FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Rio Tinto Limited [2006] FCAFC 86 EVIDENCE – legal professional privilege – waiver – implied waiver – issue waiver – where privilege-holder acts inconsistently with the privilege by putting the contents of otherwise privileged documents in issue – Commissioner of Taxation identified bases for satisfaction and exercises of discretion as matters evidenced in these documents – test of waiver of privilege Federal Court of Australia Act 1976 (Cth), s 25 Income Tax Assessment Act 1997 (Cth), ss 6-5 Income Tax Assessment Act 1936 (Cth), ss 46A,160ARX, 160ASB, 227 Taxation Administration Act 1953 (Cth), ss 14ZZ, 14ZZO(b) Landlord and Tenant (Amendment) Act 1948, s 5A(1)(d)(v)(c) and s 5A(2) Federal Court Rules, O 52 r 2AA, O52B r 5(a)(v) Rio Tinto Ltd v Commissioner of Taxation (2004) 55 ATR 321 discussed Rio Tinto Ltd v Commissioner of Taxation [2005] FCA 1336 discussed Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 discussed Waterford v The Commonwealth (1987) 163 CLR 54 discussed Avon Downs Pty Limited v Federal Commissioner of Taxation (1949) 78 CLR 353 referred to Mann v Carnell (1999) 201 CLR 1 discussed Minister for Education v Lovegrove Turf Services Pty Ltd [2004] WASCA 305 referred to British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524 referred to Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 referred to The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 referred to Seven Network Ltd v News Ltd (2005) 144 FCR 379 referred to House v The King (1936) 55 CLR 499 cited Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 referred to Attorney-General (NT) v Maurice (1986) 161 CLR 475 referred to Goldberg v Ng (1995) 185 CLR 83 referred to DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 considered Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 discussed United States Surgical Corporation v Hospital Products International Pty Ltd (unreported, Supreme Court, New South Wales, 13 October 1981) considered Benecke v National Australia Bank (1993) 35 NSWLR 110 referred to Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360 considered Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 70 ALJR 603 referred to Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925 discussed Lombe v Pollak [2004] FCA 264 discussed Gauci v Commissioner of Taxation (1975) 135 CLR 81 referred to McCormack v Commissioner of Taxation (1979) 143 CLR 284 referred to Macmine Pty Ltd v Commissioner of Taxation (1979) 24 ALR 217 referred to Commissioner of Taxation v Dalco (1990) 168 CLR 614 referred to Bailey v Commissioner of Taxation (1977) 136 CLR 214 referred to Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (1975) CLR 535 referred to Jackson v Commissioner of Taxation (1989) 87 ALR 461 referred to MacCormick v Commissioner of Taxation (1985) 158CLR 622 referred to Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd (1985) 158 CLR 678 referred to Webb v Commissioner of Taxation (1993) 44 FCR 312 discussed COMMISSIONER OF TAXATION v RIO TINTO LIMITED (ABN 96 004 458 404) VID 1205 OF 2005 KENNY, STONE AND EDMONDS JJ 2 JUNE 2006 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1205 OF 2005 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION APPLICANT/APPELLANT AND: RIO TINTO LIMITED (ABN 96 004 458 404) RESPONDENT JUDGE: KENNY, STONE AND EDMONDS JJ DATE OF ORDER: 2 JUNE 2006 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Commissioner of Taxation have leave to appeal from the interlocutory judgment of the Honourable Justice Sundberg delivered on 22 September 2005. 2. The appeal be dismissed. 3. The appellant pay the respondent's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1205 OF 2005 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION APPLICANT/APPELLANT AND: RIO TINTO LIMITED (ABN 96 004 458 404) RESPONDENT JUDGE: KENNY, STONE AND EDMONDS JJ DATE: 2 JUNE 2006 PLACE: MELBOURNE REASONS FOR JUDGMENT THE COURT: 1 On 22 September 2005, the docket judge made orders that required the Commissioner of Taxation ("the Commissioner") to produce documents to Rio Tinto Limited ("Rio"). The Commissioner seeks to have part of these orders set aside. Before this can be done, the Court must grant the Commissioner leave to appeal and find relevant error in his Honour's decision. There is a stay on his Honour's orders until the Full Court has dealt with the matter. 2 Pursuant to s 25 of the Federal Court of Australia Act 1976 (Cth) and O 52 r 2AA of the Federal Court Rules ("the Rules"), we heard the Commissioner's leave application concurrently with the appeal. For the reasons stated hereafter, we would grant leave to appeal and dismiss the appeal. Background 3 This case arises out of a complex series of dividend assignment transactions involving CRA Limited ("CRA"), now Rio, and a variety of other companies. Of central importance is a dividend of $100,000,007.58 that CRA received while it was the owner of shares in Bankers Trust Australia Ltd ("BTA") in May 1997. 4 In June 2002, the Commissioner issued a Notice of Income Tax Assessment and a Notice of Franking Account Assessment for the year ended 31 December 1997 and a Notice of Franking Account Assessment for the year ended 31 December 1998. The Commissioner assessed the payment of $100,000,007.58 as assessable income under s 6-5 of the Income Tax Assessment Act 1997 (Cth)("ITAA97") and further determined that, if included in assessable income as a dividend, the payment was a dividend that arose out of a transaction that was by way of dividend stripping for the purposes of s 46A of the Income Tax Assessment Act 1936 (Cth)("ITAA36"). 5 As a result of this determination, the Commissioner found that CRA had a deficit balance in its franking account for the 1997 year. This meant that CRA was subject to a penalty under s 160ARX of the ITAA36 for over-franking. The Commissioner declined to exercise the discretion, which was conferred by s 160ASB and s 227 of the ITAA36, to remit the additional tax imposed by way of penalty. 6 CRA objected to these assessments on 13 August 2002. The Commissioner substantially rejected CRA's objections in a decision dated 26 May 2003 ("the objection decision"). In particular, the Commissioner maintained the view that the transfer of $100,000,007.58 was by way of dividend stripping and that it was not appropriate to remit additional tax under s 160ASB or s 227 of the ITAA36. Procedural history 7 Much depends in this case on what may be called its procedural history. For this reason, we set out this history in more detail than is usual in reasons for judgment on appeal. 8 On 16 July 2003, Rio filed three applications (VID 548-550 of 2003) pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) ("TAA") appealing against the Commissioner's objection decisions. When these applications were filed, O 52B r 5(a)(v) of the Rules required the Commissioner, within 28 days of their service, to file and serve "a statement outlining succinctly the Commissioner's contentions and the facts and issues in the appeal as the Commissioner perceives them" ("SFIC"). 9 The Commissioner filed a SFIC on 15 September 2003. In February 2004, Rio contested the sufficiency of an amended version of this SFIC before the docket judge. Rio argued that, where an assessment relies upon matters within the knowledge of the Commissioner, such as the reaching of a state of satisfaction, or the exercise of discretion, the statement must disclose that state of mind or the manner of exercise of discretion, and in each case set out its basis: see Rio Tinto Ltd v Commissioner of Taxation (2004) 55 ATR 321 ("Rio Tinto (1)") at 329-330 [16] per Sundberg J. In response, the Commissioner relied on the fact that, in any appeal under s 14ZZ, s 14ZZO(b) of the TAA puts the burden of proving that an assessment is excessive or incorrect on the applicant. The docket judge held that the Commissioner's SFIC must "disclose the facts on which [the Commissioner] has based his assessment and the manner in which he arrived at it": see Rio Tinto (1) at 342 [58]. Accordingly, he ordered the Commissioner to file a new SFIC. 10 On 24 May 2004, the Commissioner filed a new SFIC and formulated an "issue 5" as follows: "If the amount of $100,000,007.58 was received by the applicant as a dividend for the purposes of s.44: (a) Whether that dividend was a dividend to which s 46A applied (b) What was the amount of the dividend rebate to which the applicant was entitled pursuant to s 46A?" The Commissioner answered the first question "Yes" and the second, "Nil". By way of explanation, the new SFIC (at par 83) merely reiterated and, indeed, reproduced what the Commissioner had already said at paragraph 11 of the relevant objection decision. Relevantly paragraphs 11.7 and 11.12 of the objection decision read: "11.7 Having regard to s 46A(3)(a), (b), (c) and (d), the relevant case law, extrinsic materials, statutory context and legislative purpose, the Commissioner is satisfied the dividend assignment transactions are by way of dividend stripping. … 11.12 Here, the features that distinguish the dividend assignment from the ordinary purchase of shares cum div are: (a) the shares were not acquired outright by CRA, rather their interest was heavily circumscribed by the terms of the legal mortgage (see also s 46A(3)(c)); (b) the shares were not held by the acquiring shareholder at risk; (c) the consideration paid by CRA to the existing shareholders was equal to the amount of the dividend paid plus a premium of approximately 15% of the amount of the dividend (see s 46A(3)(a)); (d) the dividend was an effective reimbursement to CRA of the amount paid to 'acquire' the shares." The Commissioner concluded this discussion of "issue 5" with the statement (at par 84) that: "The Commissioner's state of satisfaction for the purposes of s 46A of the ITAA36 was recorded: 1) in an Audit Report dated 11 June 2002; and 2) in paragraph 11.7 of the reasons for [the objection] decision." 11 The Commissioner's new SFIC also identified, as "issue 13," the question, "whether the level of additional tax by way of penalties has been correctly imposed and remitted?" The Commissioner affirmed (at par 96) that "the penalties were properly imposed" and repeated paragraphs 13 and 18 of the objection decision. This included paragraphs 13.22 and 13.23, which read: "13.22 The Commissioner has a discretion to remit the whole or any part of the additional tax under s 227(3). 13.23 The Commissioner does not consider that there are grounds to reduce the penalty imposed. None of the matters considered in Taxation Ruling TR 94/7 are applicable in this instance, nor do the reduction provisions such as s 226D, 226E, 226Y and s 226Z have application. Further, the Commissioner does not consider that there are any other special features that would warrant mitigation of the penalty." As well, paragraphs 18.5 and 18.6 stated: "18.5 The Commissioner has a discretion to remit the over-franking penalty under s 160ASB. 18.6 The Commissioner takes the view that it is apparent from the fact that the scheme was one within s 160APP(6) that the directors have exploited the imputation system to achieve a financial advantage for shareholders and others associated with the company. Accordingly, it is not appropriate to remit the statutory penalty: paragraph 15 of IT 2560." 12 On 21 June 2004, Rio wrote to the Commissioner, stating that it did not consider that the new SFIC was adequate and detailing its reasons in an accompanying schedule. The letter made numerous criticisms of paragraphs 83 and 96, including that paragraph 83 "does not set out the necessary legal ingredients for the application of section 46A of the 1936 Act by setting out a part of the applicant's earlier objection decision". Rio continued (our emphasis): "[T]he analysis set out in the objection decision falls well short of what is required. That analysis does not state who the decision maker was, what he or she considered was the relevant scheme, transaction etc by way of dividend stripping, what facts were found, what documents were taken into consideration, and how that decision maker applied the matters required by section 46A(3). These are critical to the operation of the provision." Rio added that paragraph 96 of the Commissioner's new SFIC, "by reproducing a part of the reasons supplied in the objection decision, which in turns [sic] sets out a mix of facts, evidence and legal argument, is wholly objectionable". 13 At this point, it would have been open to Rio to apply to the docket judge for an order that the Commissioner supply a further SFIC. On such an application, the docket judge would have been obliged to determine whether or not the SFIC filed in May 2004 was adequate. Rio chose not to make such an application. It stated that, in order to avoid further delay, it had determined to request particulars. It did this "without prejudice to [its] right to make an application to the Court at an appropriate stage to have the document removed from the Court file and to have [the Commissioner] provide a proper [SFIC]". 14 Relevantly for present purposes, the letter continued: "In this respect, please note that where you are asked to give the 'usual particulars' of any fact, decision, matter or thing, you are asked to say whether it was, or was recorded, wholly or partly in writing, in computer readable form, oral or to be implied, and: (a) insofar as it was in writing, recorded in writing, or evidenced in writing, identify sufficiently each document or paper or object constituting any part of it and say where a copy of it may be inspected and, if it has been lost or destroyed say where a copy of it may be inspected and if there is no copy give the material substance of it; … ." 15 Rio's letter directed attention to paragraph 83 of the Commissioner's SFIC and, in a request numbered "4", asked the Commissioner to: "(a) name the person who on behalf of the Commissioner was satisfied the relevant transaction, operation, undertaking, scheme or arrangement that the payment of the dividend arose out of was by way of dividend stripping; (b) state when he or she reached that state of satisfaction; (c) please provide the usual particulars of all the matters, things, circumstances or events taken into consideration by that person in reaching the said state of satisfaction; … ." 16 In relation to the remission of additional tax, Rio's letter requested the Commissioner to: "Please state the facts, circumstances and matters taken into account in exercising the respondent's discretion under: (a) section 227 of the 1936 Act; and (b) section 160ASB of the 1936 Act, and provide the usual particulars of each fact, circumstance and matter." 17 The Commissioner's solicitor responded by a letter dated 27 July 2004. After expressing the opinion that Rio should have filed its own SFIC, the Commissioner said: "However in order to avoid dispute and further delay, the respondent has elected to respond to your request. We stress that the respondent is of the view that it is an inappropriate request, and reserves his position to make a submission to that effect to the Federal Court." The Commissioner took particular exception to Rio's request for the "usual particulars", as Rio defined this expression, saying that: "Taking into account the extremely broad definition of 'usual particulars', and also taking into account that the relevant facts arose from events implemented by the applicant to which the respondent was a stranger, the result is that the request for particulars is onerous and oppressive." The letter advised that the Commissioner was "responding to the request by providing such information as the respondent is able to provide based upon his knowledge of the arrangements". 18 Under cover of these objections, the Commissioner said: "As to paragraph 83, we are instructed that the relevant person was Mr P Alemis. Mr Alemis has been absent from his duties because of illness since 18 June 2004, is not expected to return to his duties until mid-August, and is uncontactable because of his illness. Until Mr Alemis returns to his duties we are unable to obtain instructions necessary to provide particulars in answer to this question." The Commissioner gave the same answer in relation to the decision not to remit additional tax under s 160ASB or s 227(3) of the ITAA36. 19 The Commissioner subsequently gave further answers to Rio's requests by way of a letter dated 22 October 2004. Before giving this further information, the Commissioner said that: "In our letter dated 27 July 2004 we expressed the respondent's opinion that the request for particulars was onerous and oppressive and an improper request. In particular, in relation to the particulars requested in paragraph 4(c) of your letter, it is the current view of the respondent that the issue that the applicant may properly bring before the Court will be whether, on the material before the decision-maker, the state of satisfaction reached by the decision-maker will be vitiated by one of the errors identified by Dixon J in Avon Downs Pty Limited v Federal Commissioner of Taxation (1949) 78 CLR 353, at 360. The respondent will be submitting that the request made in paragraph 4(c), which seeks to inquire into the thought processes of the decision maker, is not relevant to this issue. The respondent takes this view without prejudice to his other reasons for supporting the assessment. Nevertheless, to avoid unnecessary dispute, and in deference to the observations of His Honour Sundberg J … we are instructed to respond to the requests in paragraphs 4 and 10 of your letter. We do so on the same basis set out in our letter dated 27 July 2004 … ." 20 The Commissioner said further: "On that basis, we answer the requests in your letter as follows: 4. As to paragraph 83: (a) Mr P Alemis. (b) (i) prior to 17 June 2002 in connection with the making of the income tax assessment in respect of the 1997 year of income; and (b)(ii) again, prior to 23 May 2003 in connection with making the objection decision in relation to the taxpayer's objection of 13 August 2002, as to which see paragraph 84 of the respondent's SFIC dated 24 May 2004. (c) For the reasons given in our letter dated 27 July 2004 and above, this is not a proper request for particulars. The matters, things, circumstances and events taken into consideration by Mr Alemis are to the best of his recollection those evidenced by the documents listed in: (i) in relation to reaching the state of satisfaction referred to in sub-paragraph (b)(i) above—Schedule A attached; (ii) in relation to reaching the state of satisfaction referred to in sub-paragraph (b) (ii) above—Schedules A and B attached. … 10. For the reasons given in our letter dated 27 July 2004, this is not a proper request for particulars. Nevertheless, the facts, circumstances and matters taken into account by the decision maker in exercising the respondent's discretion are to the best of his recollection those evidenced by the documents listed in: (a) in relation to the discretion under s.227 of the 1936 Act — Schedule C attached; (b) in relation to the discretion under s.160ASB of the 1936 Act—Schedule D attached." 21 The Commissioner concluded his letter of 22 October 2004 with the following statement: "Subject to any claim that a document, or a part of a document, is protected from production (eg on the basis that it is subject to legal professional privilege or under a statutory secrecy provision), copies of the documents referred to in Schedules A, B, C or D may be inspected at our offices by appointment." Schedules A, B, C, and D listed over 500 documents ("the scheduled documents"). Each Schedule commenced with a "note" that read: "The documents referred to in this schedule may be protected from production (eg on the basis of legal professional privilege or a statutory provision such as s.16(2) of the Income Tax Assessment Act 1936) either in whole or in part, and their inclusion in this schedule does not waive any protection properly available." 22 On 16 December 2004, Rio served a notice to produce on the Commissioner seeking production of certain of the scheduled documents. In response, the Commissioner produced, among other documents, an "Audit Report" dated 11 June 2002, which included a statement that the Commissioner would be relying on grounds "confirmed" by its lawyers. The Commissioner refused, however, to produce 17 scheduled documents on the ground of legal professional privilege ("the privileged scheduled documents"). 23 On 18 February 2005, Rio served a second notice to produce that asked for the legal advice referred to in the Audit Report. The Commissioner refused to produce some nine documents, again, on the basis of legal professional privilege ("the privileged Audit Report documents"). These privileged Audit Report documents were a subset of the 17 privileged scheduled documents. 24 The claims of privilege came before a Registrar of the Court. In a decision given on 15 June 2005, Registrar Efthim rejected Rio's argument that, by referring to them in the schedules to his letter of 22 October 2004, the Commissioner had impliedly waived privilege over the 17 privileged scheduled documents. Registrar Efthim wrote: "In order to waive privilege, there must be some inconsistency between the conduct of the holder of the privilege and the confidentiality of the communication which destroys the privilege or the entitlement to maintain it. The reliance upon the documents recording legal advice as specified in the respondent's particulars is said to be inconsistent with the maintenance of any claim for legal professional privilege which would otherwise apply to those documents and therefore privilege has been waived. I do not accept that submission. It appears to me that the applicants have introduced the issues in relation to s.46A. Here the respondent has prepared a statement of facts and contentions and provided further and better particulars in response to an issue which must be raised by the applicants. The fact that legal advice was taken into consideration by the decision maker does not constitute an act of inconsistency with the maintenance of the privilege. Legal professional privilege is an important common law right and should not be easily waived. In the circumstances before me fairness, although not an overriding factor, has some bearing. Documents were referred to but their substance not revealed. At all times a claim for privilege has been maintained." Although he rejected Rio's implied waiver submission, the Registrar found that privilege had been waived over the nine privileged Audit Report documents (which happened to be a subset of the privileged scheduled documents). He held that the Commissioner had disclosed the gist of the legal advice and had therefore waived the privilege. 25 All parties applied for review of Registrar Efthim's decision pursuant to s 35A of the Federal Court of Australia Act 1976 (Cth). The docket judge granted Rio's motion and ordered production of all the contested documents. His Honour found that the Commissioner had acted in a manner inconsistent with maintenance of the privilege: Rio Tinto Ltd v Commissioner of Taxation [2005] FCA 1336 ("Rio Tinto (2)")at [43]. Also, his Honour agreed with the Registrar's conclusion that privilege had been lost over the privileged Audit Report documents. The Commissioner has since produced these nine documents. As a result, the only remaining question is whether there has been an implied waiver of privilege over the eight remaining privileged scheduled documents. The decision of the docket judge 26 Before the learned docket judge, the applicant made a claim of "issue waiver" against the Commissioner. Rio contended that the Commissioner had waived privilege because (1) in his SFIC he had put in issue his states of mind; (2) by his particulars, he had disclosed that the privileged scheduled documents had a bearing on those states of mind; and (3) it would be inconsistent with the fair and proper determination of these issues to maintain privilege over these documents: Rio Tinto (2) at [14]. His Honour rejected the Commissioner's submission that because of s 14ZZO of the TAA, Rio, not the Commissioner, should be regarded as having put in issue his relevant states of mind: Rio Tinto (2) at [39] and [41]. His Honour said (at [42]) "When one puts the onus cast by s 14ZZO of the TAA to one side, all one sees is a situation where the respondent has, by his Statement, indeed raised as an issue in the instant proceedings his states of mind. He makes, in the words of Hely J in Fort Dodge, "a positive case" that he had attained the requisite states of mind." 27 His Honour saw the real question to be whether the respondent had acted in a manner inconsistent with the maintenance of the privilege: Rio Tinto (2) at [43]. He held that the Commissioner had so acted "however one approaches the question": see Rio Tinto (2) at [43]. His Honour stated at [43]-[45]: "The inconsistency arises from the combination of the following three facts: · the respondent has, by his Statement, raised as an issue in the instant proceedings his states of mind; · the respondent has, by his response to the applicant's request for particulars of his Statement, disclosed that the privileged scheduled documents had a bearing on those states of mind; and · the respondent has refused to produce those documents in answer to the first notice to produce. … At the very least, the respondent has, by his response to the applicant's request for particulars of his Statement, made an assertion – that the privileged scheduled documents had a bearing on the states of mind upon which he seeks to rely – 'which necessarily lays open the confidential communication[s] to scrutiny'. By the same means, the respondent has 'made ... use of the legal advice [contained in the privileged scheduled documents] in the proceedings [and] assert[ed] that it relied ... on the advice' in forming states of mind that are 'central' questions in the instant proceedings: …." Accordingly, his Honour ordered the production of the privileged scheduled documents. The parties' submissions on appeal 28 The Commissioner's case on appeal was that he had not done any act inconsistent with the maintenance of privilege. The Commissioner submitted that he did not put his state of mind in issue in the taxation appeals by contending that he reached a state of satisfaction or exercised a discretion that was a necessary element in the assessments. He argued that the "issue waiver" principle identified by the majority in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 ("Telstra") had no application because the principle operated only where the privilege holder raised the relevant issue. According to the Commissioner, the docket judge had stated the ratio in Telstra too widely. It followed from s 14ZZO of the TAA, so the Commissioner contended, that Rio was to be regarded as the moving party and as having introduced the Commissioner's state of satisfaction and exercise of discretion as issues by way of its objections and in the proceedings. The docket judge was wrong, so the Commissioner submitted, to reach the contrary view. The Commissioner did not act inconsistently with the privilege when he stated in his SFIC that he had a state of satisfaction or exercised discretions necessary to the assessments and subsequently gave particulars of the matters taken into account in so doing. 29 On the hearing of the appeal, counsel summed up the Commissioner's case in this regard with the submission that any inconsistency fell away if it were accepted that the Commissioner brought no qualitative case on the taxation appeals. Whilst counsel accepted that s 14ZZO was concerned with the ultimate disposition of taxation proceedings, he argued that the provision undermined the docket judge's "positive case" point because it showed that it was for Rio to establish that a relevant exercise of power or discretion miscarried. The Commissioner's position was to be contrasted, so counsel said, with the position of a party raising a particular positive assertion in a defence or cross-claim. 30 Secondly, the Commissioner submitted that the decision of the docket judge was inconsistent with the underlying principle in Waterford v The Commonwealth (1987) 163 CLR 54 ("Waterford"). He argued that, "[t]o hold that subsequent reference in judicial review proceedings to legal advice taken in the making of a decision effects a waiver of privilege is to render nugatory the recognition of the privilege by the High Court in Waterford". 31 Thirdly, the Commissioner contended that the "issue waiver" principle stated by the majority in Telstra did not represent the law, first, because the principle relied on fairness as a free-standing criterion, which was contrary to Mann v Carnell (1999) 201 CLR 1 ("Mann").Secondly, the principle derived from cases of undue influence and the like, which were materially different from taxation appeals. In the undue influence cases, so the Commissioner argued, a party raising undue influence necessarily exposes the privileged communication but this was not so in taxation appeals or judicial review cases involving the discretionary decisions of the Executive. 32 Finally, the Commissioner submitted that there was, on any view, no issue waiver in this case. The Commissioner denied that his response to the applicant's request for particulars involved either the making of an assertion that necessarily laid open the privileged communications to scrutiny or put the communications in issue. The Commissioner contended that his Honour overstated the significance of the Commissioner's answers to the applicant's request. The Commissioner submitted that "[t]he provision of the particulars in this manner merely disclosed the unexceptional fact that the Commissioner had taken legal advice in the course of the assessment", which was not inconsistent with the maintenance of privilege. 33 On the hearing of the appeal, counsel for the Commissioner further submitted that no inconsistency for issue waiver purposes arises when, in a judicial review application, a decision-maker affirms that: (1) he or she had the file at the time the decision was made; (2) he or she took into account the various matters appearing on the file; and (3) some of the communications on the file were privileged. The present case was, so the counsel contended, no different from this. Further, there was, he said, no "brooding question of unfairness" covering the interlocutory or other steps in the proceeding; and it was irrelevant that the Commissioner could have answered Rio's request for particulars in a different way. 34 The Commissioner argued that he should be granted leave to appeal because, for the reasons already stated, the decision of the docket judge was attended with sufficient doubt and substantial injustice would result if leave were refused because his common law right to privilege in the eight contested documents would have been abrogated. 35 Rio contended that the docket judge correctly held that the Commissioner had waived privilege and that his Honour's decision was not attended with sufficient doubt to warrant the grant of leave to appeal. 36 Rio submitted that: (a) on these taxation appeals and when so requested, the Commissioner was under a duty to disclose to it and the Court both his states of mind at the relevant times and their bases; (b) in a challenge to the Commissioner's decision on the grounds referred to in Avon Downs Pty Ltd v Commissioner of Taxation (1949) 78 CLR 353 ("Avon Downs"), information from the Commissioner about the factors that were taken into consideration was essential to ensure that the imposition of the tax was challengeable; (c) the Commissioner's SFIC of 24 May 2004 did not provide adequate particulars of the basis for the Commissioner's asserted satisfaction and exercises of discretion; (d) the Commissioner chose to respond to Rio's request for particulars by indicating that the factors taken into account in reaching the relevant satisfaction or exercising the discretions were those evidenced by the scheduled documents, some of which were subject to claims of legal professional privilege; and (e) it was inconsistent for the Commissioner both to provide particulars of the basis for the contested decisions by referring to matters in a number of privileged documents and to continue to assert the privilege. Having decided not to identify each factor taken into account individually, the Commissioner could not decline to give Rio access to the entire pool of factors. 37 On Rio's approach, the inconsistency lay in the manner in which the Commissioner gave particulars. According to Rio, the manner in which the Commissioner gave his particulars necessarily laid the privileged documents open to scrutiny. As counsel put it in argument, the inconsistency lay in the act of using the privileged documents as the means of identifying the factors taken into account and at the same time maintaining the claim for privilege. Rio denied that s 14ZZO of the TAA affected pre-trial procedures. It affirmed, instead, that s 14ZZO emphasized the need for the Commissioner to provide proper particulars of the bases of his decisions. Further, Rio submitted that the principle in Waterford was not at issue, because it was only "where in the course of litigation a decision-maker [was] under an obligation to give particulars of factors ... and he or she chooses to provide particulars of factors taken into account by reference to the contents of privileged documents [that] it … becomes inconsistent to maintain the privilege". 38 Rio submitted that there was no issue on this appeal concerning the correctness of the majority view in Telstra because, on any view, the Commissioner had waived privilege by inconsistent conduct. 39 On the hearing of the appeal, counsel for Rio emphasized that (1) this case turned entirely on its own facts; and (2) the form of the request for particulars made by Rio did not govern the manner in which the Commissioner chose to respond. Counsel pointed out that, on the authorities, there was no doubt about the Commissioner's obligation to give particulars. Noting that no point had been taken before the docket judge about the form of Rio's request, counsel for Rio contended that there was no doubt that, by these particulars, "what [was] being given [was] the particulars of the matters etc taken into account by the decision maker in exercising the relevant discretion or forming the relevant state of satisfaction". (In reply, the Commissioner asserted that the form of Rio's request and the answers had been discussed before the docket judge.) 40 Shortly after the hearing of the appeal, the Commissioner drew the Court's attention to the decisions of Minister for Education v Lovegrove Turf Services Pty Ltd [2004] WASCA 305 ("Lovegrove") and British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524 ("Cowell"). Rio filed short responsive submissions. Consideration 41 The docket judge did not excuse the Commissioner from the production of the eight privileged scheduled documents pursuant to O 33 r 12 of the Federal Court Rules on the ground of legal professional privilege. Whether or not this court should grant leave to appeal from the decision of the docket judge, which was an interlocutory one, depends on whether or not the court considers that (1) the decision is attended by sufficient doubt to warrant its reconsideration and (2) that substantial injustice would result if leave were refused, supposing the decision to be wrong: see Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-9 per Sheppard, Burchett and Heerey JJ. The High Court has described legal professional privilege as "an important common law immunity": see The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at 553 [11] per Gleeson CJ, Gaudron, Gummow and Hayne JJ. If his Honour's decision is wrong, then, the decision wrongly deprives the Commissioner of this immunity and, in so doing, occasions the Commissioner substantial injustice: compare also Seven Network Ltd v News Ltd (2005) 144 FCR 379 at 380 [5]-[6] per Branson J, with whom Allsop and Edmonds JJ agreed. Bearing in mind the matters to which we refer below, there is sufficient doubt about the correctness of the decision to justify its reconsideration, even though, for the reasons stated below, we would dismiss the appeal. Accordingly, the Commissioner should be granted leave to appeal. 42 The question on the appeal is whether, in declining to excuse the Commissioner from the obligation to produce the eight privileged scheduled documents, his Honour applied the correct principle, took an irrelevant matter into account, or failed to take account of a material consideration. The appellant's case raises no error of any other kind: compare House v The King (1936) 55 CLR 499 at 504-505 per Dixon, Evatt, and McTiernan JJ 43 The common law of legal professional privilege governs pre-trial procedures: see Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49. At common law, a person who would otherwise be entitled to the benefit of the privilege may become disentitled to rely on it by some act of "waiver", either express or implied. "Issue waiver", the subject of this case, is a form of implied waiver. In Mann at 13 [29], a majority of the High Court stated the basic principle of implied waiver, as follows: "Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. … What brings about the [implied] waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large." As the majority also said, at 13 [29], where such inconsistency arises, it does not matter that the privilege holder did not subjectively intend to lose the benefit of the privilege. 44 It suffices to note here that judges and other scholars of the law have variously debated the extent to which, if at all, Mann worked a change in the law on implied waiver. Prior to Mann, implied waiver was said to be the consequence of the operation of a 'fairness' principle: see Attorney-General (NT) v Maurice (1986) 161 CLR 475 ("Maurice") at 483 per Gibbs CJ and 489 per Mason and Brennan JJ; also Goldberg v Ng (1995) 185 CLR 83 ("Goldberg") at 101-102 per Deane, Dawson and Gaudron JJ. References to 'fairness' are, therefore, frequent in the pre-Mann cases. There is, however, a good deal of doubt about whether the language used by the majority in Mann worked any real change in the governing principle. The majority did not indicate that the reformulated principle was intended to depart from the previous authorities. 45 Where, as here, one party alleges that another has impliedly waived legal professional privilege, a court is bound to analyse the acts or omissions of the privilege holder that are said to be inconsistent with the maintenance of the privilege. In concluding that the Commissioner had waived the privilege in the eight contested documents, the docket judge in fact applied the 'inconsistency' principle of Mann, as he was obliged to do: see Rio Tinto (2) at [20]. Plainly enough, the inquiry that it mandates focuses on the facts of the particular case. It follows that other cases in which implied waiver has been considered provide limited guidance unless they arise out of similar facts. 46 Apart from the clear statement of the 'inconsistency principle', the decision in Mann is of little further assistance because its facts were quite different from the present case. In Mann, the issue was whether the Chief Minister of the Australian Capital Territory had waived privilege in some documents by showing them to a member of Territory's Legislative Assembly. Thus, the principal question was whether privilege had been lost by the disclosure of the communications to which the privilege otherwise attached. The question required consideration of the relationship between the Territory's Executive and the Legislature. In the present case, 'issue waiver' is said to have arisen in the course of preparing the relevant tax appeals for trial. 47 The cases that have specifically considered 'issue waiver' are also of limited utility, principally because each one turns on its own particular facts. Allsop J considered many of them in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 ("DSE") and it largely suffices to refer to his Honour's discussion in DSE at 505 and following, for a discussion of previous cases. It is, however, necessary to discuss briefly some of the earlier Australian authorities on issue waiver, because both parties to this appeal specifically referred to certain decisions of the Full Court of this Court, especially Telstra. 48 Modern discussions on issue waiver in this country usually commence with the decision of the Full Court of the Supreme Court of New South Wales in Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347. The plaintiff, who was a widow, sued for herself and her infant daughter to recover compensation for the death of her husband allegedly killed as a result of the negligence of his employer, the defendant Council. The defendant claimed that the action was barred by workers' compensation legislation because the plaintiff had knowingly made an election to proceed for compensation under the legislation prior to the institution of the action. The defendant's claim was supported by evidence at trial that the plaintiff had in fact made the alternative claim. The trial judge permitted the defendant to cross-examine the plaintiff and her solicitor about the advice the plaintiff had received on the operation of the legislation, in order to prove that the plaintiff had the requisite knowledge to constitute an election. Jordan CJ, with whom Halse Rogers and Bavin JJ concurred, held that the cross-examination was rightly allowed, first, because there had been an express waiver (for reasons that need not concern us) and, secondly, on account of an implied waiver. Jordan CJ said at 358-9: "[I]t was necessary … for the defendant to prove, if it could, what knowledge the plaintiff had as to her legal rights; and this was knowledge which she was not likely to possess unless she derived it from a legal adviser. Hence, in effect, one of the issues in the case was what advice if any the plaintiff had received from her legal advisers as to her alternative legal rights. In these circumstances, since the fact and nature of the advice is an issue in the case, I am of opinion that privilege cannot be raised to prevent proof of the advice. The position is analogous to that which arises in a suit in Equity to set aside a transaction on the ground of undue influence. In such a suit, it has always been the practice for the defendant to cross-examine the plaintiff with a view to proving that the defendant had competent legal advice when he entered into the transaction, and to call and examine the legal adviser if he is available; and I have never known it to be suggested that such evidence is inadmissible on the ground of the plaintiff's privilege: cf In re Coomber [1911] 1 Ch 723 at 725; Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 130-131." 49 As Jordan CJ remarked, in undue influence cases, the plaintiff necessarily puts in issue his or her own state of mind. An allegation of undue influence on the plaintiff's mind may be met by evidence that the plaintiff received advice from an independent third party, as for example, a legal adviser. By bringing the suit, the plaintiff brings the matter of influence before the court (and into the public domain). If he or she received relevant legal advice, the court would be required to assess the degree of the alleged influence on the plaintiff and the countervailing effect of the advice. In Thomason Jordan CJ held that the advice was relevant to the alleged election in an analogous way: compare DSE at 516 [46]-[47] per Allsop J. 50 In United States Surgical Corporation v Hospital Products International Pty Ltd (unreported, Supreme Court, New South Wales, 13 October 1981) ("United States Surgical"), McLelland J considered what Jordan CJ said in Thomason. The plaintiff claimed legal professional privilege in respect of documents produced in response to a subpoena. The defendant conceded that the documents would have been privileged but for waiver. His Honour said: "The defendants submit that the state of knowledge from time to time of the plaintiff and its legal advisers of the activities of the defendants relied on to support the plaintiff's claim to relief, and the legal advice given to the plaintiff from time to time as to its rights in relation to those activities are matters in issue by virtue of the defence of laches pleaded by all defendants." After referring to Thomason at 358-9, McClelland J said: "Jordan C.J. cannot have intended to lay down as a proposition of general application that whenever the making or contents of a privileged communication becomes an issue in proceedings, privilege cannot be successfully claimed for the purpose of those proceedings, as this would be inconsistent with His Honour's discussion … of what was said by Lord Atkin in Minter v Priest 1930 A.C. 558 even if the proposition were limited to proceedings to which the person entitled to privilege was a party. … In the Thomason Case, the plaintiff was asserting a right to claim damages in a statutory context which rendered it implicit in such an assertion that the plaintiff had not effectively exercised her option to take the alternative course, notwithstanding that on the pleadings the onus of proving the effective exercise by the plaintiff of that option, and in an evidentiary sense the onus of proving the plaintiff's knowledge of her legal rights, in each case rested on the defendant. So that it may be that the criterion that the otherwise privileged party must himself have raised the fact and nature of the advice as an issue in the case is too rigidly stated. Nevertheless, before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the privilege unjust." We would accept as correct this discussion of Thomason, although his Honour's statement of the governing principle may need to be qualified by reference to the Mann 'inconsistency principle', rather than some overarching notion of injustice. 51 As counsel for the Commissioner noted in argument, the majority in Mann at 13 [29] referred to the implied waiver case of Benecke v National Australia Bank (1993) 35 NSWLR 110 ("Benecke") in the course of explaining their formulation of the 'inconsistency' principle. In Benecke, the plaintiff alleged in her originating process that her lawyers had compromised prior litigation contrary to her instructions. She was held to have waived the privilege by giving evidence at trial concerning her instructions to her barrister in the prior proceedings, even though she did not actually intend to do so. The majority in Mann observed, at 13 [29], that "her intentional act was inconsistent with the maintenance of the confidentiality of the communication". 52 These authorities show that, where issue or implied waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentiality that would otherwise pertain to the communication. 53 In recent years, Full Courts of this Court have twice given detailed consideration to the application of implied (or issue) waiver. Amongst the matters considered by the Court in Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360 ("Spalvins") was whether the primary judge had correctly held that the Australian Securities Commission ("ASC") had waived privilege in relation to communications referred to in certain affidavits relied on by the ASC to justify a pleadings amendment. (To the extent that Spalvins is contradicted by Esso regarding the application of the Evidence Act 1995 (Cth), Spalvins does not of course state the law (see [43] above).) Referring to two decisions of the High Court preceding Mann (namely, Maurice and Goldberg), the Court (Olney, Kiefel and Finn JJ) postulated, at 371, that issue waiver was "no more than a particular manifestation of the principles applying either to waiver by disclosure or to implied consent to disclosure". The Court continued, also at 371: "The usual type of case said to illustrate issue waiver at common law is one in which, in order to establish a particular right, claim, or defence a party who previously has been legally advised, or has provided advice, needs to show that the advice so given did, or did not, have a particular character, for example, that it was or was not negligent where the claim is for professional negligence against the adviser: see Kershaw v Whelan [1996] 1 WLR 358; that it was not based on full information or was not meaningful, in an undue influence claim: see Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 130-131; see also Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 and Brusewitz v Brown [1923] NZLR 1106 or that it did not address or properly address a matter which, if addressed or properly addressed, would defeat or call into question the right or claim asserted as in claims where the applicant has to demonstrate he or she acted with or without adequate knowledge of the matter: see Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347; Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419; Pickering v Edmunds (1994) 63 SASR 357. In other words the cases are ones in which, in the substantive proceeding brought, the privilege holder has put in issue the very advice received. We observe in passing that it is questionable whether advice can properly be said to be in issue in a proceeding merely because it may be relevant to an issue in it: see Rhone-Poulenc Rorer Inc v The Home Indemnity Company (3rd Cir 1994) 32 F (3d) 851 at 863; save, perhaps, where the proceeding is between client and legal adviser and the advice is relevant to the adviser's defence of that proceeding: see Lillicrap v Nalder & Son [1993] 1 WLR 94; 1 All ER 724." As we have seen, this correctly summarises the effect of previous authorities, such as Thomason, United States Surgical and Benecke. Referring to the observation of Kirby J in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 70 ALJR 603 at 607 that a mere reference to legal advice will not amount to disclosure, the Spalvins Court found that, for the most part, the ASC had done no more than this and had not, therefore, waived privilege. 54 Although the Full Court was necessarily guided by the authorities prior to Mann, there is little, if anything, in the passage quoted above that would require modification to take account of Mann. It is plain enough that the majority in Mann also saw the 'issue waiver' cases as a species of waiver, to which the same basic principle applied. Their Honours' analysis in Spalvins emphasises, as does the majority in Mann, that waiver comes about because the privilege holder's conduct is inconsistent with the continued confidentiality of the communication because he or she has put in issue the character or contents of the communication in pursuing a right or claim, or has created a situation where another party must reasonably do so by way of a defence. 55 Telstra was another occasion in which a Full Court considered 'issue waiver'. In that case BT Australasia Pty Ltd ("BT") sued for damages on account of the respondents' alleged misleading or deceptive conduct. In particular, it pleaded that it entered into an agreement in reliance on the misleading or deceptive conduct of the State of New South Wales. The agreement was a complex commercial one, in respect of which the applicant had received legal advice. In a pre-trial discovery proceeding, the State relied on 'issue waiver', alleging that "where a litigant opens up the source and basis for its belief on a particular question, inspection cannot be denied by [privilege]": see Telstra at 155. 56 Referring to earlier authorities, including Maurice and Goldberg, the majority in Telstra posited that "the law implies a consent to the use of the privileged material, or, what is in reality the same thing, a waiver of the privilege, if by reason of some conduct of the party otherwise entitled to the privilege, it would be unfair to the other party, in a way which goes to the integrity of the legal process, for the privilege to be maintained": see Telstra at 166 per Branson and Lehane JJ. Whilst the majority correctly highlighted the conduct of the privilege holder, its reference to fairness as a governing criterion may not be entirely apposite, having regard to Mann. This does not matter, because the majority's decision did not turn on this broad statement of principle but on the circumstances of the particular case. The majority held (at 168) that BT had impliedly waived privilege over the advice received from its lawyers because "[w]here … a party [here BT] relies on a cause of action, an element of which is the party's state of mind (including the quality of the party's assent to a transaction) the party is taken to have waived privilege in respect of legal advice which the party had, before or at the time of the relevant events, material to the formation of that state of mind". As their Honours made clear, however, when they spoke of a communication "material to the formation of that state of mind", they did not intend to say that privilege would be waived in relation to advice that may only have played a part in the formation of a state of mind relevant to an issue in the proceedings: see Telstra at 167. Their conclusion that BT waived privilege turned entirely on the particular nature of the case, especially BT's pleadings. 57 The fact that the decision in Telstra turned on the majority's appreciation of the circumstances of the case is emphasized by Beaumont J's dissenting judgment. His Honour said, at 157, that he would not impute waiver at the stage the proceedings had reached. This was because (at 157-8): "At this stage, BT has made no use of the legal advice in the proceedings. The advice is not pleaded by BT as an ingredient of its claim. BT does not assert that it relied, or did not rely, on the advice. … Questions of degree may be involved, but the advice is not, obviously, central to that issue in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason, at least as the issues in Thomason had evolved in the course of the trial." 58 Contrary to the majority, Beaumont J did not consider that the applicant had as yet put in issue the legal advice it received. The differences between him and the majority turned on their different appreciation of the case at hand and have no bearing on the present case, although his Honour's judgment rightly emphasized, at 158, that in any case where implied waiver is alleged, the outcome will depend on the particular circumstances. In any event, it is plain enough that the majority in Telstra did not intend to state the common law as to 'issue waiver' or 'implied waiver' any differently from Spalvins. 59 The Full Court Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925 ("Perpetual Trustees") at [9] made a similar point. In that case too, the Court acknowledged that whether or not there had been an issue waiver depended very largely on the facts of the case, although the terms in which the Court couched the relevant inquiry may require some modification in light of Mann: see Perpetual Trustees at [17] per Ryan, Carr and Marshall JJ. 60 Some academic and judicial discussions of Telstra have, perhaps, made too much of the differences between the majority and Beaumont J and have sought to impute a statement of general principle to the majority when in truth the decision turned upon its particular circumstances, including the pleadings in the case. Hence, whether or not an applicant will waive privilege in alleging reliance on misleading or deceptive conduct will, as in every instance of waiver, depend very much on the particular character of the case and how it is conducted: compare Lombe v Pollak [2004] FCA 264 at [42]-[45] per Jacobson J. 61 Both before and after Mann, the governing principle required a fact-based inquiry as to whether, in effect, the privilege holder had directly or indirectly put the contents of an otherwise privileged communication in issue in litigation, either in making a claim or by way of defence. In DSE at 519 [58], Allsop J put the matter somewhat more descriptively, saying waiver arises when "the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication" (emphasis original). 62 The critical question is whether or not the docket judge relevantly erred when he held that the Commissioner had, in the circumstances of the case, acted inconsistently with the maintenance of privilege in respect of the eight privileged scheduled documents. In reaching this ultimate conclusion, his Honour held, first, that the Commissioner, by his SFIC, raised an issue in the substantive proceeding as to his states of mind. This characterization of what has happened may be open to doubt; and, in any event, whether or not the Commissioner did so is largely immaterial. His Honour was in error in having regard to this consideration, although, for the reasons given below, there was no error in his Honour's ultimate disposition of the application before him. 63 In order to raise the relevant assessments, the Commissioner had to be satisfied that the dividend assignment transaction was a transaction "by way of dividend stripping" for the purposes of s 46A of the ITAA36. The Commissioner's SFIC had necessarily to assert the existence of this satisfaction in order to maintain the assessments. Rio can (and does) challenge this state of satisfaction by relying upon the grounds referred to by Dixon J in Avon Downs at 360, as for example, mistake of law and irrelevant and relevant consideration grounds. Rio bears the onus of showing the assessments were excessive: see s 14ZZO of the TAA; also Gauci v Commissioner of Taxation (1975) 135 CLR 81 at 89 per Mason J approved in McCormack v Commissioner of Taxation (1979) 143 CLR 284 at 303 per Gibbs J, 306 per Stephen J and 323 per Murphy J; Macmine Pty Ltd v Commissioner of Taxation (1979) 24 ALR 217 at 225 per Gibbs J and 235 per Stephen J; and Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624-5 per Brennan J. Whether or not the Commissioner reached the requisite state of satisfaction according to law is an issue in the proceeding, because Rio challenges the Commissioner's state of satisfaction. For the same reasons, whether or not the Commissioner exercised the discretions regarding penalties according to law is in issue because Rio challenges these exercises also upon the grounds identified in Avon Downs. 64 The fact that the Rules require the Commissioner to file a SFIC before the taxpayer does not alter this analysis. In this statement the Commissioner must outline his or her position, including the issues as he perceives them on the appeal. It must be borne in mind, however, that prior to the formulation of any SFIC, the taxpayer, by objection, has already challenged the Commissioner's assessment, and requisite state of satisfaction and exercises of discretion. Against this background, to say that by formulating a SFIC stating a state of satisfaction that is a condition of the assessment, the Commissioner has put this state of satisfaction or exercise of discretion in issue is to over-simplify the position. In truth, the Commissioner's state of satisfaction is before the court because the taxpayer challenges the relevant assessment, on objection and appeal, on Avon Downs grounds. The Commissioner's assertion about his or her satisfaction or discretion is not in issue unless the taxpayer challenges it, under cover of an objection, as having been reached or exercised other than according to law. The institution of the taxpayer's appeal maintains the taxpayer's challenge. In requiring the Commissioner to file a SFIC the Rules recognise the exigencies of litigation: see Dalco at 625 per Brennan J; Bailey v Commissioner of Taxation (1977) 136 CLR 214 at 217 per Barwick CJ, 219 per Gibbs J, 221 per Mason J, 221 per Jacobs J and 227 per Aickin J. This requirement does not, however, alter the fundamental character of a taxation appeal. 65 In any event, even if his Honour was correct in holding that, by the SFIC, the Commissioner raised an issue in the substantive proceeding as to his states of mind, this alone would not provide a proper basis for 'issue waiver'. As the previous examination of the authorities shows, the question is not whether the Commissioner has put his state of mind in issue but whether he has directly or indirectly put the contents of the otherwise privileged communications in issue in the litigation, either in making a claim or by way of defence. Put another way, to adapt Allsop J's language in DSE, has the Commissioner (being the privilege holder) made an assertion as part of his or her case in the litigation that lays open the privileged documents to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege? 66 In the ordinary case, the Commissioner's compliance with his procedural obligations in a taxation appeal, including the provision of a SFIC, would not result in a waiver of privilege. In taxation appeals, the requirement to provide a SFIC, which is properly particularised, means that the Commissioner "must expose to the taxpayer … both his state of mind at the relevant time and its basis": Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (1975) CLR 535 at 541 per Barwick CJ; also Jackson v Commissioner of Taxation (1989) 87 ALR 461 ("Jackson") at 470-1 per Gummow J; also Rio Tinto (1) at 329-330 [16] per Sundberg J. In considering what is required of the Commissioner in providing a SFIC, it should be borne in mind that, to be constitutionally valid, the imposition of a tax must be challengeable: MacCormick v Commissioner of Taxation (1985) 158CLR 622 at 639-41 per Gibbs CJ, Wilson, Deane and Dawson JJ; and Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd (1985) 158 CLR 678 at 687-8 per Gibbs CJ, Mason, Wilson, Deane and Dawson JJ. In a case of this kind, the Commissioner must disclose the factual basis on which he formed his satisfaction that was the condition of the operation of s 46A of the ITAA36 or exercised his discretion with respect to penalties: see Jackson at 471. By his letter of 27 October 2004, the Commissioner apparently undertook to discharge his obligation in this regard. 67 Further, in exposing his states of mind and the basis for it, the Commissioner would not ordinarily act in a manner inconsistent with the maintenance of privilege over legal advice relevant to his attaining a state of satisfaction or exercising his discretion in a particular way. Since the decision of the majority of the High Court in Waterford, it is plain enough that legal professional privilege may attach to communications brought into existence by government officers seeking or giving legal advice as to the nature and extent of governmental powers, whether statutory or otherwise: see Waterford at 63-4 per Mason and Wilson JJ and 74-5 per Brennan J. Even though such communications may contribute to the decision-making, the mere reference to this fact by a decision-maker in the course of defending a judicial review application or on a taxation appeal is not inconsistent with the maintenance of the privilege: compare Webb v Commissioner of Taxation (1993) 44 FCR 312 at 317 per Cooper J and Lovegrove at [24] per Pullin J. This is because the decision-maker (here the Commissioner) would not put such legal advice in issue merely by saying that the advice was relevant or contributed to his decision. There would be no issue waiver because the decision-maker would not have done anything inconsistent with the maintenance of privilege. The situation might be otherwise if the decision-maker puts the contents of the legal advice in issue by specifically relying on the contents of the advice (and not merely the fact of the advice) to vindicate his claimed state of satisfaction or exercise of discretion. 68 In this case, everything turns on the particulars given by the Commissioner in response to Rio's request. The question is whether, by his particulars, the Commissioner made an assertion as part of his case that puts the contents of the privileged scheduled documents in issue, or necessarily lays them open to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege. To answer this, the relevant assertions must be considered in their proper context. 69 Briefly, it will be recalled that the Commissioner had previously filed a SFIC, which, so the docket judge held, failed properly to disclose the basis for his satisfaction and exercises of discretion. In making its request for particulars, Rio made it clear that it did not consider the Commissioner's new SFIC satisfied the Commissioner's obligation in this regard (see [13] above).Apparently in a genuine attempt to move the litigation forward, Rio sought particulars from the Commissioner instead of challenging the adequacy of the new SFIC. Rio specifically identified paragraph 83 of the Commissioner's new SFIC as in need of further particularisation, and asked that the Commissioner "provide the usual particulars of all the matters, things, circumstances or events taken into consideration by that person in reaching the … state of satisfaction" required to support an assessment under s 46A of the ITAA36. Rio also specifically sought further particularisation of"the facts, circumstances and matters taken into account in exercising the respondent's discretion" under ss 160ASB or 227(3) of the ITAA36. It is clear from the Commissioner's letters of 27 July 2004 and 22 October 2004 that the Commissioner considered that Rio's requests illegitimately sought "to inquire into the thought processes of the decision maker". The Commissioner's view, as expressed at the time, was that the proper inquiry was "whether, on the material before the decision-maker, the state of satisfaction [or exercise of discretion] … will be vitiated by one of the errors identified by Dixon J in Avon Downs". Notwithstanding this supposed disagreement, the Commissioner purported "to respond to the requests" by answering that "the matters, things, circumstances and events taken into consideration" in reaching the relevant state of satisfaction and exercising the relevant discretions were "those evidenced" by the documents in identified lists. 70 At the hearing of the appeal, there was some discussion about the drafting of Rio's requests and, in particular, the fact that, in relation to the Commissioner's state of satisfaction, Rio merely sought the "usual particulars", as it defined them ([14] above), of the matters taken into account, and not a specific statement of these matters, as it did for the relevant exercises of discretion. Having regard to the context in which the request about the Commissioner's paragraph 83 was made and the particulars given, including the fact that the Commissioner answered both forms of question in the same way, nothing ultimately turns upon this drafting anomaly. 71 By his answers to Rio's requests, the Commissioner disclosed that the eight privileged scheduled documents were relevant to reaching his state of satisfaction and exercising his discretions. Although the validity of his state of satisfaction and the exercises of his discretion are key issues in the substantive proceeding, as indicated earlier, the mere acknowledgement of the relevance of privileged documents to the key issues does not amount to an act inconsistent with the maintenance of privilege. As we have seen, so far as the Commissioner was concerned the relevant inquiry was whether, having regard to the material before the decision-maker, the contested decisions were vitiated on Avon Downs grounds. If the particulars merely disclosed that the Commissioner took into account legal advice in reaching his state of satisfaction and exercising his discretions, then that disclosure would not be inconsistent with the maintenance of privilege. 72 The Commissioner has not, however, simply said that the eight privileged scheduled communications were relevant to reaching his state of satisfaction or exercising his discretions. Nor has he said that he took them into account in so doing. We interpolate that a document may be relevant to a decision without evidencing any matter taken into consideration in the making of it (as, for example, an instrument conferring authority to make the decision). The Commissioner could have identified his bases for satisfaction and exercises of discretion by listing the matters he took into account in each case, but he did not do so. Instead, he identified his bases for satisfaction and exercises of discretion as the matters evidenced in the scheduled documents. In so doing, the Commissioner did more than make an assertion about the relevance of these communications. In his particulars, the Commissioner has said that he took into account the matters evidenced by numerous documents, including the eight privileged scheduled documents. In so doing, the Commissioner has made an assertion that puts the contents of these eight documents in issue, or necessarily lays them open to scrutiny, with the consequence that there is an inconsistency between the making of the assertion and the maintenance of the privilege. 73 In the substantive litigation, the question is whether steps in the assessment involving the Commissioner's satisfaction and discretions "lack the authority of the Act": Jackson at 470. As we have seen, to enable this to be determined, it is incumbent on the Commissioner to disclose the bases for his state of satisfaction and exercises of discretion. Rio wanted the Commissioner to identify these bases by identifying the matters that the Commissioner took into account (under s 46A(3) of the ITAA36) in reaching his state of satisfaction and in exercising his discretions (under ss 160ASB or 227(3) of the ITAA36) and the Commissioner understood this when he answered Rio's request. Accordingly, the particulars should be regarded as the Commissioner's statement of the bases for his satisfaction and exercises of discretion. In saying that these bases are, in effect, as 'evidenced' in the documents listed in the schedules to his letter of 22 October 2004, the Commissioner puts the contents of these documents in issue or lays them open to scrutiny. It is only by disclosing the contents of the documents to scrutiny, that the bases for the Commissioner's satisfaction and exercises of discretions can be examined. As a consequence, an inconsistency arises between the assertion made by the Commissioner in his particulars and the maintenance of privilege in the scheduled documents. 74 It follows that the Commissioner is to be taken to have waived privilege over the eight privileged scheduled documents, notwithstanding that, in his letter of 22 October 2004 and the accompanying lists, he disavowed any intention of so doing. In providing particulars that in substance state the bases for his satisfaction and exercises of discretion by reference to these documents, the Commissioner has waived such privilege as there would otherwise have been in them. As previously noted, the High Court made it clear in Mann that, when inconsistency arises, it does not matter that the privilege holder did not subjectively intend to lose the benefit of the privilege (see [43] above). 75 The Commissioner relied on the fact that there were many hundreds of documents listed in the schedules accompanying his 22 October 2004 letter. The sheer volume of the documents does not show, however, that the otherwise privileged documents are less important than any other scheduled document in evidencing the matters the Commissioner took into account and constituting the bases of his assessments. The Commissioner's particulars provide no support for the proposition that the bases of his assessments can be discerned other than by reference to the whole of the scheduled documents. 76 For the reasons stated, although we would grant leave to appeal, we can discern no error in the docket judge's conclusion that by his particulars of his bases of satisfaction and exercises of discretion the Commissioner acted in a manner inconsistent with the maintenance of privilege and is to be taken to have waived privilege over the eight privileged scheduled documents. Accordingly, we would dismiss the appeal with costs. I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Kenny, Stone and Edmonds. Associate: Dated: 2 June 2006 Counsel for the Applicant: Mr A Robertson SC and Mr R S Hollo Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr D H Bloom QC and Mr J De Wijn QC Solicitor for the Respondent: Allens Arthur Robinson Date of Hearing: 13 February 2006 Date of Judgment: 2 June 2006