Tip Top v Mackintosh, Tregloans, Rankine & Povco No. Scgrg-95-1295 Judgment No. S6613

[1998] SASC 6613

TIP TOP DRY CLEANERS PTY LTD v MACKINTOSH, TREGLOANS, RANKINE and POVCO PTY LTD

Civil

Debelle J

In this action the plaintiff claims damages for what is alleged to have been negligent advice in relation to the preparation of the plaintiff’s income tax return for the year ending 30 June 1992.  Late in June 1992 the plaintiff made a substantial purchase of petrol to use as trading stock.  The tax return had been prepared on the footing that it was proper to include in the trading account of the plaintiff company the cost of the petrol and to deduct it from the taxable income of the plaintiff.  The effect of the transaction was substantially to reduce the taxable income of the company.  The Deputy Commissioner of Taxation had initially allowed the deduction but later, after conducting an audit, disallowed it and, in the events which happened, amended the assessment recovering the tax which ought to have been paid together with interest and penalties.  The plaintiff claims damages for the interest and penalties and for the loss of the use of its money. 

Although there were initially four defendants, the plaintiff did not proceed with the claim against the fourth defendant Povco Pty Ltd.

Dramatis Personae

The plaintiff, Tip Top Dry Cleaners Pty Ltd (“Tip Top”), is a company controlled by the Nemer family.  Its offices are in Richmond.  It carries on a number of businesses including dry cleaning, laundry, retail clothing and petrol retailing.  All of those activities are conducted by Tip Top.  Other companies in the group carry on other forms of business activities.  The issues in this action concern only Tip Top.  In 1992 Tip Top operated four retail petrol selling outlets in the conduct of its petrol retailing activities. 

Mr George Nemer is the managing director of Tip Top.  Another director is Mr Nemer’s younger brother Joseph.  I will refer to each as George Nemer and Joseph Nemer.  Another director is Mr Antoine Nemer, who is the founder of Tip Top and the father of George and Joseph Nemer as well as of Paul and Leslie Nemer who are also directors.  The directors who participated in the events the subject of this action were George and Joseph Nemer.  There is no evidence of any formal meetings of the board of Tip Top.  No minutes were tendered.  I find that George Nemer and Joseph Nemer on behalf of Tip Top made the decisions binding Tip Top which are relevant in this action.  There is no evidence of any want of authority on their part.

The first defendant, Mr Grant Mackintosh (“Mackintosh”), has been a chartered accountant since 1970.  The second defendant, Tregloans, is a firm of chartered accountants.  In 1970 one of its partners was Mr K Tregloan.  In 1973 Mackintosh joined the firm and has been associated with it ever since as an employee or partner.  He is now the senior partner of the firm.  Tregloans has acted as the accountants for Tip Top for at least 30 years.  Formerly Mr Tregloan used to advise Tip Top.  When Mackintosh joined the firm in 1973, he assisted Mr Tregloan with the affairs of Tip Top.  For the past 20 years Mackintosh has been the partner in Tregloans with responsibility for the financial affairs of Tip Top.  Mackintosh also has a financial interest with the Nemers in some companies in the group.  Mackintosh was obviously close to the Nemers.  Not only did he then have a long standing professional relationship of almost 20 years as Tip Top’s accountant and financial adviser but he also carried on business in partnership with the Nemers.  George Nemer described him as a “business associate, partner and friend”, a description which Mackintosh did not seek to challenge.

The services provided by Tregloans to Tip Top include preparing annual statements, providing interim financial statements during the year, preparation of income tax returns, advising on taxation issues, liaising with financial institutions as to financial requirements, and advising generally on financial and management issues.  As Tregloans is liable for the acts or omissions of Mackintosh as one of the partners of the firm, it is convenient to refer only to Mackintosh in these reasons.

The third defendant is Mr Campbell Rankine, a solicitor.  He is also a qualified chartered accountant and for a time practised as such.  He has been a solicitor since 1981 practising in the fields of both commercial and revenue law, but predominantly in the latter. 

Mr Michael Elias is an accountant who has been employed by Tip Top since 24 February 1992.  When first employed he assisted Mr John Dovey, who left the employ of Tip Top in May to June 1992.  The duties of Mr Elias were those of an internal accountant and bookkeeper. His duties included preparation of the trading figures in each month.  Those figures were then sent to Tregloans and, in due course, would be examined by Mackintosh and used by him when discussing financial affairs with the Nemers.

Mr George Hanna has been employed by Tip Top for 15 years.  His duties in 1992 were to manage its four petrol retailing outlets.  Tip Top purchased its petrol from Mobil Oil Australia Ltd (“Mobil”).  Mr Hanna’s duties required him to deal with Mobil and to supervise the whole of Tip Top’s petrol retailing activities. 

Although officers of Mobil were involved in negotiations with Rankine concerning the transaction the subject of the proceedings and were present at a number of important meetings, neither Tip Top nor any of the defendants called a witness from Mobil.  It is curious that a witness from Mobil was not called.  There is no room for any operation of the rule in Jones v Dunkel (1959) 101 CLR 298. First, it was open to either the plaintiff or the defendants to call a witness from Mobil and, secondly, it cannot be said that the officers of Mobil were in any particular camp. I, therefore, draw no inference from the failure of either party to call a witness from Mobil.

I will, for convenience and meaning no disrespect, refer to all persons only by their surnames.

The Witnesses

Evidence on behalf of Tip Top was given by George Nemer, Joseph Nemer, Elias and Hanna.  For the defendants evidence was given by Mackintosh and Rankine.  Rankine also called Mr J R Whittaker, a solicitor, but his evidence was short and limited to formal issues as to discovery.

The main evidence for Tip Top was given by George Nemer.  It is apparent that Joseph Nemer did not take part to the same extent as his older brother in the events leading to the transaction the subject of this action.  That was in part a consequence of the fact that George Nemer is the director with responsibility for the petrol retailing activities and Joseph Nemer was responsible for aspects of the business other than petrol retailing. 

Both the Nemers have been in business for a number of years.  They are plainly men of affairs.  I found them both to be most unsatisfactory witnesses. Both went to such pains to distance themselves from any involvement in the transaction the subject of these proceedings and to seek to cast responsibility for these matters upon Mackintosh and Rankine that their evidence was at times manifestly improbable, if not also untruthful. On occasions it was quite apparent that they had fashioned their evidence.  After careful consideration, I believe that they have been selective in their evidence or have reconstructed it in a way which they thought might advance their cause.  Not only did I form that impression when I saw them in the witness box but that initial impression was not in any sense dispelled by re-reading the transcript.  When pressed in cross-examination on relevant issues both were often evasive and their evidence was often shaken in cross-examination.  Neither had kept any notes.  They both relied entirely on their memory of events without recourse to any kind of document other than a diary and a visitor’s book kept at Tip Top.  I will refer in a moment to the visitor’s book.  At times their memory was demonstrably convenient and shown to be incorrect, particularly in the case of Joseph Nemer.  His evidence was plainly of a partisan kind and he demonstrated a willingness to say whatever he thought might advance the cause of Tip Top.  Both of the Nemers were at pains to deny that they had ever seen any financial statements produced at meetings or in relation to this transaction.  In this respect their evidence was quite unrealistic and I reject it.  It is difficult to place any reliance on their evidence.  In the overall result, I accept the evidence of the Nemers only where it is consistent with the evidence of Mackintosh or Rankine.

The evidence of Elias was in large part uncontroversial.  However, his evidence on one issue had some importance.  It concerned those present at a meeting on 29 June 1992.  On this topic, it was apparent that he was acting as a loyal employee giving the evidence his employer required, and I do not accept it.  Hanna gave evidence on uncontroversial issues and I accept it.

Both Mackintosh and Rankine had correspondence, notes, cost entries and other documents to reinforce their recollection of events.  However, neither was a meticulous note-taker.  Rankine kept more notes than Mackintosh.  For the greater part those notes comprised cost entries for the purpose of rendering a memorandum of fees. They provide a fairly sound guide as to the order of events.  Rankine impressed me as a careful and meticulous solicitor.  Neither Mackintosh nor Rankine were shaken in cross-examination in any significant respect.  For all of these reasons, as a general rule I accept the evidence of Mackintosh and Rankine in preference to the Nemers.  There are, however, one or two important topics on which the evidence of Mackintosh and Rankine is inconsistent.  I note those inconsistencies later in these reasons and then state the evidence I prefer.

The Tip Top Visitor’s Book

From time to time there was conflicting evidence either as to whether a meeting had been held or as to the persons present at a particular meeting.  When giving evidence on these topics, the Nemers relied heavily on George Nemer’s diary and a visitor’s book kept at Tip Top.  In particular they relied on the visitor’s book as the diary did not always record all those present at a meeting.  It was George Nemer’s evidence that, some years ago, because of the requirements of occupational health and safety legislation, Tip Top had instituted a visitor’s book and that it was the practice that all visitors to Tip Top should sign the book.  But examination of George Nemer’s diary and the visitor’s book shows that the practice was not always observed.  For example, although Mackintosh usually signed the visitor’s book, he did not when he attended a meeting on 10 June 1992.  In addition, not every appointment in Nemer’s diary is reflected by an entry in the visitor’s book.  Making all due allowance for the fact that appointments might not have been kept and that some of George Nemer’s appointments would have been at places other than the office of Tip Top, there are too many occasions when there is not a corresponding entry in the visitor’s book.   Thus, although the visitor’s book is a guide to when meetings occurred and to those present at the meetings, it is not wholly reliable and does not constitute infallible evidence of when meetings were held and those present at the meetings.

Weekly Meetings at Tip Top

Since about 1987 it had been the practice of Mackintosh to meet the Nemers at least once in each week at the offices of Tip Top at Richmond.  The meetings were usually on the Wednesday in each week.  For most of that period the meetings were usually held with George Nemer. Joseph Nemer attended frequently, usually for about three out of every four meetings.  Occasionally Mr Antoine Nemer also attended.  The business of those weekly meetings dealt with such topics as the financial position of Tip Top and other companies in the group, the trading position for the past month, consideration of investments by Tip Top or other companies in the group, and discussion concerning different aspects of the business and the financial affairs of Tip Top and other companies in the group.

The Meeting on 20 May - A Tax Problem

On 20 May 1992 Mackintosh went to the offices of Tip Top for the regular Wednesday meeting.  George and Joseph Nemer were also present.  It is common ground that the topics discussed at that meeting included the fact that it was estimated that Tip Top was going to make a substantial profit of some $2.8 million in the financial year ending 30 June 1992.   The tax implications of that profit were considered.  There was discussion as to the steps that could be legitimately taken to reduce the liability of Tip Top for tax.  Several means of reducing the profit were discussed. 

One topic which was mentioned was the pre-purchase of petrol stocks for the petrol retailing business.  There was some debate in the evidence as to who raised the topic.  It is not an issue of great moment.  I find that it was first mentioned by Joseph Nemer.  There was also a dispute as to what was then decided.  The Nemers say that Mackintosh said it was a good idea and that he would get advice about the proposal.  Mackintosh said that he was aware that an amendment to s51 of the Income Tax Assessment Act, 1936 (Cth) (“the Income Tax Assessment Act”) had just been announced which was intended to limit the capacity to reduce taxable income by the pre-purchase of trading stock.  He, therefore, believed it was necessary to get advice on the extent to which, if at all, the pre-purchase of trading stock could be a deduction.  I accept his evidence and find that he did not say to the Nemers that it was a good idea.  All that he said was that he would get advice and that he proposed to seek that advice from Rankine.  Joseph Nemer says that Rankine’s name was not mentioned at the meeting.  I do not accept his evidence.

There was an issue whether Mackintosh had mentioned the potential for this large profit at the weekly Wednesday meeting on 14 April 1992.  I find that he did.  That fact is confirmed by a note Mackintosh made at the meeting. Another issue was whether Mackintosh tabled any documents showing the likely profit at the meetings on 14 April and 20 May.  The Nemers said that he did not.  It is inherently unlikely that information relating to the trading position of a company and its profitability would be discussed without some kind of financial statement being tabled.  It is not easy to comprehend a series of figures as to financial matters in the absence of at least a summary.  I, therefore, accept the evidence of Mackintosh that he provided financial statements at the meetings of 14 April and 20 May. The evidence as to the absence of financial statements was but one of the means by which the Nemers somewhat unrealistically sought to distance themselves from the issues in this action.

Mackintosh and Rankine Meet

Mackintosh frequently instructed Rankine to give advice on revenue law to the clients of Tregloans.  As a general rule, Rankine would not communicate directly with the client of Tregloans.  Instead, Rankine would prepare the advice and give it to Mackintosh who then passed it on to the client.  That was the practice adopted in this case.  Rankine only dealt directly with Tip Top at meetings at which he was present.  I find that, the meetings apart, Rankine had no duty to communicate directly with Tip Top or the Nemers. 

Mackintosh asked Rankine to advise on the proposal that Tip Top pre-purchase petrol before the end of the financial year.  They agreed to meet at the offices of Tregloans on 25 May.  At that meeting Mackintosh outlined the proposal and sought Rankine’s advice.  The retainer was to ensure that the money spent on the pre-purchase of fuel would be deductible even if the fuel was undelivered at the end of the financial year.   The proposed amendment to s51 of the Income Tax Assessment Act was discussed.  Rankine expressed the tentative opinion that it might be possible to devise a legitimate means of having the benefit of the pre-purchase.  He agreed to consider the matter.  He asked Mackintosh to obtain from Tip Top a copy of its petrol reseller agreement with Mobil.  A copy was sent to Rankine on 25 May. 

Mackintosh and Rankine met again on 26 May to discuss the proposal.  Rankine had by then identified the necessity to amend the petrol reseller agreement between Tip Top and Mobil.  The next weekly Wednesday meeting between Mackintosh and the Nemers was to be held on 27 May.  Rankine undertook to prepare before that meeting a document outlining the proposed transaction, to prepare an amended reseller agreement with Mobil, and to prepare correspondence to be exchanged between Tip Top and Mobil to effect the transaction. 

The Rankine Proposal

The proposal prepared by Rankine was intended to enable Tip Top to make a purchase of petrol for use in July 1992 at a cost equivalent to the amount by which it wished to reduce its taxable income.  In that sense it was a pre-purchase.  The proposal was designed to avoid the operation of ss28 and 51(2A) of the Income Tax Assessment Act.  One effect of s28 of the Act is that the assessable income of a taxpayer will include the amount by which the value of the trading stock on hand at the end of the year exceeds the value of the trading stock on hand at the beginning of the year.  Thus, a pre-purchase might, according to circumstances, result in an increase in taxable income.  Section 51(2A) is a complex provision designed to complement s28.  It is better to set it out, rather than try to summarise it.

“If:

(a).... a taxpayer incurs expenditure in a year of income in connection with the acquisition of stock that will become trading stock on hand of the taxpayer; and

(b).... as at the end of the year of income, a part of the stock is not, and has not been, trading stock on hand of the taxpayer; and

(c).... a deduction under subsection (1) in respect of the expenditure would, apart from this subsection, be allowable from the assessable income of the taxpayer of the year of income;

then, instead of the deduction under subsection (1) being allowable as mentioned in paragraph (c), a deduction under subsection (1) in relation to each part of the stock, equal to so much of the expenditure as is attributable to that part, is allowable from the assessable income of the taxpayer of:

(d).... the year of income in which that part of the stock first becomes trading stock on hand of the taxpayer; or

(e).... if an amount is included in the assessable income of the taxpayer of an earlier year of income in connection with the disposal of that part of the stock - that earlier year of income.”

This provision had been introduced to avoid the effect of a decision in FCT v Raynor (NSW) Pty Ltd (1990) 24 FCR 90 where the taxpayer had succeeded in securing a deduction for the forward purchase of stock, even though the stock did not physically exist at the end of the tax year in question.

Rankine’s proposal was that a specific quantity of petrol be purchased and that the petrol become trading stock on hand before 30 June 1992.  This was to be effected by Tip Top paying for the petrol, obtaining title and isolating the petrol purchased by it.  In that way it was intended to appropriate the fuel and pass title in it to Tip Top.  The precise means by which the appropriated fuel was to be stored proved to be a subject of continual discussion with Mobil.  In this way, it was proposed that Tip Top could claim that it had control of the petrol as trading stock on hand.  It was then intended that, at some time before 30 June, the petrol which had been purchased would be blended with other stocks of petrol held by Mobil and so lose its character as trading stock of Tip Top.  In that way, instead of owning trading stock, Tip Top had a contractual right to have Mobil deliver to it a quantity of petrol equivalent to the quantity owned by Tip Top immediately before the blending.  Given the events which subsequently occurred, it is unnecessary to examine whether the deduction could lawfully be made.

What must be noted is that it was an important element of the scheme that property in the petrol should pass to Tip Top at an early stage.  As will be seen, the proposal was to founder on that requirement.

The Meeting on 27 May

Early in the morning of 27 May Rankine prepared the documents relating to the proposed transaction.  The documents were an explanatory memorandum, a draft letter from Tip Top to Mobil to order the petrol, a draft letter of acceptance from Mobil, and a letter from Mobil confirming the “blending” of Tip Top’s fuel with other petrol.  He arranged to send them by facsimile transmission to Mackintosh that morning.  He knew that Mackintosh was to meet the Nemers at 11 o’clock.  The documents were not ready to send at that time.  Rankine, therefore, made two telephone calls to the office of Tregloans.  In the first he spoke to Mackintosh’s secretary.  In the second he spoke to Mackintosh.  He asked Mackintosh if he wished him to send the documents direct to Tip Top so that they could be used at the meeting.  Mackintosh asked for the documents to be sent to him at Tregloans.  Mackintosh was late for the meeting.  I find that Mackintosh waited for the documents and took copies with him to the meeting at Tip Top.  That is not only Mackintosh’s evidence but it is also highly likely that he would wait for the documents so that he would have them with him to assist his explanation of the proposal at the meeting. 

Those present at the meeting on 27 May were George and Joseph Nemer and Mackintosh.  It is common ground that one of the matters discussed was the proposed pre-purchase of petrol.  However, the Nemers and Mackintosh differ as to what was said and how the proposal was explained.  I accept the evidence of Mackintosh.  I find that Mackintosh reported that he had received advice from Rankine and he explained the proposed transaction.  I find also that he tabled the documents sent to him by Rankine for the purpose of assisting his explanation.  The Nemers said that they were simply told that the transaction would proceed, that Rankine would handle it, and that they instructed Mackintosh to put it in train.  This is but another example of the Nemers seeking to distance themselves from any knowledge or involvement in the transaction.  It was necessary for Tip Top to alter its petrol reseller agreement with Mobil and to be directly involved at different stages in the transaction. Rankine’s proposal required that Tip Top negotiate with Mobil, that George Hanna should sign some documents, and that Tip Top should take steps to record the quantity of fuel on hand before the transaction took effect as well as to record the quantity of fuel purchased pursuant to the transaction.  These steps involved George Nemer as the director responsible for the petrol retailing activities of Tip Top.  I, therefore, accept the evidence of Mackintosh that he tabled the documents and explained the transaction, not only because I found his evidence more reliable, but also because the Nemers’ evidence lacks plausibility.  As the proposed transaction involved Tip Top spending some $2.5 million to purchase about 4 million litres of petrol, it is quite apparent that George Nemer would wish to know about it.  His evidence that he knew very little about it suggests a commercial innocence or naivete on his part which is wholly belied by the fact that he is a successful and experienced businessman.  The account given by the Nemers of this meeting requires one to accept that on behalf of Tip Top they were to spend over $2 million without any kind of explanation or understanding of the transaction.  That is too implausible and strains credulity to breaking point.  I do not accept their evidence.

The Nemers denied that Mackintosh had tabled the documents at the meeting.  That evidence is most improbable because the documents, particularly Rankine’s explanatory memorandum, would have assisted the explanation.  In addition, the evidence of the Nemers on this topic betrays inconsistencies. Further, the Nemers’ denial that the documents were produced at the meeting does not sit at all well with what is said in a letter from their solicitors dated 30 January 1997.  In relation to these documents, the letter states:

“...both Mr George Nemer and Mr Joseph Nemer do not deny that documents were produced by Mr Mackintosh at the 27 May 1992 meeting but cannot specifically say that the documents produced were in fact those that you have referred to.”

The cross-examination of both the Nemers and, in particular, Joseph Nemer, demonstrates the unreliability of their evidence on this issue.

Pausing here, I find that after the meeting on 27 May the Nemers had an understanding of the essential steps in the proposed transaction, although they might not have appreciated the legal implications of each step.  They knew that the co-operation of Mobil would be required and that it was necessary to obtain a discount.  They instructed Mackintosh to proceed.

A Meeting with Mobil

There was a significant dispute whether George Nemer and Mackintosh met representatives of Mobil after the meeting on 27 May.  Mackintosh said there was such a meeting.  George Nemer denied it.  I find the meeting was held.  As the transaction involved both the purchase of such a huge quantity of petrol (some 4 million litres) and an alteration to the reseller agreement, it was necessary for Tip Top to negotiate with Mobil and explain its position.  It would be undesirable for Rankine to contact officers of Mobil to arrange the transaction without Tip Top contacting Mobil beforehand and alerting it to the proposed transaction.  Absent such a preliminary contact, Rankine’s efforts might be frustrated or delayed.  It was, therefore, also necessary to inform the appropriate officers at Mobil that Rankine would be dealing with them and to identify the officers with whom he should deal.  I find that it was agreed that George Nemer was to arrange a meeting with Mobil.  I find that a few days after the meeting on 27 May, Mackintosh was present at a meeting between George Nemer and the officers of Mobil.  At that meeting Mackintosh explained the proposal.  There was discussion as to how a volume as large as 4 million litres of fuel would be stored in a manner which would enable it to be appropriated to Tip Top. It was agreed that Mackintosh would contact Rankine, who would then, in turn, contact Mr Trevor Durden at Mobil.

The evidence is not clear as to when this meeting was held.  It must be noted that Mackintosh is not sure of the date of the meeting but he believed that it was held on 29 May.  On 5 June 1992 Rankine contacted Durden for the first time.  The meeting, therefore, had to have been held between 27 May and 5 June.  Mackintosh had an entry in his diary with a note of a meeting with George Nemer at 2pm that day but the entry includes a question mark.  He has no other note or record of the meeting.  There is no note in the Tip Top visitor’s book of Mackintosh coming to Tip Top on 29 May.  I find that the meeting did occur, although not necessarily on 29 May, notwithstanding the absence of any record at Tip Top.  As I have said, neither the visitor’s book nor the diary are entirely reliable. The visitor’s book records a meeting at Tip Top with Durden on 27 May (he had signed the book that day after Mackintosh) and on 4 June.  Both were possible occasions when Nemer could have met Mobil to discuss the intended pre-purchase of petrol.  Mackintosh said that he remembers that one of the officers of Mobil at the meeting was Mr Rod Lewis, a person with whom he had played squash and whom he had not seen for some time.  I accept that evidence as confirmation of his recollection.

On about 1 June 1992 Mackintosh rang Rankine and gave him instructions to proceed.  He informed him that Nemer would be contacting the relevant officers at Mobil to let them know that Rankine would be in touch with them to arrange the details of the transaction.  He gave Rankine the name of Mr Trevor Durden at Mobil.  On 5 June 1992 Rankine contacted Durden for the first time.  Thereafter he was in touch with Durden on several occasions by letter or by telephone. 

The Meetings on 3 and 10 June

The usual weekly meetings at Tip Top were held on 3 and 10 June 1992.  I find that the proposed transaction was briefly mentioned but that Mackintosh had nothing in particular to report.  That is quite consistent with the early state of the transaction at that time.  George Nemer gave evidence that at the meeting on 3 June 1992 Mackintosh had reported that “Everything was going on, everything was OK, and that was basically it”.  I find that he overstates the position since Rankine had only just been told of the name of the persons at Mobil he should contact and Rankine did not contact Durden until 5 June.

The Meeting on 17 June

Mackintosh brought Rankine with him to the weekly meeting on Wednesday 17 June.  George and Joseph Nemer were both present and Mackintosh introduced Rankine to them.  The Nemers say that this was a relatively brief meeting, the only purpose of which was to enable them to meet Rankine.  Their evidence was that they were given a very brief report that the transaction was proceeding and documents were being prepared.  By contrast, both Mackintosh and Rankine say that the purpose of the meeting was twofold, namely, to provide an opportunity for the Nemers to meet Rankine and to enable Rankine to explain the transaction to them.  Mackintosh and Rankine say that the meeting lasted about one hour and that Rankine gave a detailed explanation of the transaction.   I entirely reject the Nemers’ evidence on this and other aspects of this meeting.  I accept the evidence of Mackintosh and Rankine which has all the hallmarks of probability, particularly as earlier that morning Rankine had spoken to Durden and it is likely that he would wish to impart what he had learned from Mobil.   My impression of Rankine is that he is the kind of solicitor who would be at pains to ensure that he explained a transaction of this kind to his client.  In addition, the cost entry made by Rankine indicates that it was a meeting lasting at least one hour, a period allowing ample time for pleasantries as well as business.  Again, the evidence of the Nemers is inherently unlikely. In addition to my general views on their evidence, the likelihood is that the Nemers, who are experienced businessmen, would wish to have explained by their professional adviser, even the barest outline, a transaction in which they were to spend about $2.5 million on purchasing about 4 million litres of fuel, in circumstances in which it was intended to reduce the liability of Tip Top for income tax.  The effect of their evidence is that neither on 17 June nor on any other occasion did they receive any explanation.  That evidence strains credulity too far and I reject it.  I note also that Mr Wilkinson, who appeared for Tip Top, did not cross-examine either Mackintosh or Rankine to suggest that their recollection of this meeting was incorrect.

Contrary to the evidence of the Nemers, I find that Rankine went through the transaction in some detail.  He also informed them of a potential difficulty with the storage and appropriation of the petrol.  However, Rankine added that Mobil believed that the difficulty was not insurmountable and that it would be able to resolve it by 30 June.  There was, however, nothing at that stage to put the Nemers on notice of any reason why the proposal would not proceed.

Information Given to National Australia Bank

Given that Tip Top was to spend some $2.5million on this transaction, it was necessary to make arrangements with its banker, National Australia Bank, to increase its overdraft.  Tip Top banked at the Wayville branch of the bank.  The manager was a Mr Roberts.  Contrary to his evidence, I find that George Nemer spoke to Roberts some time in the first half of June informing him of the need for an overdraft and briefly explained the reasons for it.  Mr Roberts sought more information from Tip Top.  On 18 June 1992 Mackintosh telephoned Rankine and asked him to contact Mr Roberts.  On 19 June 1992 Rankine wrote to Mr Roberts explaining the reason for the purchase. On 22 June 1992 Mackintosh also wrote to Mr Roberts explaining the transaction. 

A Difficulty Is Encountered

Rankine continued to speak to officers of Mobil about the details of the transaction.  On 23 June 1992 he spoke to Mr Rod Lewis, who informed him of a potential obstacle. For excise purposes, bonding arrangements existed between the Department of Customs and Excise (“Customs”) and Mobil.  Lewis informed Rankine that the terms of the bonding arrangements between Customs and Mobil might not enable the transaction to proceed.  Rankine realised that, if it was not possible to arrange with Customs a variation to the bonding arrangements, the proposal would fail.  He saw it as a serious obstacle to the transaction proceeding in the manner he had advised.  Mobil agreed to look at the problem urgently.  Rankine tried to contact Mackintosh.  He left a message with Mackintosh’s secretary at 3.30pm that afternoon alerting him to the problem and saying that Lewis was going to follow it up with Customs.  Mackintosh’s secretary noted the message in these terms:

“RE: NEMER

He has had his meeting with Rod Lewis of Mobil.
They have been advised by Excise that they do have a problem with what they are trying to do.  Rod Lewis is following up with the Tax Department as he and Campbell do not believe they have a correct understanding of what is going on.

Also, they are going to take all of the fuel in the pipeline between Pt Stanvac and Birkenhead as well as whatever is in the tank at Birkenhead.

Campbell hopes to hear from Rod Lewis again this afternoon.”

It is obvious that the reference to “the Tax Department” is wrong.  It should have read “the Customs Department”. It is Rankine’s evidence that, in a telephone conversation later that day, he informed Mackintosh again of what he had learned as to the bonding arrangements and said that it was a strong possibility that the transaction could not proceed.  He added that there was a glimmer of hope that the bonding arrangements could be changed.  He said that Mackintosh then responded by saying he would inform the Nemers.  It was the evidence of Mackintosh that the telephone conversation occurred but he denied that Rankine said it was a strong possibility that the transaction could not proceed.  He told the Nemers the next day - at the weekly meeting on 24 June - what he had learned from Rankine.  I do not think the difference between their evidence is significant.  The important fact is that Mackintosh was aware that there was a potential problem and he informed the Nemers of it.

On 25 June Mobil sent Rankine a copy of a document stating the terms of the excise arrangements between Mobil and Customs.  It was a condition of the arrangement that the petrol was the property of Mobil and was physically separate and identifiable from other goods.  This was entirely inconsistent with the transaction as devised by Rankine.  In his evidence, he described it as “a disaster for Tip Top”.  Tip Top would not be able to get to first base with the transaction.  Rankine telephoned Mr Paul Wight at Mobil to discuss the Customs document and ascertain whether Customs would agree to vary it. Although Wight was not confident, he believed that there was a faint hope that Customs might be prepared to waive the condition.  Wight agreed with Rankine that the bonding arrangements meant that Mobil could not pass title to Tip Top.  Rankine immediately tried to ring Mackintosh.  Mackintosh was at a conference.  Rankine spoke to Mackintosh’s secretary and left a message advising her of the bonding difficulty and of his conversation with Wight.  The message was in these terms:

“Mobil cannot do it because of the terms of bonding of fuel agreed to under Customs Regulations.
He is faxing information.”

At lunch time on 25 June, Mackintosh rang his office to inquire whether there were messages for him.  His secretary told him of the message left by Rankine.  Mackintosh immediately telephoned Rankine asking for a full explanation of the message.  Rankine told him what he had learned.  He said that it appeared that at that late stage it was not likely that the bonding issue could be resolved to enable the transaction to proceed as intended.  He told Mackintosh that there was no more than a glimmer of hope that Customs might waive their requirements.  He said that it was a virtual certainty that it would fail.  The evidence of Macintosh and Rankine on this issue is not entirely to the same effect.  However, the differences between them are in truth no more than differences in emphasis.  I find that both believed that it was most unlikely that the transaction could proceed.  They realised that the glimmer of hope was virtually non-existent.  Later in the day Rankine sent a copy of the bonding arrangements by facsimile to Mackintosh.

There is, however, one important aspect of this conversation where the evidence of Mackintosh differs from that of Rankine. According to Mackintosh, after Rankine had informed him that it was most unlikely that the proposal would succeed, he went on to say that there was an arguable case that the transaction was valid notwithstanding the difficulties with appropriating the fuel to Tip Top but he believed that, if the issue were tested in litigation, Tip Top would fail.  Rankine denies that he said anything about an arguable case.  His evidence was that Mackintosh was extremely pessimistic about the success of the proposal as he did not believe that Customs would waive the conditions of the bonding arrangements.  The question whether Rankine said that there was an arguable case is important as it bears upon the subsequent events. Mackintosh was unable to recall the arguable case or even outline it when asked to do so in cross-examination.  Despite that fact, I accept his evidence.  Later, Rankine advanced what was called “an arguable case” so that it is not unlikely he would have done so on this occasion.  Notwithstanding that I accept the evidence of Rankine on all other issues, I find that he did say that there was an arguable case and added the rider that it would fail if tested.  That conclusion is borne out by the events of 26 and 29 June.

I also find that, very shortly after speaking to Rankine on 25 June, Mackintosh telephoned Nemer and told him what he had just learned from Rankine.  The importance of the information and its potential consequences would have been all too apparent to Mackintosh and, given its importance and his close association with Nemer, he would have reported it to him.  Telstra telephone accounts sent to Mackintosh also reinforce this conclusion.  This telephone conversation was not pleaded and there was no cross-examination on it.  Counsel for Tip Top relied on those facts to submit that the conversation did not occur.  However, the obligation in Rule 46.04 is to plead material facts.  In this case the material fact is the meeting on 26 June.  The conversation on 25 June is a pre-cursor to it.  The failure to cross-examine is significant but is not in itself a reason for rejecting the evidence of Mackintosh on this point.  In my view, the evidence points to the conclusion that Mackintosh did speak to Nemer on the telephone on 25 June.

The Position at this Stage

I summarise the important aspects of the position at this stage.  Rankine had advised a transaction by which Tip Top could, he said, legitimately deduct the pre-purchase of fuel from its taxable income for the year ending 30 June 1992.  An integral part of the proposal required property in the petrol purchased from Mobil to pass to Tip Top.  The bonding arrangements between Mobil and Customs were such that it was not possible for property to pass. The transaction could not, therefore, proceed as proposed.  It simply could not get off the ground.  Both Mackintosh and Rankine realised that the transaction could not proceed unless Customs waived the terms of the bonding arrangements.  They also believed that to be most unlikely.  On 25 June Rankine advised that there was, nevertheless, an arguable case but that, if the deduction was disallowed, Tip Top would not be able to sustain it.  As will be seen, Mackintosh conveyed that advice to at least George Nemer.

The Meeting on 24 June

In the meantime, the next weekly meeting between Mackintosh and George Nemer had been held on Wednesday 24 June.  According to George Nemer,  Mackintosh reported that everything was falling into place.  That was wholly inconsistent with what Rankine had told Mackintosh the day before.  I find that Mackintosh did not report that everything was falling into place but, instead, informed George Nemer of the potential problem with the bonding arrangements.  It beggars belief that Mackintosh as Tip Top’s financial adviser would not inform Nemer of a potential problem with such a large transaction.  Whatever else might have been said, Mackintosh at least passed on the effect of the telephone message he had received from Rankine. 

Joseph Nemer’s evidence in chief was that he was present at the meeting and that Mackintosh had reported that the purchase was going ahead and that “everything was fine”.  When cross-examined, he said that he could not remember whether he was in fact present at the meeting.  Mackintosh said Joseph Nemer was not there.  I find that he was not present.  This is but one of several occasions where Joseph Nemer was prepared to say anything which he thought would assist the cause of Tip Top and where the evidence was demonstrably false.

The Nemers Learn  More of the Difficulty

Mackintosh gave evidence that on Friday 26 June 1992 he met George Nemer  and discussed the problem which had arisen with Mobil.  George Nemer denies that the meeting was held.  He also says that he was not informed of the problem at any time before 30 June. I unhesitatingly accept Mackintosh’s evidence, notwithstanding that the meeting is not recorded in either the Tip Top diary or its visitors’ book and that Mackintosh has no note or other record of it.    My reasons are, first, that it is wholly unrealistic to expect that, at a time so proximate to 30 June, Mackintosh, who was not only the financial adviser to Tip Top and its chartered accountant but also a close friend and business associate of Nemer, would not inform him of a difficulty which had every likelihood of preventing this substantial financial transaction from proceeding. That view is reinforced by the fact that the transaction had a major impact upon the liability of Tip Top for income tax.  Secondly, Mackintosh rang Rankine later on 26 June to tell him he had met Nemer and wanted to arrange a meeting for 29 June.  Mackintosh repeated that information when he spoke to Rankine on the morning of 29 June.

It was Mackintosh’s evidence also that he met Nemer later on 26 June - possibly in the afternoon - and informed him of the problem in some detail.  He has no note or other record of this meeting.  He said that he spoke to both George and Joseph Nemer at that meeting and told them that it was not possible to put in place an important step in the transaction.  He repeated Rankine’s advice that there was an arguable case and added that, if the argument was tested in litigation, it would fail.  I find Mackintosh explained to the Nemers the consequences if the deduction was disallowed including the risk that TipTop might be subject to penalties.  I find also that the Nemers expressed the view that, if there was any chance of the transaction being successful, they wished to proceed with it. Both George and Joseph Nemer deny that the meeting occurred.  I accept Mackintosh’s evidence.  I find that the meeting did occur and that his account correctly states what occurred.  In addition, his account is consistent with what occurred at the meeting on 29 June.

It is also Mackintosh’s evidence that, after the meeting on 26 June, he telephoned Rankine and instructed him that the Nemers had decided to proceed nevertheless to make a pre-purchase.  He also told Rankine that a meeting had been arranged for the afternoon of 29 June.  Mackintosh is not sure when he rang Rankine.  He said that it might have been on the evening of Friday 26 June or on the following Monday morning.  It does not matter when he rang.

Rankine’s evidence was that Mackintosh said on 25 June that he intended to speak to the Nemers.  He said that at the end of the day on Friday 26 June Mackintosh left a message at his office that he had had a meeting with the Nemers and that he wanted to call a meeting as soon as possible.  I accept this evidence.  Rankine also gave evidence that he spoke again to Mackintosh during the weekend or early on the morning of Monday 29 June.  He believes the latter to be more likely. 

Rankine and Mackintosh had a telephone conversation early on 29 June. Rankine gave evidence that Mackintosh then told him that the meeting was urgent.  That was obviously so given that nothing had yet been finally resolved with Mobil.  According to Rankine, Mackintosh did not tell him what he had advised the Nemers or that the Nemers had decided to proceed irrespective of the problem which might be caused by the bonding arrangement.  His evidence was that he went to the meeting a little miffed because he did not know the purpose of the meeting.  I find that Rankine knew what Mackintosh had told the Nemers.  The position at this stage was that Tip Top was hoping that Customs would decide to waive the terms of the bonding arrangement but, if it did not, Tip Top would proceed to purchase petrol in any event and claim the deduction, albeit aware of the risks if the deduction was disallowed.  The fact that the bonding arrangements were still a difficulty on 26 June is confirmed by a facsimile message sent by Mobil to Rankine on 26 June.

The Meeting on 29 June

The meeting on 29 June was held at about 2 o’clock in the afternoon in the boardroom of the offices of Tip Top at Richmond.  Those present included George and Joseph Nemer, Mackintosh and Rankine.  Also present was at least one employee of Mobil, Mr Trevor Durden.  All that was common ground. Rankine’s evidence was that there was one other officer present but he could not identify him.  Mackintosh said that Mr Rod Lewis and at least one other officer from Mobil were present in addition to Durden. The evidence of Mackintosh and Rankine was denied by the Nemers. The issue is not particularly important.  It only goes to the credit of the witnesses.  I prefer the evidence of Mackintosh and Rankine to that of the Nemers.  That does not necessarily resolve the issue.  Since Rankine impresses me as having the most accurate recollection, I prefer his evidence that there was one other officer of Mobil present in addition to Durden.

The evidence also differs as to the purpose of the meeting.  The Nemers both gave evidence that the purpose was to finalise the purchase of fuel in accordance with the transaction as initially advised by Rankine.  The representatives of Mobil were present, they said, to accept Tip Top’s cheque.   Mr George Nemer’s evidence was that Durden had confirmed that the price for the petrol was $2,582,400; that Rankine had said that there was still some documentation to be resolved with Mobil; but that neither Mackintosh nor Rankine nor anyone else informed him that there was any problem with the transaction.  George Nemer said that, once the price had been fixed, he rang Elias in another part of the office and asked him to draw a cheque for $2,582,400; that Elias did so and brought the cheque to him just outside the boardroom; that he (Nemer) then handed the cheque to Durden in the doorway of the boardroom; that Mackintosh and Rankine were both present when he did so; and that shortly after the meeting came to an end.  Joseph Nemer gave almost identical evidence. 

The evidence given by Mackintosh was that the purpose of the meeting was to finalise the documentation, which was almost complete, in a way which would place Tip Top in the best position to argue the case that the pre-purchase of stock should not be included in assessable income.  He said that all that remained to be resolved was the quantity of fuel to be purchased and the price; that Rankine conferred with Durden and Lewis on that documentation while others at the meeting chatted on other topics; that no instruction was given by George Nemer to proceed as that had already been decided on 26 June; and that, once the commercial matters had been agreed by Rankine and Durden, he and Rankine left the meeting as the question of quantity of petrol and price was for Tip Top and Mobil to negotiate.  He said that neither he nor Rankine were present when Nemer asked for the cheque to be drawn and when it was handed to Mobil.  He said that on 30 June he rang Nemer early in the morning and was surprised to be told that the cheque had been handed to Mobil.

Rankine’s account of the meeting was a little different from that of Mackintosh and was to the following effect.  He did not know why the meeting had been called, particularly as he was still waiting for a final answer from Mobil as to whether it was possible to vary the bonding arrangement.  He said that he opened the discussion by stating that everything was subject to his having a final response from Mobil on that topic but he added that they should go as far as they could because of the imminence of 30 June.  It was necessary, for Mobil and Tip Top to agree the quantity and price of petrol and also to agree how adjustments should be made to account for changes in price.  In the result, it was agreed that price changes would be reflected in a variation in the number of litres purchased.  In other words, Tip Top would pay a fixed price and the number of litres purchased would increase or decrease according to whether the price fell or rose.  Once he and the representatives of Mobil had agreed the formula for price adjustments, he and Mackintosh left the meeting.  He, too, says that Nemer did not give any instructions to draw a cheque or hand a cheque to Mobil while he was at the meeting.  He did not believe that any payment would be made.  At no time during the meeting did Rankine proffer any advice to the Nemers other than to say, as has already been noted, that the transaction was subject to the bonding issue being resolved.  There was some banter, he said, between Nemer and Durden when negotiating the price.  Rankine did not participate in the negotiations as to price. 

It will have been noticed that, while these three accounts of this meeting are in broad terms similar, there are differences on significant issues.  The Nemers say that a cheque was handed over to Mobil when Mackintosh and Rankine were both present.  Mackintosh and Rankine deny that fact.  I accept the evidence of Mackintosh and Rankine on that topic.  In addition to my general preference for their evidence, it is confirmed by the letter sent by Rankine on the instructions of Tip Top on 15 April 1994 to the Deputy Commissioner of Taxation.  Nemer was shown a draft of that letter and did not seek to correct the statement in that letter that “shortly after the departure of myself and Mackintosh, the taxpayer paid to Mobil a cheque for $2,582,400 pursuant to the terms of a deal just reached.”  Elias gave evidence that he saw Mackintosh and Rankine in the room when he handed the cheque to George Nemer.  I do not accept his evidence.  He had not seen Rankine before and he was unable to identify Rankine in the sparsely filled courtroom when first asked to do so.  He had not been asked to nominate who was in the boardroom until two years after the meeting.

Both the Nemers and Mackintosh say that the purpose of the meeting was to finalise the documentation, although they differ as to what was being documented.  The Nemers say it was the documentation for the transaction as originally advised.  Mackintosh said that Rankine and Durden were discussing how the transaction would be recorded in the books of Mobil as well as the commercial documentation.  Rankine’s evidence was not identical but to similar effect to that of Mackintosh.  He also said that he did not know the purpose of the meeting.  I find that the purpose of the meeting was to go as far as possible in completing the documentation in case there should be a last minute decision by Customs to waive the requirements of the bonding arrangements.  I find also that the Nemers had decided that, if the transaction could not proceed as originally intended, they would nevertheless make a pre-purchase of a substantial quantity of petrol and claim the deduction for it.  Some of the documentation which was to be prepared for the transaction as originally advised was equally applicable for the pre-purchase of the petrol they intended to make.  Because of Mackintosh’s explanation on 26 June, it was clear to the Nemers that, if they proceeded with the pre-purchase of petrol and the deduction was disallowed, they would not be able to sustain the deduction.

A Different Transaction Proceeds

On the morning of 30 June, Rankine received a telephone call from Mr Bruce Easton, a senior officer at Mobil, informing him that Customs was not prepared to waive the conditions of the bonding arrangement.  Soon after, Mackintosh telephoned to tell him that Tip Top had handed a cheque for some $2.5million to Mobil after he and Rankine had left the meeting. Rankine then told Mackintosh of the attitude of Customs. 

Later in the afternoon of 30 June, Rankine exchanged telephone messages and letters by facsimile with Mr David Proudman, a solicitor at Thomsons who acted as the solicitors for Mobil.  The purpose of those letters was to record the formula agreed between Tip Top and Mobil the day before in order to deal with variations in the quantity of fuel to reflect variations in price.  Mobil had also agreed to vary the petrol resellers agreement so that property in the petrol passed to Tip Top on 29 June.  It was necessary for Rankine to complete this documentation in order to record what had been agreed on 29 June.  It was, however, a different transaction from that which he had originally advised.

On 1 July 1992 Rankine sent to Mobil a letter agreeing all items but amending the formula.  He did not receive a reply.  On 7 July 1992 he sent Mackintosh a copy of the correspondence, stating that he had not received a reply to his letter of 1 July.  Mackintosh instructed him to proceed no further, as most of the petrol had by then already been delivered to Tip Top. 

After 7 July Rankine had no more to do with this transaction until 1993 and 1994.  I will deal later with the events in that period.  He played no part in the preparation of the income tax return of Tip Top for the year ending 30 June 1992 and he was not asked to advise on it.  He rendered an account for his fees.

A Commercial Advantage

A good deal of evidence concerned the question whether it was an integral part of the scheme that Tip Top should secure a commercial advantage from the transaction in the form of a discounted price for the petrol purchased.  Shortly stated, the Nemers said that neither a commercial advantage nor a discount was mentioned by either Mackintosh or Rankine but George Nemer did concede, when tested, that Tip Top received a discount.  For their part, Mackintosh and Rankine both said that it was intended that a discount should be obtained.  For the reasons that follow, I accept the evidence of Mackintosh and Rankine and find that it was always intended that Tip Top should negotiate for and obtain a discount.  As Rankine explained in his evidence in chief, that requirement flowed from the provisions of Part IVA of the Income Tax Assessment Act which had the effect that the taxpayer had to be able to demonstrate that the dominant purpose of the scheme was not to obtain a tax benefit: see s177D(b). 

The provisions of Part IVA were not mentioned in the explanatory memorandum prepared by Rankine on 27 May.  However, there was express reference to a discounted price for the petrol in a draft letter to Mobil prepared by Rankine.  The letter was the means by which the petrol was ordered.  That paragraph reads:

“I refer to our Reseller Agreement dated 23rd  November 1990.  As discussed with you recently, we wish to avail ourselves of the buying discount prices by forward purchasing a substantial quantity of motor fuel for delivery to our sites over the next month or so.” (Emphasis added)

It must be emphasised that this letter had been drafted by Rankine before there had been any discussion with Mobil.  It had been drafted on the assumption that there would be such a discussion.  The draft was one of the documents that he sent to Mackintosh on 27 May.  The reference to Tip Top availing itself of “discount prices” is plainly intended to provide the commercial justification for the proposal.

There are other pointers to the conclusion that it was intended to obtain a discount.  In his letter to the National Australia Bank on 19 June 1992, which was written on instructions, Rankine gave as one of the reasons for the transaction the desire of Tip Top “to take advantage of a substantial buying discount on the forward purchase of stock”. 

Next, as already mentioned, Tip Top intended to buy some 4 million litres of fuel at an approximate cost of $2.5 million in one transaction.  By any chalk, that was a very substantial purchase of fuel and one which would justify Tip Top in seeking a discount.  The Nemers are experienced businessmen.  I cannot believe that they would not seek a deduction from Mobil, particularly as Tip Top had had a longstanding commercial relationship with Mobil.  Yet the Nemers persisted in asserting that they did not seek a discount.  To conclude that they did not seek a discount is, I think, to assume a commercial naivete on the part of the Nemers, a naivete which is wholly unsupported by the evidence.

Thirdly, at the meeting on 17 June 1992, Rankine explained the transaction to the Nemers.  I find that, in the course of discussions, he would have mentioned the need for either commercial advantage or a discount. I also find that both Mackintosh and Rankine were, as a result of their long experience in advising on income tax matters, well aware of the requirements of s177D.  It is too well known a provision not to have been at the forefront of the matters being considered by them.  Expression is given to their awareness of it by the reference to discounted prices in the extract quoted from the draft letter.

Finally, although the letter to the Deputy Commissioner of Taxation dated 15 April 1994 submitting that the return should not be adjusted and the drafts of that letter did not expressly refer to a discount, the letter enclosed the draft letter to Mobil seeking amendments to the petrol reseller agreement with a reference in the first paragraph to “discount prices” and that letter was expressly mentioned at least twice in the submissions.  Similarly, Rankine’s letter to Nemer dated 11 July 1994 does not expressly mention the desirability of obtaining a discounted price.  However, it does refer to “a special purchasing agreement” with Mobil which “would require a specific quantity of trading stock to be identified, and for that stock to be appropriated to Tip Top under the contract”.  The draft letter to Mobil with a reference to “discount prices” was expressly mentioned and was attached.  Further, in that letter, Rankine set out what he called an “arguable case” on the liability to tax.  In that argument he said, among other things, that:

“...Tip Top’s argument was that a binding arrangement with Mobil was entered into on the basis of the draft order at the conference on the 29th June.”

The draft order to which he refers can only be the draft letter which mentioned “discount prices”.

The fact that there is no reference to either a commercial advantage or a discounted price in the correspondence exchanged between Rankine and Thomsons on 30 June and 1 July 1992 concerning the formula to account for price movements is neutral.  That correspondence concerned the issue of accounting for price fluctuations.  The fact that there is no reference to Part IVA in the explanatory memorandum sent by Rankine on 27 May is equivocal.  As already mentioned a letter enclosed with it refers to “discount prices”.

The Income Tax Return is Prepared

The next significant involvement of Mackintosh in this transaction was the preparation of the income tax return of Tip Top for the year ending 30 June 1992.  Mackintosh did not himself prepare the return.  It was prepared by a junior partner and given to Mackintosh to determine whether there were any issues which required discussion with Tip Top.  Mackintosh took the tax return of Tip Top and of other persons to a meeting with George Nemer on 9 December 1992. 

The returns which were handed to Nemer were enclosed with a letter addressed to Mr Antoine Nemer from Tregloans which drew attention to the importance of the taxpayer checking the accuracy of the returns.  The letter also mentioned the possibility of an audit by the Australian Tax Office.  The letter is quite short.  As Mackintosh acknowledged, it is a standard letter sent to client taxpayers. The letter does not mention the deduction for the pre-purchase of petrol.  Mackintosh explained that he would not, for the reasons he expressed in his evidence, have written to Tip Top on the topic of the deduction.

It was Nemer’s evidence that Mackintosh simply presented him with the returns and did not discuss any of them.  He said there was no warning of any kind concerning the manner in which the pre-purchase of petrol had been treated in the trading account of Tip Top or in its tax return, or as to the consequences if the Commission disallowed the deduction. In cross-examination he conceded that Mackintosh probably went through the returns briefly.   The return was signed by Mr Antoine Nemer.  He had not been present at the meeting.  I find also that Joseph Nemer was not present at the meeting on 9 December.

Mackintosh gave quite a different account of the meeting on 9 December.  He said that he handed the return to Nemer and discussed with him the possible outcome of the transaction with Mobil.  The return as prepared did not make full disclosure of the transaction. He said that he informed Nemer that three alternative courses of action were open. The first was to make the deduction and simply lodge the return.  The second was not to make the deduction knowing that, if it was contested, Tip Top would in all likelihood fail to sustain it.  The third was to include the deduction while at the same time making full disclosure and arguing the claim for the deduction.  He said that he explained the consequences of each alternative and the risk of penalties if the first course was adopted and an audit disclosed the questionable deduction.  He said that he told Nemer that the third course had the advantage that there would be no penalties if the deduction were disallowed.  His evidence was that, after his explanation, Nemer said that he had made up his mind to proceed before entering into the transaction with Mobil in June, that nothing had occurred since to change his attitude, and that he wished to proceed and lodge the return as prepared. 

I accept the evidence given by Mackintosh.  In addition to my preference generally for his evidence when it is inconsistent with that of the Nemers, I note that Mackintosh’s account is consistent with what had occurred on 26 and 29 June.  It is consistent with the fact that Nemer had been advised in late June by Mackintosh that, although it was arguable that the deduction should be made, it was unlikely that, if tested in litigation, that view would prevail.  Nemer had then decided to go ahead with the transaction even if it could not proceed in the manner in which Rankine had advised.  It was implicit in the cross-examination of Mackintosh that the failure to refer to the deduction in the letter enclosing the tax returns was consistent with Mackintosh not explaining the alternatives and the consequences of including the deduction without full disclosure.  That suggestion is also implicit in the submissions made on behalf of Tip Top.  I do not accept that conclusion.  Mackintosh had his reasons for not mentioning the deduction.  It is unnecessary to comment on the wisdom of his approach.  It is sufficient to say that I accept his evidence that he gave the explanation to which he deposed.

I find that Mackintosh explained the alternatives to Nemer and the likely consequences of each and that Nemer understood the explanation. I also find that Nemer believed that full disclosure would result in the claim being disallowed; that Nemer wished to do all he could to have the benefit of the deduction; and that he, therefore, rejected the alternative of making full disclosure and decided that Tip Top should lodge the return as prepared.  In short, Nemer was aware of the risks in lodging the return as prepared but proceeded nevertheless to cause it to be lodged.

There are other reasons for accepting the evidence of Mackintosh on this significant issue.  This was a particularly large transaction even for a company such as Tip Top.  It had occupied a great deal of time and attention in May and June 1992.  The consequences if the deduction was disallowed were serious, as subsequent events were to prove.  It defies belief that Mackintosh would not have informed Nemer of the alternatives.  I do not overlook the possibility that, given the close association between Nemer and Mackintosh and the fact that Mackintosh had for a long time been Tip Top’s financial and tax adviser, that he might have failed to attend to his professional duties as carefully or as objectively as he should have.  It is possible even that he could, therefore, have overlooked alerting Nemer to the consequences.  But I do not think he did.  I am reinforced in that conclusion by the fact that disclosure was made of another transaction involving $10,130 in that year and a ruling was sought.  Compared with the transaction with Mobil, that was an insignificant transaction.  If that small transaction warranted attention in that way, it is quite likely that consideration would have been given also to treating the Mobil transaction in a similar way.

A Raid by Tax Officers

The events which followed can be quickly mentioned.  The tax return was lodged and an assessment issued.  The assessment accorded with the taxable income as stated in the return.  Tip Top paid the income tax in about April 1993.

On 13 December 1993 officers from the Australian Tax Office raided the offices of Tip Top, Mackintosh and Rankine and some of the Nemer residences.  The evidence is not clear whether the residences of Rankine and Mackintosh were also raided.  Documents were seized in those raids, including documents relating to Tip Top’s pre-purchase of petrol from Mobil.

An Amended Assessment

On 18 March 1994 the Deputy Commissioner of Taxation wrote to Tip Top advising that, as a result of an audit, he proposed to amend the return of Tip Top to increase the net taxable income of Tip Top by $2,218,909, being the value of fuel purchased from Mobil and not delivered at 30 June 1992.  The letter stated that the adjustment would not be made for 21 days to enable Tip Top to make submissions and produce any relevant documents.  The letter was sent to Tip Top care of the office of Tregloans and was received on 22 March.  On the same day, Mackintosh telephoned Nemer and informed him of the letter.  A meeting was arranged for 5 April 1994.  Mackintosh arranged for Rankine to attend the meeting. 

The meeting on 5 April 1994 was attended by George and Joseph Nemer, Mackintosh and Rankine.  It was not one of the regular Wednesday meetings.  The meeting resolved that Rankine should draft a letter to the Deputy Commissioner submitting that the adjustment should not be made.  Nemer gave evidence that at this meeting Mackintosh and Rankine said that “the tax consequences would be fine”.  I reject that evidence.  It is quite implausible, particularly given that the Tax Office had made a raid, conducted an audit, and had given notice of an amended assessment.  In those circumstances it would be entirely foolish for them to give such an unequivocal assurance.

Some time was spent in evidence on the issue whether Nemer had at this meeting, or earlier, in the telephone conversation on 22 March, threatened to commence legal proceedings against Mackintosh and Rankine if the matter was not resolved to the satisfaction of Tip Top.  There was a dispute whether Nemer had rung Rankine at home one evening.  I do not regard these issues as relevant to the issues in this action and do not stay to deal with them.

On 11 April 1994 Rankine sent to Nemer and to Rankine a draft of a letter to the Deputy Commissioner.  The letter plainly attempted to put the transaction in its best light. The letter was sent to the Deputy Commissioner unamended together with relevant documents.  The Deputy Commissioner was not persuaded. On 2 June 1994 he made an adjustment to the taxable income as stated in the return and, on 15 June 1994, issued an amended assessment in the sum of $1,351,591.69, being:

Gross tax  $863,978.31
         Additional tax for incorrect return  $787,960.00
         Interest (section 170AA)  $99,653.38
  $1,351.591.69

Tip Top instructed Messrs. Cowell Clarke to act for them and to object to the amended assessment.  An objection was lodged.  In the result, the additional tax was reduced to $155,184.00.

On 1 July 1994 Mackintosh asked Rankine to prepare a summary of the arrangement between Tip Top and Mobil.  The instruction was to give advice on:

“How the arrangement was originally contemplated and the tax effect of this, how the arrangement as entered into was different from the original contemplation, if indeed it was different, and the current tax position that has resulted.”

On 11 July 1994 Rankine sent that summary to George Nemer.  He attached to the summary copies of the relevant documents.  It is unnecessary to refer to the summary as the facts Rankine mentioned have already been noted.   At the time he prepared the summary, Rankine was aware that Nemer was contemplating legal proceedings.

Cowell Clarke advised the Nemers that it might be possible to reduce the penalty if the Deputy Commissioner was satisfied that the claim was based on incorrect advice.  It was submitted that this was one reason why this action was instituted.  It is unnecessary for me to go into the motives of the action.

Damages

It is common ground that, if it establishes that the defendants are liable to it, Tip Top is entitled to recover the interest it paid to the Australian Tax Office on the tax for 1992 ($99,563) and the penalties ($155,184).  In addition, Tip Top claims the sum of $19,595.50 being the interest on the amount borrowed by Tip Top in order to pay for the petrol.  This was calculated by deducting the amount of the pre-payment from the overdraft and determining what the overdraft would have been had Tip Top purchased petrol in accordance with its usual arrangements with Mobil.  Tip Top would have taken about twelve days to acquire an equivalent volume of petrol.  Interest was charged on the difference at the rate payable by Tip Top on its overdraft for the twelve day period.  The resulting sum is $19,595.50.  The defendants do not dispute this calculation.  Those three sums total $274,432.50, being

Additional penalty for incorrect return   $155,184.00

Section 170AA interest   99,653.00

Extra cost incurred on pre-purchase of fuel   19,595.50

$274,432.50

In their reply to the plaintiff’s submissions, the defendants contended for the first time that there should be off-set against the claim for the sum of $19,595.50 an amount equal to the discount received by Tip Top on its pre-purchase of petrol from Mobil.  There is no evidence of the amount of the discount. After the evidence has closed and submissions have been exchanged, it is not appropriate to submit - as the defendants did - that the plaintiff has not, in the absence of proof of the discount price, proved the loss of $19,595.50.  I do not accede, therefore, to this aspect of the submissions of the defendants.

It is also common ground that it is necessary to deduct from the sum of $274,432.50 the benefit to Tip Top of not having paid the tax which it would otherwise have had to pay for the period between the date when, in the ordinary course, it would have paid that tax and the date when it was in fact paid.  Obviously, if Tip Top had borrowed funds to pay its tax, it would have been able to deduct the interest.  For the purpose of calculating damages the parties are agreed that the tax for the 1992 tax year was payable on 15 March 1993.  The tax of $863,978.31 was in fact paid in two instalments.  The first instalments was $675,000 paid on 20 July 1994 and the balance was paid on 18 November 1994.  According to Rankine’s calculations (which were accepted by Mackintosh) the interest saved is $182,245.  According to Tip Top the difference is $159,716 but there is no evidence of the basis for this calculation nor is there any detail showing how the calculation has been made.  It was not put to Rankine in cross-examination.  It appears only in the submission.  Another difficulty is that the calculation by Rankine was never tendered.  It was marked for identification to enable Mr Wilkinson, counsel for Tip Top, to get instructions on the calculation.  In the event,  Mr Wilkinson did not cross-examine on the accuracy of the calculation.  I am satisfied that the deduction should be for an amount larger than that calculated by Elias. There is much to be said for the calculation made by Rankine.  I am unable to detect any flaw.  At the end of the day, what is involved is an arithmetical calculation.  I agree with the calculation made by Rankine.

In the outline of his submission for the plaintiff, Mr Wilkinson included a claim for $39,642.25 being interest on the payments made to the Australian Tax Office for the interest and penalties paid by Tip Top.  The interest is claimed from the date of each payment and on the same basis as the calculation for interest saved by the later payment of tax.  The defendants dispute the claim, contending that the damages sought by Tip Top as set out in the paragraph 19 of the Statement of Claim do not include this claim. The defendants’ contention must be upheld because, although there is a claim for interest in the prayer for relief, that is clearly intended to be interest on the judgment sum.  A claim for the interest of the kind now pressed should be particularised in quite different terms than the bare word “interest”.  I do not allow this part of the claim for damages.

For all of these reasons, if Tip Top were to succeed with this claim, I would assess the damages in the sum of $92,187.50 being the sum of $274,432.50 less $182,245.

Summary of Findings

Before considering the question whether the defendants or any of them were negligent or are otherwise liable to Tip Top, I set out the findings of fact which are particularly relevant to those questions.  This summary repeats some of the findings made earlier in these reasons and adds further findings.

1. On 20 May 1992 George and Joseph Nemer, on behalf of Tip Top, instructed Mackintosh to obtain advice as to the validity of a substantial pre-purchase of petrol to reduce the liability for income tax of Tip Top in the year ending 30 June 1992.

1. On 25 May 1992 Mackintosh instructed Rankine to advise on the proposal.

1. On 27 May 1992 Rankine sent Mackintosh a bundle of documents he had prepared.  The documents comprised an explanatory memorandum, a draft letter with an order to purchase petrol which explained the reason for the purchase and proposed amendments to Tip Top’s reseller agreement with Mobil, a letter of acceptance from Mobil, and a letter from Mobil to Tip Top confirming the blending of Tip Top’s petrol with other petrol. 

1. The explanatory memorandum did not refer to Part IVA of the Income Tax Assessment Act.  However, the draft letter to Mobil expressly referred to “discount prices”.  It was part of the proposed transaction that Tip Top would negotiate a discounted price for the petrol. This was the means by which it was intended to avoid the operation of Part IVA.

1. Mackintosh took these documents with him to a meeting at Tip Top on the morning of 27 May with George and Joseph Nemer.  At the meeting Mackintosh explained the transaction to the Nemers.  The Nemers asked Mackintosh to instruct Rankine to proceed with the transaction.

1. It was necessary for Tip Top to contact Mobil.  First, it was necessary to explain the proposed transaction to Mobil; secondly, it was necessary to avoid any approach by Rankine being unheralded; and, thirdly, it was necessary to ascertain the name of the person or persons at Mobil with whom Rankine should deal.  At some time between 27 May and 4 June Nemer and Mackintosh had a meeting with officers of Mobil.  Tip Top was informed that Rankine should negotiate with Mr Trevor Durden.

1. From 5 June to 25 June 1992 Rankine negotiated with Trevor Durden and other officers of Mobil concerning the transaction.

1. In the first half of June, George Nemer contacted Tip Top’s banker, the National Australia Bank at its Wayville branch, to inform it of the intended transaction.  The purpose of this conversation was to negotiate an increase in the overdraft facility of Tip Top with the bank. 

1. On 27 June, Rankine explained the proposed transaction to George and Joseph Nemer at a meeting at which Mackintosh was also present.

1. George Nemer was aware of the mechanics of the transaction, although he might not have understood the legal implications of the separate steps in the transaction.

1. On 23 June Rankine learned from Mobil for the first time that the bonding arrangements between Customs and Mobil might present an insuperable obstacle to the intended scheme.  He informed Mackintosh of what he had learned.  Mackintosh passed that information on to the Nemers on 24 June.

1. On 25 June Rankine learned from Mobil that, although there was a slight hope that Customs might waive the bonding requirements, that was, in reality, most unlikely.  He then believed that the intended transaction could not proceed.   He informed Mackintosh to that effect.  He also informed Mackintosh that there was an arguable case that, even if the bonding arrangements were not waived, there was an arguable case for the deduction but, if it was disallowed, the deduction could not be sustained.

1. On 26 June Mackintosh informed George Nemer and, in all likelihood, Joseph Nemer, of what Rankine had told him about the difficulties with the bonding arrangements and that the transaction could not proceed as originally proposed.  Mackintosh also informed the Nemers on 26 June that there was an arguable case that, if Tip Top went ahead with the intended pre-purchase, a deduction would be allowed but that, if tested, the deduction would be disallowed. 

1. The Nemers decided either on 26 June or at some time between 26 June and 29 June to proceed to make a substantial pre-purchase of petrol notwithstanding the fact that, if the deduction was disallowed, they would not be able to challenge successfully that decision. I find that they made that decision aware of the risks and consequences of failure.

1. A meeting was held on 29 June to finalise whatever documentation was necessary to enable the intended pre-purchase of petrol to proceed. Tip Top negotiated a price with Mobil and, on 29 June, handed a cheque for $2,582,400 to Mobil. This pre-purchase of petrol was not the transaction which had been advised by Rankine.

1. Between 29 June and the date when the return was lodged, Tip Top had the opportunity to consider whether it wished to proceed to claim the deduction.

1. Rankine’s involvement ceased on 7 July 1992.  He was not involved in any way in the preparation of the relevant tax return for Tip Top.

1. On 9 December 1992 Mackintosh handed George Nemer the income tax return of Tip Top for the year ending 30 June 1992 which had been prepared by Tregloans.  The return included the deduction.  Mackintosh explained the alternatives available to Tip Top and the consequences of each alternative. George Nemer decided to proceed to lodge the return as prepared by Tregloans.  He was aware of the risks and consequences if the deduction was disallowed.  I find that he decided to take a deliberate and calculated risk that the deduction would not be discovered. 

Given the issues in this action, it is helpful to emphasise some of the above findings.  First, the transaction into which Tip Top entered with Mobil was not the transaction which Rankine had initially advised.  Secondly, Tip Top decided to enter into that transaction after receiving advice to the effect that, if it proceeded with a purchase and claimed a deduction, it would not be able to sustain the deduction if it were disallowed.  Thirdly, on 9 December 1992 Mackintosh explained the alternatives available to Tip Top and the consequences of each alternative.  The return was lodged by Tip Top knowing the consequences if the deduction was discovered.

The Claim Against the Defendants

Tip Top’s claim against the three defendants is for damages for breach of contract and for negligence.  The defendants do not dispute the existence of a contract between them and Tip Top or that a duty of care existed.  (Although Rankine disputed the existence of a contractual duty of care, he abandoned that at the commencement of the trial). Both Mackintosh and Rankine owed Tip Top a duty of care.  In the circumstances of this case there is no perceivable difference between the degree of skill and care required of a chartered accountant or a solicitor giving tax advice.  That duty is spelled out in the speech of Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932 at 956:

“My Lords, the solicitor contracts with his client to be skilful and careful.  For failure to perform his obligation he may be made liable at law in contract or even in tort, for negligence in breach of a duty imposed on him.”

See also Sacca v Adam (1983) 33 SASR 429 at 437.

Tregloans had been the accountants and financial advisers to Tip Top for more than 20 years.  Mackintosh himself had been advising Tip Top since 1973.  He was in 1992 the senior partner of Tregloans.  His weekly meetings at Tip Top would have made him all too aware that Tip Top and the Nemers as directors relied on his advice. The scope of the duty depends on the client’s apparent need for advice.  Thus, the scope of the duty which Mackintosh (and, therefore, Tregloans) owed to Tip Top included the duty to give advice which Tip Top appeared to need regardless of whether or not it had been specifically requested:  Carradine Properties Ltd v D J Freeman & Co (1982) 126 Sol J 157. See also Austrust Pty Ltd v Astley (1993) 60 SASR 354 at 372.

For his part, Rankine held himself out as an experienced adviser in revenue law.  He was expressly retained to advise whether Tip Top could engage in the transaction to pre-purchase petrol and thereby lawfully reduce its taxable income.  He, therefore, had a duty to advise on all relevant issues arising under the Income Tax Assessment Act or under the general law.  He also had a duty to give comprehensive advice to Tip Top which touched on all relevant matters.  The duty which each defendant had, therefore, included a duty to advise, not only on whether the proposed transaction might come within s51 of the Income Tax Assessment Act, but also upon the possible operation on the transaction of Part IVA of that Act.

In addition, Tip Top claims that the defendants are liable pursuant to s251M(1) of the Income Tax Assessment Act which provides:

“If, through the negligence of a registered tax agent, or of a person exempted under section 251L, a taxpayer becomes liable to pay a fine or other penalty, any additional tax or any interest under section 170AA or 207A, the registered tax agent, or the person, as the case may be, shall be liable to pay to the taxpayer the amount of that fine or other penalty, additional tax or interest, and that amount may be sued for and recovered by the taxpayer in any court of competent jurisdiction.”

Each of the defendants is a registered tax agent.  The damages recoverable under s251M would be limited to $254,747 being the penalty and interest paid by Tip Top less the deduction of $170,000. 

Finally, Tip Top alleges that, while engaged in trade and commerce, the defendants were guilty of conduct which was misleading or deceptive or was likely to mislead or deceive and are liable in damages to Tip Top pursuant to s56 of the Fair Trading Act, 1987. 

I deal first with the allegations of negligence as set out in the Statement of Claim.  The transaction mentioned in the following numbered paragraphs is the transaction as originally advised by Rankine, not the later transaction made on 29 June.  Tip Top alleges that the defendants had a duty of care

1. properly to advise the plaintiff as to whether the plaintiff should enter into the transaction to obtain the tax deduction;

1. properly to advise the plaintiff whether the transaction was lawful and would result in an allowable deduction for prepayment;

1. to ensure that the transaction was negotiated and documented with Mobil so that the plaintiff would lawfully obtain a tax deduction for the prepayment;

1. to advise the plaintiff on 26 June 1992 that there was a strong possibility that Mobil was not able to pass title to the purchased fuel and that this was fatal to the plaintiff’s claim for a deduction;

1. to advise the plaintiff on 23 June 1992 that it was a virtual certainty that Mobil was not able to pass title to the purchased fuel and that this was fatal to the claim for a deduction;

1. to advise the plaintiff whether or not to claim the prepayment as a tax deduction in the tax return for the income year ending 30 June 1992;

1. to advise the plaintiff of the likelihood, probability or possibility of the imposition of a penalty by the Australian Taxation Office if it did claim the prepayment as a deduction;

1. to advise the plaintiff of the likelihood, probability or possibility of the imposition of interest pursuant to the provisions of Section 107AA of the Act if it did claim the prepayment as a deduction; and

1. to advise the plaintiff of the likely probable and possible effect of Part IVA of the Act on the proposed transaction and the actual transaction and the claiming of the tax deduction for the prepayment.

Tip Top alleges that both Mackintosh and Rankine failed to discharge each of those particularised duties of care and were, therefore, negligent and in breach of their contract with Tip Top. 

The case for Tip Top as pleaded in its Statement of Claim turned on the premise that the transaction into which it entered on 29 June 1992 was the transaction which Rankine had originally advised on 27 May.  Plainly it was not.  Even if it is assumed that the duty of care owed by both Mackintosh and Rankine had all of the elements alleged in paragraphs 1 to 5, Tip Top fails because the transaction which proceeded was not the transaction which had been advised.  When counsel for Tip Top opened the case, there was a hint of an alternative case alleging that Mackintosh and Rankine were aware that the transaction as initially advised by Rankine could not succeed but that they did not inform the Nemers of that fact. That case cannot succeed on the facts as they have been found.  It was also contended that the Nemers had left the whole matter to Mackintosh and Rankine to handle so that they and, therefore, Tip Top knew virtually nothing about the intended transaction.  That case, too, fails because of the findings of fact.  Mackintosh and Rankine kept the Nemers informed of all relevant matters and, in particular, the difficulties arising from the bonding arrangements.  Finally, Tip Top says that it was not warned that the transaction could not succeed.  That allegation fails because, contrary to what is alleged in paras 4 and 5 above, Rankine informed Mackintosh and Mackintosh in turn informed the Nemers on 24 and 26 June  that the transaction initially advised by Rankine could not proceed because of the bonding arrangements.  George Nemer decided on behalf of Tip Top that it should continue to make a pre-purchase of petrol notwithstanding that an essential part of the Rankine proposal, namely the passing of property in the petrol to Tip Top, could not be effected.  Tip Top, therefore, entered into an entirely different transaction.

Both Mackintosh and Rankine had a duty of care to advise Tip Top in respect of the transaction into which Tip Top did enter on 29 June.  But they discharged that duty.  They informed the Nemers and, therefore, Tip Top that, although there was an arguable case, Tip Top would not be able to sustain the deduction if it was disallowed.  In any event, that was not the case which was pleaded on behalf of Tip Top. 

The allegation in paragraphs 6, 7 and 8 go to the question whether Tip Top was properly advised in relation to the manner in which it should prepare its income tax return.  Given the findings that Mackintosh advised George Nemer of the alternatives available and that, notwithstanding that Tip Top had been advised that it was open to it to make full disclosure when claiming the deduction, George Nemer had decided to claim the deduction without full disclosure, Tip Top is the author of its own misfortune and must fail.  Tip Top entered into the transaction fully aware of the consequences.

The final allegation of negligence appears to distinguish between the transaction as advised by Rankine and the actual transaction into which Tip Top entered.  As to the proposed transaction, assuming that Mackintosh and Rankine had a duty to advise as to the implications of Part IVA of the Income Tax Assessment Act, Tip Top must fail as the transaction which proceeded was not the transaction on which Rankine had initially advised. As to the transaction into which Tip Top did enter on 29 June 1992, it was advised that, if the deduction were disallowed, Tip Top would not be able to sustain it.  In those circumstances, there was no room for the operation of Part IVA of the Income Tax Assessment Act. The advice that the arguable case would fail if tested meant that any advice under Part IVA was unnecessary.  If the case would fail if tested, it would fail.  No advice as to the operation or effect of Part IVA would change that.

In other words, even if, contrary to the findings of fact which had been made, Mackintosh and Rankine had been guilty of negligence in relation to some aspect of their advice in respect of the original transaction, Tip Top has failed to prove that that negligence caused it any loss.  Although it is clear that Tip Top has incurred loss in the form of penalties and interest in consequence of the adjustments by the Deputy Commissioner to its income tax return, that is not, standing alone, sufficient.  Tip Top must go further and prove that the negligence of either or both Rankine or Mackintosh caused that loss: Sykes v Midland Bank Executor & Trustee Co Ltd [1971] 1 QB 113 at 124, 127; Lillicrap v Nalder & Son [1993] 1 All ER 724 at 729-730; Hall v Foong (1995) 65 SASR 281 at 301. To that end, it is necessary for Tip Top to prove that, had it received proper advice, it would not have made a pre-purchase of petrol from Mobil and that it would not have lodged the tax return in the form in which it was prepared. As is apparent from the findings of fact, Tip Top has failed to discharge that task.

I have already held that neither Mackintosh or Rankine was guilty of any breach of duty in relation to the lodging of the tax return.  There is a further reason why Rankine was not negligent in that respect.  Once Rankine had negotiated with Mobil as to the terms of the formula to accommodate changes in the price of petrol, his instructions in respect of this matter were terminated on 7 July 1992.  He had no further involvement in the matter until he was asked to draft the letter to the Deputy Commissioner of Taxation in April 1994.  He did not prepare the income tax return and had no instructions in relation to it.  He, therefore, had no duty of care in relation to its contents.  Although he would have known that Tip Top intended to claim the deduction, he did not know whether it would claim it with or without full disclosure.  He was not consulted on that topic. He had no duty of care to inquire whether Tip Top intended to claim the deduction or to advise on how it should be treated in the tax return.  For these reasons, Rankine is not guilty of any breach of duty in relation to the tax return.

The submissions for both Tip Top and Rankine examine at some length the question whether the scheme as initially advised by Rankine would have failed by reason of Part IVA. Given the conclusions I have reached, it is unnecessary to examine that issue.

For these reasons, neither Mackintosh nor Rankine is liable in negligence to Tip Top.  It follows that neither Mackintosh nor Rankine is liable to Tip Top pursuant to s251M(1) of the Income Tax Assessment Act.  Thus, Tregloans is not liable either in negligence or for a breach of s251M.

The claim that the defendants are liable for a breach of s56 of the Fair Trading Act is founded on the same facts as the other claims. Mackintosh and Rankine were engaged in trade and commerce when giving advice to Tip Top. However, Tip Top has failed in its claim that either Mackintosh or Rankine engaged in any conduct which contravened s56. Far from engaging in any conduct that was misleading or deceptive or likely to mislead or deceive, they both advised that the initial transaction could not proceed because of the bonding arrangements. They also advised as to the risks of proceeding with the pre-purchase which did proceed.

For all of these reasons, the plaintiff’s claim against each of the defendants fails.