of the circumstances and especially the fact that counsels’ opinions were obtained after express threats by him to have alleged on behalf of the Applicant that statements made at the without prejudice negotiations constituted waivers of LPP. I noted then and repeat that I accept that Mr Durack would have valid reasons for doing so even if I am not aware of the nature and extent of those reasons.
PART D - the finding of evasion
45. This Part F is included having regard to a submission by the Applicant entitled “Applicant’s Supplementary Submission” (“ASS”) and I refer specifically to the first paragraph as follows:
The Finding of Evasion
1.The Tribunal must determine where there is a reasonable suspicion that when – based on what he had been told by his case manager – Mr Bonett recorded that “a finding of tax avoidance by evasion is appropriate,” this was for the improper purpose of seeking to extend the sec 170(2) time limits.
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46. Although I am not at all convinced that the Applicant was entitled to make such a submission I deal with it as a matter of completeness. The final sentence of ASS in bold type and capital letters reads as follows:
FOR THE REASONS GIVEN ABOVE THESE ISSUES ARE NOT OF “MARGINAL CONCERN” AND THE TRIBUNAL CANNOT AVOID MAKING FINDINGS OF FACT ABOUT THEM.
47. The Applicant went on in ASS to contend that although I need not make a finding as to whether certain issues did in fact involve evasion (because this is a matter for the Part IV C proceedings) I must make a finding as to whether there is a reasonable suspicion of improper purpose because this is relevant for the purposes of Attorney-General v Kearney (1985) 158 CLR 500.
48. During the course of the long audit (and the time taken was inordinately long) the constitution of the audit committee altered from time to time because of death, resignation and other relevant reasons. The committee originally constituted in Perth, Western Australia, was subsequently administered in Melbourne, Victoria. Mr Bonett came to be the senior officer in charge at a comparatively late stage. The deliberations of the audit committee over the years demonstrate some considerable degree of divergence amongst its members. There was evidence before me that one of the members of the committee was of the view that there was not sufficient evidence of evasion. Other members did not agree and a finding of evasion was in the result eventually made.
49. The question of whether or not there was evasion related in the main to the question of when the Respondent became aware of the fact that the Group was at all relevant times and is controlled by Mr Smith. Contentions on behalf of the Respondent that he became aware of the fact that Mr Smith controlled the Group only in the late 90s was contradicted by other evidence (and statements by other members of the audit committee) that this was known by 1995. It is entirely possible that the views of members of the audit committee were not always fully communicated to others. The Applicant contributed to such uncertainty as there was in Exhibit A5. Exhibit A5 is a very lengthy and detailed letter by Deloitte Touche Tohmatsu (by whom Mr Solicitor was then employed) to the Respondent and in which Mr Solicitor suggested that this aspect was not clear. The exact words which are relevant in this context are: “In the present case, as earlier pointed out, the Australian corporate group trace back ultimately to the Smith Family Trust and the international corporate group trace back to another Smith Family Trust. The trustees of each of those trust estates are individual corporations having their own respective boards of directors. It may be accepted that the directors in the case of each corporate trustee are business associates of Mr Smith apart of course from Mr Smith himself and were requested by Mr Smith to assume office as directors of the trustee corporation but once in office each of them have been and remain obliged to act and to perform the duties of office according to the dictates of their respective fiduciary duties and to make their respective decisions for and in the best interests of the trusts accordingly. The same is also true in relation to each of the corporate entities of the Australian Group and the International Group and their respective boards of directors. The observations of Gibbs J in Esquire Nominees v Commissioner of Taxation (1971 – 3) 129 CLR 177 at 190 – 1 are here apposite; in that case the High Court held that merely because the business decisions made by Norfolk Island directors were initiated and formulated in Australia did not mean that such decisions were not made or put in place by the Norfolk Island directors by their own independently minded decision-making processes”.
50. The passage from Exhibit A5 quoted in the preceding clause was not true in that, as was subsequently admitted, Mr Smith controls the entire Group through the Trust because he has the power to appoint and remove trustees. Exhibit A5 was sent on instructions from Mr Smith and after he had (presumably) approved it. It was also approved by the overseas adviser who set up the whole Group structure. Moreover, the very close relationship between Mr Solicitor and Mr Smith (to the extent that the Group was and is in practical terms his sole client) leaves me in some doubt as to whether Mr Solicitor was then unaware of the true nature of the Group structure. As I noted earlier in these reasons, Mr Solicitor was then employed by Deloitte Touche Tohmatsu and it was he who was either the preparer of or one of the preparers of Exhibit A5. There can be no doubt that Exhibit A5 was obscure and deliberately so as to this vital aspect.
51. That said the knowledge of any member of the committee must presumably be attributed to the others and there is at least some reason to think that the Respondent knew or should have known of Mr Smith’s control of the Group rather earlier than was suggested.
52. Nevertheless, all of this is a very long way from any suggestion that the finding of evasion was made for an improper purpose. The Applicant submitted that such a finding was made a very short time before the assessments; this is not so in that the finding was made a number of months previously.
53. The most important factor in this context is however the fact that a finding of evasion was not necessary because Division 13 does not impose any time limits. Mr Durack contended that if the management fees were not deductible under s.51 of the Tax Act, Division 13 could not apply. I do not think that such a submission is tenable. It has always been the law that it is not for the Respondent to direct parties to a transaction as to the amount which should or should not be paid for a given service or article (Ronbipon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 and Tweddle v Commissioner of Taxation (1942) 7 ATD 186) in the absence of sham (always a contention difficult to establish and see Sharrment Pty Ltd and Others v Official Trustee in Bankruptcy (1988) 82 ALR 530) management fees are deductible under s.51 of the Tax Act even if they are or seem to be high. It is in these circumstances (and where there is a relevant international agreement) that Division 13 of the Tax Act can operate to disallow all or part of the management fees. It is in my view that, in respect of the management fees, an application under Division 13 might perhaps be more likely than a contention as to non-deductibility under s.51 of the Tax Act.
54. While the Applicant was concerned as to the circumstances in which a finding of evasion came to be made, I do not accept that that factor entitled the Applicant to take the view that it was entitled to have a suspicion that the finding was in any way improper.
55. The Applicant contended that that the finding of evasion was made in order to permit the Respondent to assess in circumstances where assessments might otherwise be out of time; this is relevant (apparently) for two years only. Mr Bonett was cross-examined as to the circumstances in which the Respondent formed the view that there had been evasion; Mr Solicitor’s evidence also dealt with this aspect.
56. There was in addition cross-examination of Mr Bonett as to the circumstances in which the Respondent formed the view that Division 13 applied in respect of some of the tax proceedings. This too is not a matter for this Tribunal.
57. This is a convenient time at which to mention the fact that there are numerous references to the disclosed documents (Exhibit A2) and that pages of the disclosed documents are referred to in various ways. There are as I have said 8 volumes and the pages are numbered sequentially. It is for this reason that references to the relevant volume number are not strictly necessary but they appear in numerous instances sometime preceded by “volume” and sometimes preceded by references to the “Applicant’s documents” or words of similar import. A page number reference consisting of four digits will invariably refer to the disclosed documents and should be construed accordingly.
58. Non-disclosure may be relevant to the tax proceedings but this is not an aspect to be resolved by this Tribunal. This may arise in the Part IV C proceedings.
59. It will be noted that I have in this Part F dealt with this aspect at some length and in particular because the Applicant in effect demanded that I do so. As I have indicated, much of the evidence before me over all of the hearing days was concerned with matters of taxation which will form part of the Part IV C proceedings and which are not for me to decide. I appreciate that I should not trespass on the Part IV C proceedings in that they will be resolved by this Tribunal and the Federal Court on the basis set out previously. The fact that I have to some extent dealt with aspects to be resolved by the Part IV C proceedings, and will do so to some extent later in these reasons, arises purely and only from the manner in which this case was run.
PART E - kearney’s case
60. For the reasons set out in the preceding Part there is no basis whatsoever upon which the principle in Kearney’s case (supra) is in any way relevant. The situation in Kearney (supra) was that a government authority deliberately took certain steps for a purpose which was improper. There is no basis whatever for the application of any such principle in this case.
PART F - the evidence of mr bonett
61. Mr Bonett’s evidence and cross-examination took up nearly three days most of which were devoted to his cross-examination by Mr Durack.
62. Mr Durack cross-examined Mr Bonett as to his bona fides (or alleged lack of bona fides) in respect of his findings as to evasion by reason of non-disclosure and also his findings in respect of Division 13.
63. The audit committee in respect of this matter was first formed some 10 years ago. Over the years, and as I have said, its composition changed; again as noted previously its centre of administration moved from Perth to Melbourne and Mr Bonett who is a senior officer in the employ of the Respondent, came to be its head at a comparatively late stage.
64. Ms Kennedy opposed Mr Durack’s application with some force. She contended that the matters to be canvassed by his proposed cross-examination were outside the scope of this inquiry. She noted in particular that there are no time limits in respect of Division 13.
65. After consideration of the application and the opposing arguments I decided to allow the cross-examination. I did so for a number of reasons. In the first place there may be findings in the Part IV C proceedings to the effect that Division 13 does not apply and in which case time limits might be relevant. This is relevant also in the context of allegations as to evasion by reason of non-disclosure. All of this, it seemed to me, might perhaps have a bearing on public interest considerations as referred to in section 36 of the FOI Act. Even more to the point is the fact that it seemed to me that as a matter of natural justice it is generally safer to allow cross-examination than to disallow it. If in the result the cross-examination proved to be irrelevant I could always disregard it. It must be remembered also that this question arose at a very early stage of the hearings and at a time when I unfamiliar with the voluminous documentation and had little conception of the sheer volume of paper which was to be generated and more particularly the time which would be involved; furthermore I was not then aware of the numerous and complex issues which would be raised. At the time of that ruling I did not imagine that Mr Bonett would be in the witness box under cross-examination for nearly three days, and indeed towards the end of the cross-examination I put Mr Durack on terms as to time. It must be noted that some of the time taken was caused by repeated and indignant interjections by Ms Kennedy. I found it odd that at the submission stage she expressed criticism of the cross-examination when she had objected so strenuously to it and the time it took. She indicated that while the cross-examination was too long it still did not canvas all of the questions and issues which should have been dealt with.
66. It is my view that no good purpose would be served by canvassing Mr Bonett’s evidence in detail in these reasons. It will be sufficient in my view to record my conclusions as to his evidence.
67. It is clear to me that the audit endured for a very long time in part because of changes in personnel and location and in part because it raised questions of law as to which opinions differed. Much of the deliberative matter consists of opinions expressed by various members of the audit committee. A comparatively junior member of the committee expressed the view that evasion would be difficult to establish. Division 13 was the subject of much debate and perhaps more than was needed. As the Applicant concedes the management fees issue is prima facie suspicious. There were times when the audit committee appeared to be following lines which were not apposite.
68. I have come to the conclusion that Mr Bonett was an honest witness and indeed Mr Durack did not seek to maintain allegations of mala fides; on the contrary he agreed that Mr Bonett was an honest witness. At the same time it does appear to me that there were delays and certainly more than were desirable. This may have occurred as was suggested through staff shortages and in other words the fact that the audit committee did not have sufficient personnel. It is clear to me that in the early stages the committee was understaffed. To allot one officer (who was not working a full year) to the matter for a considerable period when the audit commenced was clearly inadequate. Mr Durack at the end of the hearings described the committee as a “rudderless ship”. On the evidence before that description was not at all inapt.
69. In other submissions on behalf of the Applicant, Mr Bonnet’s evidence was criticised on various grounds. It is alleged that at times he did not answer the question put to him or gave answers which were not proper responses. There is some merit in some of this criticism; at the same time it must be remembered that Mr Bonett was at that time undergoing a very serious family problem (his daughter’s serious illness); even more to the point is the fact that Mr Durack had made it clear that the Applicant would treat references to legal opinions as falling within waiver allegations; in the result Mr Bonett treated many questions with very considerable caution and, it may be said, fear. The without prejudice negotiations to which I have referred no doubt played its part in the manner in which Mr Bonett dealt with questions by Mr Durack.
70. Mr Bonett’s evidence put in general terms indicated that his awareness of the manner in which this whole matter was dealt with was often in some respects inadequate. In a very long and patient cross-examination Mr Durack established that there were disclosed documents in Exhibit A2 which were very similar to documents withheld. On a number of occasions Mr Bonett was obliged to say that a document released in Exhibit A2 should not have been released.
71. I have come to the conclusion that, with some reservations arising from the fact that he did not have sufficient knowledge of the minutiae, Mr Bonett’s evidence can be accepted. I emphasise that this view does of course not apply in any manner which is suggestive of trespass on the Part IV C proceedings. But I do accept that he was never at any time and in any way mala fide. At the same time I consider that the audit committee could have acted with considerably more expedition. In submissions Ms Kennedy made the point that the delay was not all on the part of the Respondent; this may be so. There were occasions, as indicated by the evidence, when the Applicant was less than prompt in his replies, and the provision of information in response to queries.
PART G - the evidence of ms lee and mr robinson
72. The evidence of both of these witnesses can be accepted and this is so especially in the case of Ms Lee. She demonstrated a command of the documentation which was altogether praiseworthy. Her presence at an earlier time (if she had then been employed by the Respondent) would have been advantageous. She furnished some assistance to Mr Robinson as to the disclosed documents (Exhibit A2) but spent only one day in Perth on this task. She agreed, as did Mr Robinson, that some of the disclosed documents should not have been disclosed.
73. Mr Robinson’s evidence indicated that the disclosed documents were put together and furnished under pressure. Under the FOI Act a deeming operates where the request is not dealt with within the prescribed time period. An extension of time (but one only) was sought and obtained. Mr Robinson’s evidence was that a further time extension would not have been granted; I accept that this was a conclusion which was not unreasonable in the circumstances.
74. In the result the disclosed documents in Exhibit A2 do indeed include numerous documents which could have been withheld and perhaps should have been withheld. This is so in particular, not only in respect of documents which referred to legal advice and in particular counsels’ opinions, but also to deliberative documents. Many of the deliberative documents which were disclosed might have been the subject of claims for exemption under ss.36 or 37 of the FOI Act.
PART H - mr solicitor’s evidence
75. There are parts of Mr Solicitor’s witness statement which should be disregarded. I do not think it necessary for me for the purposes of these reasons to set out in detail the content to be disregarded since nothing turns on it at least for the purpose of the hearing before this Tribunal.
76. I also do not think it necessary in the case of Mr Solicitor to deal with his oral evidence in detail. It was largely uncontroversial but with one notable exception in relation to Exhibit A5. The nature of that Exhibit is such that reservations as to the control of the Group were improper. Mr Smith and the overseas adviser knew that this was so. Mr Solicitor may or may not have been similarly aware; I do not need to express an opinion as to this aspect.
PART I - the documents withheld in general terms
77. I have previously in these reasons set out the content of Exhibit A1 (edited as set out previously).
78. As the hearings proceeded and as I have indicated concessions, were made on both sides culminating in the directions made by consent on 28 April 2006 and as referred to in clause 5 above.
79. Having regard to those directions the Tribunal notes that in relation to document 23 the Respondent agreed to the release of pages 2, 3, and 4 but not page 1. Moreover the Respondent agreed to the release of documents 20 and 22 in an amended form.
80. The result is that the documents still to be considered are not as extensive as was originally the case. It is however relevant to note that in respect to documents 20 and 22 the Respondent agreed to release them in amended form after conducting a search as to the extent to which Exhibit A2 contained material identical to that contained in the withheld documents. This arose from the fact that, so it seemed to me, there can be little or no public interest in the retention of withheld documents which have already been released. A full search was conducted by the Respondent (and in particular Ms Lee) and this led to the concessions in respect of those two documents numbered 20 and 22.
81. The remaining withheld documents falls into one or more of three classes:
(a)Documents in respect of which LPP is claimed and where the only real issue is waiver and more particularly waiver outside the without prejudice negotiations;
(b)Documents containing deliberative material within s.36 and where the only issue is as to whether the Respondent has already disclosed that material either in identical or substantially the same form and thus having a bearing on public interest consideration, and
(c)Documents containing deliberative material and where the Respondent relied on section 36 (and as to which the preceding subclause is relevant) and also section 37, perhaps by way of back-up and where there are said to be considerations of an international nature or which relate to on-going issues
82. Exhibit A2 contains, as I have said, a vast quantity of material and the parties agreed that it would not be necessary for me to read it in order to ascertain the extent to which it or any part of any document in Exhibit A2 is included to any substantial extent in the withheld documents. As I have noted Exhibit A2 contains approximately 3500 pages (and leaving aside legal opinions in respect of which there are different considerations) it would be necessary to compare each page in Exhibit A2 against each page or part of a page withheld. It was accepted by the parties that such a task is simply not possible.
83. It was in these circumstances that I asked Ms Kennedy whether it would be possible for the Respondent to search Exhibit A2 for pages or parts of pages which contained material substantially similar to that contained in the withheld documents. Ms Kennedy replied that the Respondent had already undertaken a very substantial and burdensome task in its search for identical material and could not be asked to do more. I made it clear that such a search would be of considerable assistance to me but my suggestions in this context were resisted. It is my view is that the Respondent with its resources could, admittedly with some difficulty, have undertaken such a search and that he should have done so in order to discharge the onus.
124. There are a number of references or notes in CLPP which refer either in categoric terms to a disclosed document or documents or, and in some cases in more general terms and in relation to the “four Division 13” issues, in support of the contention that that reference, in the context in which it appears, constitutes a waiver of LPP. In some cases and in relation to a given withheld document there are more references than one. Those notes or references are as follows:
(a) 6/2246
Meeting ATO and representatives including Shaw QC and Gordon SC and Taxpayers’ representatives.
Schenk’s Typed Notes of Meeting dated 30.06.03:
Brian Shaw commenced with the Loan issue and then presented his advice on matters common to this issue and the Loan Transactions and Guarantee Fees issues.
Among other matters, Brian Shaw advised Group that the ATO position was sufficiently sound to proceed to assessment – any financial expert opinions would only be prepared for forensic, rather than assessment purposes.
The meeting broke from 11.35 am to 12.20 pm to allow the Group representatives to reflect on Brian Shaw’s advice.
See also 7/2709:
Schenk’s overview of the case.
In relation to Division 13:
20. Subsequently, external counsel advice was obtained on the four Division 13 issues. This advice supported the ATO positions.
(b) 22 August 2003
6/2330
ATO Position Paper: Loan Transactions Issue and Guarantee Fees Issue by Schenk
At 2347:
86. In Counsel advice36 obtained by the ATO it was concluded that if the relevant international agreement was the Deferred Payment Arrangement, then the consideration [Company] received for agreeing to defer the unpaid balance of the Purchase Price for 15 years interest free was, at best, limited to the fixed charge granted by [Company] over all of the Shares.
Footnote
36. See paragraph 48 of Counsel advice dated 29 May 2003 (folio 8 work papers 0330.00 05).
At 2348:
95. It has been argued by the taxpayer that under the law of contract adequate consideration necessarily passes between the guarantor and he guaranteed party…This view was accepted in Counsel advice41 obtained by the ATO.
Footnote
41 See paragraphs 65 to 68 and 73 of Counsel advice dated 24 June 2003 (folio 25 work papers 0330.0005).
At 2349-50:
SPECIFIC QUESTIONS FOR REFERRAL TO COUNSEL
1.In determining the arm’s length consideration for the purpose of applying Division 13, does application of the arm’s length principle require that the concept of comparability be interpreted to require that the uncontrolled comparable transaction must share all the circumstances of the particular transaction being considered except the relationship? (Refer paragraphs 7, and 21 to 39 above).
2.Is subsection 136AD (1) ineffective on the basis that it does not specifically indicate when the deemed consideration is received or receivable? (Refer paragraphs 40 to 59 above).
3.If the Commissioner determines that Division 13 should apply in respect of a supply of property and makes a determination to that effect, is it necessary to specify either one or the other of subsection 136AD(1) or (2) in order for the determination to be valid? Or can both subsections be specified without affecting the validity of the determination?
4.For the purposes of applying subsections 136AD(1) and (2), should the reference to “consideration was received or receivable by the taxpayer in respect of the supply” be interpreted as a reference to what would normally (i.e. between taxpayers dealing at arm’s length) have been treated for income tax purposes as relevant consideration in respect of such a supply? (Refer paragraphs 68 to 75 above).
5.In relation to the Loan Transactions, which of subsections 136AD (1) or (2) is the relevant provision? (Refer to paragraphs 60 to 81 above).
6.In relation to the Loan, which of subsections 136AD (1) or (2) is the relevant provision? (Refer to paragraphs 82 to 91 above).
7.In relation to the Guarantee Fees, which of subsections 136AD (1) or (2) is the relevant provision? (Refer to paragraphs 92 to 100 above).
(c) 4 May 2004
8/3176-3257
ATO Position Paper –Group:
Management Fees Issue – Final Position Paper
Includes withheld copies of docs 11 and 13
At 3186:
37. During the meeting of 12 March 2003, the taxpayer requested that the ATO seek legal advice from external counsel on the Management Fees issue (among others). The ATO duly sought such advice, which was provided by BJ Shaw QC and MM Gordon.28
38. Counsel advice observed that it is the taxpayer who bears the onus of establishing that the requirements of subsection 51(1) of the ITAA 1936/section 8-1 of the ITAA1997 have been satisfied.
39. Counsel advice highlighted evidentiary problems in establishing whether GGIML did in fact supply management services to the Australian Group.
40. Counsel advice further highlighted the difficulty of applying Division 13 (of the Income Tax Assessment Act 1936) when insufficient information had been provided to establish the actual work undertaken by [Company] for the Australian Group…
(d) 22 June 2004
8/3280-3283
Group; Division 13 Determinations/Treaty Applications: Memorandum from Daryl Cornish to Lorne Hunt.
Within this document it is stated:
At 3280-1:
I have sighted a number of related documents which were provided to me by the audit team and Les Christou. The following is a list of the most significant documents (amongst others):
…
Counsel advice including:
Joint Advice –
Joint Advice – M
Joint Advice
Joint Advice – G
Joint Advice – C
“comparabi…
6 February 2004…
…
I have actively participated in a number of meetings with counsel (7 April 2003, 3 June 2003 and 26 June 2003), meetings and telephone hook-ups with the team (some including counsel), and video conferencing…
In view of all of the advice above…a number of draft determinations were prepared by my team (in respect of the Sale Transaction issue, Loan Transactions and Guarantee fees) and signed by myself (on behalf of the delegate), in late 2003…
However after further consultation and extensive review of all the issues (in early 2004) by senior E & R segment leaders, ISO advisors (including myself), ATO legal practice, external counsel and the audit team, it has been decided that not all of the international (and domestic) issues and/or appropriate years will be proceeded with…
At 2382:
As part of the review process I sought access to some additional documentation, some of which were supplied by the team and some which were specifically prepared for my needs. The following is a list of the most significant documents:
…
Management fees
- Counsel advice titled Management Fees – Further Memorandum dated 17 December 2003
(e) 6 July 2004
8/3298-3304
Sensitive Issue –Group Audit: Briefing Paper from Lorne Hunt to Jennie Granger.
8/3298
Briefing Paper: Hunt to Granger
At 3299:
6.In March 2003, the ATO was preparing to issue assessments and the taxpayers indicated that it would consider legal action against ATO officers if assessments were issued on an insufficient basis. The taxpayer insisted that external legal advice be sought by the ATO… External counsel advice was obtained and it supported the team’s view in relation to the four issues, with one exception.
7.In relation to Management Fees issue, the audit team was required to further review its position on the disallowance of the claims under subsection 51(1) of the ITAA 1936 or section 8-1 of the ITAA 1997…
At 3303:
…At the suggestion of the taxpayer, the ATO has since obtained external legal advice to review its Division 13 issues… This has resulted in the Commissioner preparing to finalise the audit by assessment rather than by settlement and has extended the period of the audit.
…
125. It is relevant that I note that I would not include the notes by Mr. Schenk as to what transpired at the without prejudice meeting in June 2003 (the first note in the preceding clause) were it not for the fact that that content is included in 2246 and which is one of the disclosed documents. I take the view that in disclosing p 2246 of Exhibit A2 the Respondent effectively waived his right to claim that those notes are protected because they purport to record aspects of a without prejudice meeting. It is also relevant to note in particular that in dealing with the withheld documents individually in Part Q I have cited in relation to waiver a subclause or subclauses in clause 122. Those citations should be regarded as examples and waiver may be evidenced by other subclauses; put in other words those citations are not intended to be construed as exclusive.
Part P - Methodology used in evaluating the withheld documents
126. In some instances the Applicant has established that there has been a waiver of a document in respect of which exemption has been claimed pursuant to s.42 of the FOI Act. I refer in this context to the CLPP notes set out in the preceding Part.
127. It is again necessary for me to emphasise that I have not, with the consent and approval of the parties, read Exhibit A2; however and over the many months during which these hearings have taken place, I have come to have some knowledge of the content of Exhibit A2. That degree of knowledge has been derived in part from a consideration of the documents in Exhibit A2 which were referred to specifically in the hearing and particularly during the cross-examination of Mr Bonett. My knowledge of Exhibit A2 does not even remotely approach that of Mr Durack (and no doubt also his juniors); during the hearing and particularly his cross-examination of Mr Bonett, he displayed a familiarity with Exhibit A2 which must have taken many months to gain. Submissions on behalf of the Applicant generally display much the same degree of expertise and the Applicant’s legal advisers are to be commended for the immense effort clearly involved in their preparation. But with the agreement of the parties, I have not read much of Exhibit A2 and cannot pretend to have anything like the same comprehension of it. As I read the withheld documents, and as I have noted, it was often hard to discern why a given paragraph was withheld when others not markedly dissimilar as to the nature of the content, were withheld. In considering the documents individually I have utilised the methodology contained in this Part recognising and admitting that in relation to claims under ss.36 and 37 my approach has at times and necessarily been in some respects arbitrary. That methodology is at the very heart of this decision. In many cases there has been a deletion where it is likely that something substantially similar is contained in Exhibit A2; it is in these instances that I indicate that disclosure must be granted because the Respondent has failed to discharge the onus.
128. It is necessary to make it clear that the question of onus arises in the context of s.36 but not in the context of s.37.
129. In relation to s.36 in particular there has in many cases been a deletion where in my view it is likely that something substantially similar is contained in Exhibit A2; it is in these circumstances that I indicate that disclosure must be made and granted because the Respondent has failed to discharge the onus.
130. In other cases and particularly in respect of documents partially withheld I have been obliged to exercise a degree of judgment as to whether:
(a)There is an onus element involved;
(b)The deleted part does not appear to be of a nature especially when compared with other material in the same document and such that it should properly be withheld;
(c)In a very few cases I have formed the opinion that the relevant passage is especially sensitive and in particular where there are international or on-going issue implications such that disclosure is protected under s.37.
131. It is also relevant (at the risk of being repetitious) to note that the methodology employed by me has been broadly as follows:
(a)Whenever in respect of an opinion by counsel Exhibit A2 contains a document which refers to that opinion in support of the stance taken by the Respondent I have determined that privilege has been waived.
(b)Issue waiver is not in the light of Syngenta (supra) relevant.
(c)I do not believe that Kearney (supra) is relevant.
(d)I have seen no evidence of waiver in respect of any instructions to counsel or communications with internal counsel within the office of the Respondent.
(e)I do not consider that delay is an issue which need effect my decision in any particular manner and notwithstanding the fact that it is conceivable (but by no mean certain) that this will have a bearing on the decisions in the Part IV C proceedings. To the extent that it is relevant I consider that the relevant audit took far longer than it should have taken and especially in the beginning the Respondent did not second sufficient personnel for this purpose. At the same time I also do not consider that all of the delay was caused by the Respondent; there was at times delay on the part of the Applicant. I do not think it desirable to say more on this issue since to do so might trespass on the Part IV C proceedings.
(f)I do not consider also that I need be concerned with issues of evasion; this aspect has been covered sufficiently previously in these reasons.
(g)In each case where I direct release it may be assumed that I have come to the conclusion that either the part in question is not sufficiently sensitive or that the Respondent has not discharged the onus; this latter element is relevant of course only in the context of s.36.
(h)I again note that in the absence of waiver I would not release any documents to which LPP applies; this applies not only to opinions by counsel but also briefs to counsel and the like.
(i)I accept in accordance with the most modern case authority that waiver could occur inadvertently and that it is by no means necessary that it is clearly intended and deliberate.
(j)Statements amounting to waiver need not describe the relevant documents specifically. For example references to the “four Division 13 opinions” amount to waiver of those opinions even where the opinions are not dealt with by reference to date or name.
(k)As to s.36 the vast amount of deliberative material released has the effect that it is incumbent upon the Respondent in order to discharge his onus to establish that release would be contrary to the public interest. The Respondent refused my invitation to undertake a survey of material substantially similar to the material released. This then has the effect that the Respondent cannot in many instances discharge the onus.
(l)I have taken a somewhat different view of material in respect of which exemption under s.37 has been claimed simply because there is no question of onus and the establishment of a public interest factor. During the course of the hearings there were a number of references in the context of s.37 to international considerations and there were also references to on-going aspects and issues the most prominent of which is probably the management fees. S.37 does not in its terms make provision for an exemption referable to international considerations; on-going aspects may be more relevant. But s.37 proved, in the scheme of things to be of relatively little importance.
(m)I should note that but for Exhibit A2 I would have been disinclined to direct that deliberative material must be disclosed.
PART Q - the withheld documents specifically
132. I deal with the withheld documents and being in particular those remaining having regard to the Directions dated 28 April 2006, in numerical order.
Schedule 2 of Exhibit A1
document 1
There are aspects of this document which might perhaps fall within s.37 but protection under s.37 has not been claimed. The Respondent, having claimed an exemption under s.36, has failed to discharge the onus and the whole of this document must be disclosed.
document 2
133. This document must be disclosed the Respondent having failed to discharge the onus under s.36; there is nothing in this document which attracts protection under s.37.
document 3
134. I have not been furnished with any evidence of waiver of LPP and this document need not be released because s.42 applies.
document 4
135. LPP has been waived (and it must be remembered that this document relates to one of the Division 13 issues); s.42 does not apply to confer protection and so that this document must be disclosed. Specifically as to waiver see clauses 124 (a) and (b).
document 5
136. LPP has been waived; this is one of the Division 13 issues. There is no protection under s.42. As to s.36 the onus has not been discharged, and in any event it is not clear why an exemption under s.36 was claimed. This document must be disclosed. As to waiver see clauses 124 (a) and (b).
document 6
137. This document must be produced because there has been a waiver of LPP. This is one of the Division 13 issues and s.42 does not provide an exemption. As to waiver see clauses 124 (a) and (b).
document 7
138. This document must be produced because there has been a waiver of LPP; this is one of the Division 13 issues and s.42 does not provide an exemption. As to waiver see clauses 124 (a) and (c).
document 8
139. This document must be produced because there has been a waiver of LPP. S.42 does not afford an exemption. As to waiver see clauses 124 (a) and (c)
document 9
140. This is again an opinion on one of the Division 13 issues and s.42 does not provide an exemption. The onus under s.36 has not been discharged. The document must be produced. As to waiver see clauses 124 (a) and (c).
document 10
141. The excisions from this document remain exempt under s.42 because there is no evidence of waiver.
document 11
142. This document was released in part and exemption is claimed under ss.36, 37 and 42 in respect of the parts excised. Clauses 15, 16, 17, 18 and 20 previously excised are entitled to protection under s.36 in that under s.36 a public interest in withholding has been demonstrated. Those clauses need not be disclosed. Clause 22 need not be released because there is no evidence of waiver of LPP. The excised parts of this document need not be disclosed.
document 12
143. The excised parts of this document need not be released. Protection is claimed under ss.36 and 42. Protection under s.42 is afforded in respect of pages 2 and 3; there is no evidence of waiver. In respect of pages 4, 5 and 6 a public interest in withholding the excised content has been demonstrated.
document 13
144. In this document exemption is claimed under ss.36, 37 and 42. Clauses 3 and 7 remain privileged under s.42 because there is no evidence of waiver. The other excised clauses must be released because the onus under s.36 has not been discharged. S.37 does not appear to me to be relevant.
document 14
145. This document remains exempt under s.42; there is no evidence of waiver and it is unnecessary to consider s.36.
documents 15 and 16
146. There is no longer an issue as to these documents; see clause 5 above.
document 17
147. This document remains exempt under s.42 because there is no evidence of waiver; it need not be disclosed.
document 18
148. Clauses 3 and 7 remains exempt under s.42 because there is no evidence of waiver. The remaining excised clauses (2, 4, 5 and 6) must be released because firstly they do not relate to legal advice and so that s.42 does not apply, the onus under s.36 has not been discharged and s.37 does not appear to be relevant.
document 19
149. There is no longer an issue as to this document; see clause 5 above.
document 20 (as revised)
150. This document need not be released. There are international aspects (to the extent if any) that this is relevant and also on-going aspects and so that s.37 can apply. Protection under s.36 is also available in that a public interest in withholding has in my view bee demonstrated.
document 21
151. There is no longer an issue as to this document; see clause 5 above.
document 22
152. This document must be released in full; the onus under s.36 has not been discharged, and s.37 does not appear to me to be relevant.
document 23
153. Exemption is now claimed only in respect of page 1 and in accordance with ss.36 and 37. The minimal reference to OECD Guidelines does not allow an exemption under s.37 and the onus under s. 36 has not been discharged; this document (and in particular page 1 previously withheld) must be released.
document 24
154. Exemption is claimed under s.42. There is no evidence of waiver; this document need not be released.
document 25
155. The excised parts need not be released; there is no evidence of waiver and s.42 applies.
document 26
156. This document is not relevant; see Exhibit A1.
document 27
157. There is no evidence of waiver and this document enjoys protection under s. 42 and need not be disclosed.
document 28
158. There is no longer an issue as to this document; see clause 5 above.
document 29
159. This document is a further opinion on management fees dated 17 December 2003. It must be released because there has been waiver; see in particular clause 123 (c)
Document 30
160. There is no evidence of waiver and s.42 applies; this document need not be disclosed.
document 31
161. This opinion relates to Division 13 issues; there has been a waiver of LPP and this document must be disclosed. See in particular clause 124 (d).
document 32
162. There is no evidence of waiver and s.42 applies; this document need not be disclosed. It is not necessary to consider the other sections under which protection has been claimed.
Document 33
163. There is no issue between the parties; see Exhibit A1.
Document 34
164. There is no evidence of waiver and this document need not be disclosed.
Document 35
165. There are in fact a number of documents comprising Document 35.
166. The first document is an ATO Position Paper from which clause 6 has been excised. The onus under s.36 has not been discharged and I can discern no basis for the application of s.37. The page containing clause 6 must be disclosed.
167. The second document is a copy of Document 2 and the third and fourth documents are copies of Documents 10 and 13. Previous decisions as to these documents again apply.
Document 36
168. There is no evidence of waiver and protection under s.42 is available. This document need not be disclosed.
Document 37
169. There is no evidence of waiver and protection under s.42 is available. This document need not be disclosed
Document 38
170. This document is no longer in issue; see clause 5 above.
Document 38
171. There is no evidence of waiver and protection under s.42 is available. This document need not be disclosed
Schedule 3 of Exhibit A1
document 1
172. This document must be released because the onus has not been discharged and protection under s. 36 is not available.
document 2
173. This Division 13 issue opinion must be released because LPP has been waived. See e.g. clause 124 (a) (This document may not be relevant at this stage because it is an option in respect of Guarantee Fees and which are apparently no longer in issue)]
document 3
174. Protection was claimed under s.36 but no s.37 I can discern no public interest reason for withholding the draft determinations and in any event the onus under s.36 has not been discharged. These documents must be released.
Document 4
175. Protection has been claimed under ss 26 and 37. The onus under s.36 has not been discharged. However an exemption under s.37 is granted because the document deals with ongoing aspects and in particular management fees. This document need not be disclosed.
PART R - concluding remarks
176. At or about the conclusion of the Battle of Britain Mr Winston Churchill then Prime Minister of Great Britain said “In the history of human conduct never was so much owed by so many to so few”. I could paraphrase that famous remark for the purposes of this case in these words: “Never was so little produced by so much effort and at so much expense”.
177. As I said earlier in these reasons the only possible relevance which the documents sought could have would be peripheral and in relation to penalties. As to the opinions by counsel, and with respect to Mr Durack and his juniors, to say that Mr Smith was curious to know how the opinions of counsel briefed by the Respondent differed from those briefed by him cannot be accepted. The fact that the views of counsel may differ is so obvious that it hardly worth repeating. The barristers briefed by Mr Smith were as eminent as those briefed by the Respondent.
178. The cost expended on the Applicant’s side was clearly enormous. Leaving aside all of the hearings, the work involved in producing the submissions and in preparation generally would have dwarfed all of the hearing costs and by a large margin. The whole cost must run into many millions of dollars.
179. What then was the point? Mr Justice Sackville has recently complained as to the volume of documentation with which he is being bombarded in the Channel 7 litigation and Mr Justice Weinberg is reported in the press (recently) as having voiced a similar complaint. The Part IV C proceedings involve significant issues and very large amounts. The documents, the release of which have been sought cannot add to the store of knowledge already possessed by the Applicant. The Applicant knows that the audit committee met and deliberated for years. The documents now released will not inform the Applicant as to anything new. As to counsels’ opinions I have previously made the point that opinions as between counsel may differ, leaving aside the extent to which views expressed by counsel may be hedged by expressions of opinion as to the evidence and related assumptions. The opinions now produced will not significantly assist the Applicant.
180. I have previously noted that I should not trespass on the Part IV C proceedings. I accept that notwithstanding that statement I have done so to some extent but the manner in which this case has been run has obliged me to do so. Moreover, I cannot refrain from noting that in my many years as a banking and finance lawyer I did not see anything in which as was the case with the Sale Transaction a large amount was left outstanding free of interest for 15 years; I was informed that the amount left outstanding took into account an interest factor but that statement was not reconcilable with another statement (to which I need not refer in detail) that the Sale Transaction might or could have resulted in a loss; moreover a management contract in relation to a mine which rewards the manager by reference to the value of the mine is distinctly unusual.
181. It is possible that this case was brought in order to put pressure on the Respondent in the hope of achieving a better settlement than was otherwise available or offered at the meetings held without prejudice. If so it would not be the first (and probably not the last) FOI application brought for tactical reasons. Alternatively, there was a different motive of which I am totally unaware. Mr Durack and the junior barristers who assisted him are all persons who would not be party to anything underhand.
182. It must also be said that it will be clear that the performance of the Respondent taken overall has been below par. With the notable exception of Ms Lee whose service was commendable throughout, the deliberations of the audit committee over the years cannot be commended. I do not conceive of the issues as being in any way near as complex as those referred to in the deliberative documents. Mr Bonett should be given credit for honesty but not more. The fact that he was not as au fait with the documents as he should have been may have been caused by his personal problems; Mr Robinson was clearly under time pressures, but not such that he should have made so many errors of disclosure.
183. On the Applicant’s side some contentions were perhaps made in the hope that Syngenta (supra) would be reversed. But that said I should note that the submissions on the part of the Applicant plainly demonstrated quite enormous effort and commitment. As to whether it was justified is debateable.
184. I said during the hearing on more than one occasion that if the Applicant was entitled to documents sought it must have them regardless of any other considerations. This decision has been prepared in accordance with that statement. As to whether in the whole scheme of things it is fair is also something which is debateable. As I have indicated I would not in the ordinary course order the release of counsels’ opinions and nor would I, given the magnitude of the issues involved order the release of deliberative documents at so high a level. I do so because on the evidence and having regard to case authority which is binding on me, I am bound to do so. Accordingly the decision under review is affirmed in part and set aside in part and all in accordance with Part Q above.
185. It is conceivable in my view (and indeed there was mention of this possibility during the hearings) that there will be an appeal in respect of this decision. Accordingly and (also as mentioned during the hearings) in respect of each of the documents or parts of documents which, pursuant to Part Q are to be released to the Applicant the effect of this decision is suspended for two months as from the date of this decision. If at the end of that period there has been no appeal, Part Q will take effect according to its terms; if this decision is appealed the effect of this decision is suspended until the resolution of the appeal.
186. Accordingly and subject to the preceding clause the Applicant must release the documents or parts of documents specified in Part Q and the decision is thus set aside in part and affirmed in part accordingly.
I certify that the 186 preceding paragraphs are a true copy of the reasons for the decision herein of Mr Julian Block, Deputy President:
Signed: Associate
Dates of Hearing 29, 30 and 31 August 2005
2 September 2005
7, 8 and 9 November 2005
13 and 14 February 2006
26, 27 and 28 April 2006
Date of Decision 7 June 2006
Counsel for the Applicant Mr J Durack SC
Mr J Momsen
Ms R Seiden
Solicitor for the Applicant Mr Solicitor
Counsel for the Respondent Ms M Kennedy SC
Mr R Niall
Solicitor for the Respondent ATO Legal Services Branch
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