CATCHWORDS Administrative law - judicial review - decisions of Commissioner of Taxation to refuse extensions of time for payment of income tax - guidelines issued to guide officers dealing with such applications - applicants had applied to the High Court for writs of mandamus to compel Commissioner to deal with notices of objection - evidence that applicants had been treated unfairly because of this circumstance - review of that evidence and consideration of its significance - whether the guidelines were unlawfully restrictive of the exercise of the Commissioner's discretion Income Tax Assessment Act 1936, ss. 166, 169, 174, 177, 186, 187, 188, 189, 201, 204, 206, 207, 208 and 209 Administrative Decisions (Judicial Review) Act 1977, paras. S(l)(e) and 2(a),(b),(d) and (f), s. 13 RONALD DAVID THURECHT AND ORS. v. DEPUTY COMMISSIONER OF TAXATION Nos. G76 to G85 and G87 to G92 of 1983 Coram: Sheppard J. Date :° 19 June 1984 Sydney IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION Nos. G76 to G85 and G87 to G92 of 1983 ~~ ewe ewe BETWEEN RONALD DAVID THVRECHT AND ORS. AND DEPUTY COMMISSIONER OF TAXATION Respondent ORDER JUDGE MAKING ORDER : Sheppard J. DATE OF ORDER : 19 June 1984 WHERE MADE : Sydney on iN EACH OF THESE MATTERS (EXCEPT NO. G79 of" EARLIER DISPOSED OF) THE- COURT ORDERS THAT: 1983 WHICH WAS 1. The application be dismissed. 2. The applicant pay to the respondent his costs of the application but to the intent that the respondent have only one set of costs in respect of the proceedings No. G76 to No. G85 and No. G8? to No. G92 of 1983 in respect of costs incurred by nim during the period 3 November 1983 to 19 June 19384. (ee) There be liberty to apply. IN FED! COURT OF AUSTRALIA UEENSLAND DISTRICT REGISTRY GENERAL DIVISION No. G76 of 1983 B 2 RONALD DAVID THURECHT Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G77 of 1983 BETWEEN : RONALD VINCENT WARREN Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G78 of 1983 BETWEEN: PETER CHARLES MARENDY Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent 2. No. G79 of 1983 BETHEEN : HERBERT PETER JOHN SACHS Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G80 of 1983 BETWEEN: BRIAN CARVOLTH ELLIOTT Applicant DEPUTY COMMISSIONER OF TAXATION Respondent No. G81 of 1983 BETWEEN : CECILY MARGARET AHERN Applicant DEPUTY COMMISSIONER OF TAXATION Respondent No. G82 of 1983 BETWEEN : GAIL ELIZABETH BETAR Applicant AND: DEPUTY COMMISSTONER OF TAXATION Respondent No. G83 of 1983 BETWEEN: EDWARD JOHN AHERN Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G84 of 1983 BETWEEN: ROY STEWART JOHN SIMPSON Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G85 of 1983 BETWEEN : KENNETH JOHN FRANCIS JOHNSON Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G87 of 1983 4. BETWEEN: CARLO DE LUCA Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G88 of 1983 BETWEEN : PAOLO DE LUCA Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent. No. G89 of 1983 BETWEEN : MARIA DE LUCA Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent No. G90 of 1983 BETWEEN : MARCO DE LUCA Applicant AND: DEPUTY COMMISSTONER OF TAXATION Respondent No. G91 of 1983 BETWEEN : ROBERT NOEL CRANSTOUN Applicant DEPUTY COMMISSIONER OF TAXATION Respondent No. G92 of 1983 BETWEEN : PETER NEIL SLIPPER Applicant DEPUTY COMMISSIONER OF TAXATION Respondent CORAM: SHEPPARD J. DATE: 19 June 1984 REASONS FOR JUDGMENT These sixteen applications have sought the review of the decisions of the respondent to refuse extensions of time for the payment of income tax. The applications were by consent heard at 'the game time. The evidence in each case was agreed to be evidence in each of the others. During the course of the hearing it was agreed that the application numbered G79 6. of 1983 made by Herbert John Peter Sachs should be dismissed and that no order should be made as to the costs of either party. On 7 December 1983 I made that order accordingly. The requests for extension of time were made in similar terms by solicitors acting on behalf of each applicant. That made in the matter of Brian Carvolth Elliott (No. G80 of 1983) was made in a letter to the respondent dated 6 July 1983. It was as follows:- "We have to hand your letter addressed to our client dated the 19th May, 1983. We now enclose an application under Section 206 for an extension of time for payment of the outstanding tax in respect of each of the income year(s) ending 30th June. 1976, 30th June, 1978, 30th June, 1979 and 30th June, 1980. Each application is made upon the following grounds: - 1. Our client has lodged a request under Section 187. Our client is confident of success and has, to date, shown his willingness to have the matter determined by the Courts. The time lapse between your reference and hearing in the Supreme Court of Queensland is to our knowledge only a matter of months. 2. In view of this it is submitted that the revenue would not be prejudiced by granting such an extension as interest on the outstanding tax will continue to accrue in its favour until final determination of the matter. 3. If our client borrowed funds to pay the outstanding tax the rate of interest payable would be in excess of that Payable by you in the event of success. The interest paid would form part of our 7. clients assessable income whereas the interest on moneys borrowed and paid to you would not be deductible. Therefore it is submitted that the only prejudice as a result of the refusal of the application for an extension of time to pay would be to our client. In view of the basis of our clients' request(s) under Section 206, we submit that full details of assets and liabilities would not be relevant to your consideration. We also request that you undertake not to commence proceedings for recovery until 30 days after notice of your decision has been given to our client." There is not a letter dated 19 May 1983 to Mr. Elliott in evidence. But there are in evidence four letters to him each dated 5 May 1983 and four letters each dated 20 May 1983. These were of a formal kind. Those of 5 May 1983 advised him of the outcome of objections made in respect of notices of assessment of income tax made in respect of the income tax years ended 30 June 1978, 1979, 1980 and 1981. These are not all the same years dealt with in the respondent's letters. Some of the objections were allowed in part. The letters of 20 May 1983 said that, notwithstanding the objections, the tax assessed was due and payable. Demand was made for payment within thirty days of the date of the letters. But the letters also said:- "Should you be unable to pay the amount due within 30 days consideration may be given to withholding legal action for a short period to allow payment to be made. Any application by you for such a concession 8. will need to be supported by full details of current assets and liabilities together with a firm proposal for payment in full and must be made before the expiration of the 30 days. Where further time is allowed it should be clearly understood, however, that any such arrangement will be of short duration and will be subject to additional tax for late payment accruing at the rate of 20 per cent per annum." The discrepencies in the letters concerning the income tux years which were in question are not of importance. Clearly, however, the years in question are as stated by the respondent, namely, the years ending 30 June 1978, 1979, 1980 and 1981. With their letter of 6 July 1983 the solicitors sent formal requests for extensions of time signed on behalf of Mr. Elliott. The respondent replied to Mr. Elliott's solicitors' letter on 15 July 1983. After acknowledging the letter the respondent said:- "T am not prepared to grant an extension as requested. My letters of 20 May 1983 indicated that I was prepared to defer legal action for recovery of the additional tax payable under Section 226(2) of the Income Tax Assessment Act, provided the balance of your account was paid within 30 days of the date of that letter. I also indicated that I would be prepared to consider an application to pay the amount by instalments, provided that request was lodged within the 30 day period accompanied by full details of assets and liabilities. 9. As payment was not made as directed, and as your request for an extension to pay did not comply with the terms advised, I am left with no alternative but to commence legal action for recovery of the balance of your assessments for the years ended 30 June 1978, 30 June 1979, 30 June 1980 and 30 June 1981. You are reminded that additional tax for late payment continues to accrue at the statutory rate of 20% per annum while the balance of your debt remains unpaid. The amount outstanding for the years ended 30 June 1978, 30 June 1979, 30 June 1980 and 30 June 1981 is as follows:- Baliance 1978 Assessment $ 29024.84 Additional tax for late payment 12476.00 Balance 1979 Assessment 79575.83 Additional tax for late payment 27055.00 Balance 1980 Assessment 14164.05 Additional tax for late payment 3399.00 Balance 1981 Assessment 959.96 Additional tax for late payment 109.00 $166763.68 There are similar letters written in each of the other cases. They vary in some of the detail in that the same tax years are not involved in each case. Otherwise there is an essential similarity in all the cases. For convenience, counsel centred their analysis of the facts and legal submissions on the evidence in the Elliott application. They agreed that the circumstances of the other cases were so similar that it was unnecessary to refer to the detail of the evidence in those cases. I shall take the same course. The respondent's letters of 15 July 1983 evidence the 10. decisions review of which is sought by the applicants. The decisions to refuse the applications for extensions of time were not made by the respondent himself but by various other officers in the Brisbane Taxation Office. Strictly it may have been necessary for the applicants to join as respondents each of the officers who made those decisions. It was agreed, however, that there was no purpose in such a course. No point was taken based upon the failure to join the officers who in fact made the decisions. The applicants were sixteen of twenty-seven persons who made application to the High Court of Australia for orders that the Commissioner of Taxation show cause before a Full Court of the High Court of Australia why a writ of mandamus should not issue commanding the Commissioner to exercise, according to law, the functions conferred and imposed upon ham by s. 186 of the Income Tax Assessment Act 1936 ("the Act") in relation to the determination of notices of objection lodged by the applicants against assessments issued to them in respect of various income tax years. On 15 April 1983 Mason J., in chambers, made an order nisi to this effect. On 13 May 1983 the orders nisi were discharged by consent. The respondent was, by consent, ordered to pay the costs of each of the applications. 1l. The orders nisi were discharged by consent because they had had their effect. They caused the Commissioner to deal with each of the objections in question so that there was no longer any purpose in the proceedings. The evidence in the applications for writs of mandamus disclosed that periods ranging from just short of a year to periods in excess of five years had elapsed since notices of objections to the various assessments had been lodged. Mr. K.E. Scells is an accountant practising in Brisbane. Four of his clients were amongst the twenty-seven applicants for writs of mandamus. They are not applicants for judicial review in the present cases. Mr. Scells' clients received demands for payment of outstanding tax similar to those sent to Mr. Elliott. In an affidavit he said that he was instructed to seek an extension of time to pay the outstanding tax pending the outcome of appeals against the disallowance of the objections. On 7 June 1983 he had discussions with two officers, Messrs. Miller and Barclay, who, he said, were employed respectively in the Recovery Section and the Appeals Section in the Brisbane Taxation Office. He was told that the Australian Taxation Office guidelines in respect of extensions of time to pay outstanding tax were such that the extensions would only be granted in cases of extreme financial hardship where full details of assets and liabilities were provided. 12. Mr. Scells said that on 9% June 1983 he telephoned a Mr. Talty who was employed in the Brisbane Taxation office as an Assistant Deputy Commissioner. He said that he referred to his discussions with the two officers from the Recovery and Appeals Sections. He also mentioned that his clients were part of the group of twenty-seven who had brought proceedings in the High Court against the Commissioner. According to Mr. Scells, Mr. Tality confirmed what he had been told by the other officers. Mr. Scells' affidavit continued:- "8. Ido not recall the precise words used by Mr. Talty or myself during the ensuing conversation apart from the fact that Mr. Talty prefaced the ensuing conversation by stating that it was "off the record". 9. Mr. Talty then said that the chances as far as the Quinces (Mr. Scells' clients) were concerned for extensions of time were particularly limited as the Tax Office was taking a particularly hard line in regard to requests for extensions of time to pay by those persons who had been Applicants for Mandamus. 10. He further told me that it was important that the Tax Office made an example of mandamus applicants because if the word got around that people could successfully mandamus the Commissioner without having to pay the outstanding tax then the flood gates would open and a flurry of Mandamus Orders which would follow would make the Tax Office unable to cope with the volume." The emphasis is mine. 13. Mr. Scells said that that was the end of the conversation. He relayed the substance of the conversation to the solicitors acting for his clients who later paid ail income tax outstanding in respect of the assessments which they disputed. Mr. Talty has no recollection of ever speaking to Mr. Scells. But he has given evidence, to the detail of which I shall later come, which would, if accepted, tend to persuade me that it was unlikely that he said the things attributed to him by Mr. Scells in the paragraphs of Mr. Scells' affidavit which I have quoted. Additionally, evidence was given by the respondent himself and various of his officers in Brisbane to the effect that the decisions to refuse the various extensions of time for payment were not made by Mr. Talty but by other officers. The evidence was led to establish that it was no part of Mr. Talty''s duties to determine the outcome of such applications with the result that if he did say what Mr. Scells attributed to him, it had no bearing on their outcome. Mr. Scells' evidence of what Mr. Talty is alleged to have said to him is the basis of the applicants' submission that the respondent exercised his power to grant or refuse the extensions of time which were sought in bad faith; see paras. 5(1)(e) and (2)(d) of the Administrative Decisions (Judicial Review) Act 1977 ("the Judicial Review Act"). Before coming to an analysis of the evidence on that 14. matter, it is necessary to mention the evidence in support of other grounds upon which reliance was placed, the provisions of a number of sections of the Act and the provisions of the Judicial Review Act which are relied on. In Ahern v. Deputy Commissioner of Taxation (1983) 50 A.L.R. 177 I referred (p. 184) to certain guidelines which the Commissioner of Taxation had formulated for the guidance of officers dealing with applications for extensions of time to pay income tax. The guidelines to which I there referred were dated 3 November 1981, 5 January 1983 and 8 March 1983. Of those only the guidelines of 8 March 1983 are relevant to the present cases. Also relevant are guidelines of 28 April 1983 which were apparently not thought to be relevant to the circumstances of the Ahern case because it was originally believed that the decisions in question had been made on 19 April 1983, not 28 July 1983, as I found to be the case (p. 185). The guidelines of 98 March 1983 said that further consideration was being given to the policy to be applied in respect of the collection and recovery of tax in cases of disputed assessments. It is that matter with which the guidelines of 28 April 1983 deal. The March guidelines deal comprehensively with extensions of time to pay in circumstances where there is no dispute about an assessment. Applications for extensions of time in this category are 15. divided into short-term applications and long-term applications. In relation to the latter the taxpayer is required to demonstrate that he does not have the means necessary to discharge his liability when it falls due. In such acase an extension will only be granted where the taxpayer shows that he will, within the period for which he seeks an extension of time, have the ability, or at least the potential, to pay the tax. Short-term applications are dealt with on a less specific basis. They are described as those which offer payment within three months of the due date and, an any event, before 30 June of the income tax year in which the application is made. The guidelines are lengthy and deal with a variety of circumstances, including cases of severe hardship coming about by reason of factors outside the taxpayer's control. So far as general requests for extensions of time are concerned, whether short-term or long-tern, the prime consideration is the financial circumstances of the taxpayer making the application. The guidelines of 28 April 1983 say at the outset that "the new arrangements for granting extensions of time for payment of tax and for remissions of tax that were set out in Head Office memorandum of 8 March 1983 are to apply with equal force in both disputed and non-disputed cases." The guidelines go on to say that the collection and recovery policy that is to apply in respect of disputed assessments will depend on whether the dispute is in respect of "a 16. so-called artificial or paper scheme of tax avoidance," or is a genuine dispute. There is a reference to a memorandum of 31 March 1983 in which a number of schemes are identified. All these are to be treated as artificial schemes, The memorandum is not in evidence so0 that one does not know to which schemes reference is being made. The schemes identified in the memorandum are not, however, the only schemes which fall within the Commissioner's description, "artificial or paper scheme." The memorandum is not exhaustive of the schemes which the Commissioner considers to be "artificial." Paragraph 4 of the guidelines of 28 April 1983 is as follows:- "4, In respect of artificial scheme cases in dispute, there will be no special arrangements for extension of time to pay beyond those general rules contained in Head Office memorandum of 8 March 1983. This will mean that once an objection is determined against the taxpayer, the taxpayer will be advised of the tax outstanding and the accruing late payment penalty and that if the tax is not paid within the stipulated time (30 days), legal action for recovery will commence without further notice. On no account is any 50/50 arrangement to be entered into in such a case asa result of the tax in dispute. Legal recovery action is not to be taken until an objection has been determined. " The guidelines go on to provide that if the taxpayer 17. does not pay the tax within the stipulated time and the guidelines of 8 March 1983 do not apply, legal recovery action should commence. There is a qualification to this which it is not relevant to mention in relation to the present cases. The guidelines then deal with what are called "genuine dispute cases." The guidelines go on to say:- "7. ... it has been decided that there will be a special basis for granting an extension of time in addition to the arrangements set out in Head Office memorandum of 8 March 1983. In these cases an offer by the taxpayer to pay 50 per cent of the tax in dispute (plus the full amount of tax not in dispute) subject to the balance being subject to additional tax for late payment from the original due date, is to be accepted as sufficient to defer legal recovery action for the period of the stage of the dispute in which the payment is made. ry ee 8. Where a taxpayer makes such an offer at the objection stage and the objection cannot be quickly determined, the offer is to be accepted pending the determination of the objection but it is to be made clear that the arrangement lapses on determination of the objection. However, if the objection is determined against the taxpayer, a similar offer by the taxpayer at the reference or appeal stage is to be accepted pending the resolution of the dispute in the taxpayer's case or ina case that is regarded by the Commissioner as on all fours with the taxpayer's case. 9. Where a taxpayer is not prepared to pay 50 per cent of the tax in dispute plus 18. any amount of tax not in dispute and the other bases for granting an extension of time do not apply, action should be taken to determine the objection as soon as possible. Once that is done the taxpayer should be advised that legal recovery action will commence without further notice. Again there are qualifications which it is unnecessary to mention. I began the recital of the facts in these matters by reference to the letter written in each case by the solicitors for each applicant on or about 6 July 1983, seeking an extension of time. Each of these letters which is now part of a file kept in the office of the respondent is endorsed by the officer who dealt with the matter with the words, "Not 1n accordance with H/O memorandum 28 April 1983. Refuse E/T." The letters "E/T" stand for "extension of time." The wording used by each officer is identical in each case, notwithstanding that there does not appear to have been consultation amongst the officers who dealt with the various applications. That 1s a matter upon which counsel for thu applicants place reliance. It appears that each application was regarded as an application for extension of time to pay an assessment in "an artificial or paper scheme" case. The relevant part of the guidelines of 28 April 1983 therefore required the cases to 19. be treated in accordance with the guidelines of 8 March 1983, that is as if they were cases where there was no dispute about the amount of income tax assessed. In evidence are the notices of assessment, the adjustment sheets, the notices of objection and the letters notifying the disallowance of the objections. The latter are the letters of 20 May 1983 earlier referred to. Having looked particularly at the adjustment sheets it is not apparent to me that each case involves only an artificial or paper scheme. It may be that it does but the evidence is such that one cannot be sure. For the purposes of his argument, however, counsel accepted the respondent's classifiction of the cases unto the category of artificial or paper scheme cases. What he did do was to rely on this distinction im the guidelines as one which so confined the exercise of the discretion conferred by s. 206 of the Act that an officer making a decision as to whether to grant or refuse an extension of time was denied the discretion which the legislature intended him to have. There was discussion during the argument as to whether the schemes which were involved were not schemes which were similar to that considered by the High Court in Commissioner of Taxation v. _Westraders Pty. Limited (1980) 144 C.L.R. 55. The scheme there in question raised for consideration questions as to the construction of ss. 36 and 36A of the 20. Act. If the schemes in which the present applicants had been involved were of this kind, there would be a serious question as to whether the respondent could be correct in taking the view that the schemes were not effective to achieve the various applicants' objects in reducing the incidence of tax payable by them. If that were the case, it would seem to me that that may have been a weighty matter upon which the applicants might have relied in making their applications to the respondent for the extensions of time which they sought. Whether it would have been a matter which the respondent was bound, as a matter of law, to take into account, I do not decide. There are two reasons why I do not. The first is that the applicants themselves did not rely on this matter in their applications for extensions of time. If a matter is not drawn to a decision maker's attention, it seems to me to be difficult for an applicant for judicial review to persuade the Court that the matter upon which he relies in such an application was a matter which the decision maker was bound to take into account. I do not make that statement absolutely, but I think it is one which will have application in the great majority of cases. Secondly, the material which is before me does not enable me to conclude that the schemes in the present cases were sufficiently similar to that in the Westrader's case to make that case applicable. The income tax returns are not in, nor is there any evidence which would show into what transactions the applicants entered or on what basis they claimed deductions or contended that moneys 21. received by them were not income. Counsel for the applicants conceded this to be so and argued this part of the case only faintly. The respondent, as I have mentioned, refused the applications for extension of time on or about 15 July 1983. On 21 July 1983 the solicitors for the applicants wrote to the respondent informing him that their clients were dissatisfied with his decisions. Pursuant to sub-sec. 13(1) of the Judicial Review Act a request was made to the respondent for a statement in writing setting out his findings on material questions of fact and the reasons for his decisions. The respondent was notified that applications for judicial review pursuant to s. 5 of the Judicial Review Act were to be made. The respondent replied to these letters on 29 August 1983. He referred to the request which had been made and continued:- "Your attention is drawn to sections 201, 202, 204 and 207 to 209 of the Income Tax Assessment Act which encapsulate the policy that income tax assessed to a _ taxpayer should be paid notwithstanding that the taxpayer's liability has been put in issue through the objection or appeal procedures. The Commissioner's current practice relating to requests for extensions of time where an assessment is disputed has regard to the legislative policy as indicated by the " provisions mentioned. In deciding whether the circumstances of a particular case warrant the granting of an extension of time for payment, each application is considered in the context that as far as reasonable and practicable income tax should be collected 22. in the financial year in which it becomes due and payable. Moreover, every effort is to be made to collect tax as soon as possible after it becomes payable. An extension of time will only be granted where reasonable grounds are given by a taxpayer in support of his application, together with sufficient details of his financial position to enable an assessment of the taxpayer's ability to pay to be made. Where any deferment arrangements are approved, the amount outstanding will generally be subject to additional tax in terms of section 207 which will accrue from the date the tax became due and payable. I note that your letter of 6 July 1983 which accompanied the applications for extension of time contained no indication of any hardship, extraordinary or otherwise, which might result to the taxpayer from having to pay the tax and declined to submit details of assets and liabilities. The grounds stated in your letter were considered. While they included a suggestion that disadvantages to the taxpayer might accrue from having to borrow money to pay tax, there was no indication at all that such borrowing would involve the taxpayer in serious financial hardship. It would be prejudicial to the revenue to grant extensions of time for payment of additional tax where other tax remains outstanding, no proposal for payment has been made and no information concerning ability to pay has been forthcoming." Subsequently, the respondent provided a more formal statement pursuant tos. 13 of the Judicial Review Act. He referred to the earlier correspondence including the applicants' requests for extensions of time and his refusal of those applications on 15 July 1983. To take Mr. Elliott's case as an example, he then referred to the balance of income tax and additional tax outstanding in respect of the income 23. tax years ending 30 June 1978, 1979, 1980 and 1981. The amount, as previously mentioned, was $166,763.68. The respondent said that there was no express ground specified by Mr. Elliott justifying an extension of time for payment other than those set out in his solicitors' letter of 6 July 1983. There followed reference to certain documents to which he had had regard in making his findings. He again emphasised that he had considered, "the absence of evidence put forward to show either that you were unable to pay your outstanding tax or that if I were to assume that you were unable to pay your outstanding tax immediately, you would be able to make arrangements to pay either in the short or the long term, if an extension of time were granted." The respondent went on to state his reasons for his decision as follows:- "The reasons for my decision were that:- (1) the amount of outstanding tax as at 15 July 1983 was $166763.68; (2) there was no evidence put forward by you to show that at the time of application you were unable to pay your debt; and (3) you were a participant in an artificial tax avoidance scheme in respect of the income year which is the subject of objection. Consequently it was not an application to which I should grant favourable consideration pursuant to the guidelines laid down by the Commissioner of Taxation as 24. set out in his memoranda to me dated 8 March 1983 and 28 April 1983. Copies of these memoranda are attached hereto marked "Attachment A" and "Attachment B". Further, no reason was apparent why I should, in the exercise of my discretion through my authorised officers, depart fron the guidelines in order to grant the extension sought." The attachments are the guidelines of 8 March 1983 and 28 April 1983 to which reference has already been made. The applications for judicial review were filed on 16 September 1983. Included amongst the orders sought were applications pursuant to sub-sec. 13(7) of the Judicial Review Act for additional statements containing further and better particulars with respect to the respondent's reasons. The applications came into the list for directions on 6 October 1983. They were in the list again for directions on 7 October 1983 and stood over for further directions to 3 November 1983. The matters were then stood over for further directions to 4 November 1983. When the matter was in the list on that date it was decided to proceed with the hearing of the applications for further reasons pursuant to sub-sec. 13(7) of the Judicial Review Act. It was also decided that cross-examination should take place in respect of the issue to which Mr. Scells' evidence gave rise. Cross-examination did take place accordingly. There was discussion at the end of the day as to how the 25. matters should proceed. Counsel for the applicants said that he had instructions to withdraw the applications made pursuant to sub-sec. 13(7) of the Judicial Review Act and to proceed with the substantive applications for judicial review pursuant to s. 5 of the Judicial Review Act. That course was agreed on. Counsel for the respondent said that it appeared to him "to be necessary now to take this matter further in relation to the action, if any, taken in Canberra in relation to the matter." By this I took him to mean that he was contemplating calling one or more officers from the Commissioner's Canberra Office. The matters could mot proceed until 7? December 1983. They were adjourned to that day when the hearing was concluded. I come now to the detail of the evidence. I have earlier referred to the substance of Mr. Scells' affidavit. He was cross-examined. The thrust of the cross-examination was to suggest to him that it was unlikely that he would have spoken to Mr. Taity because the position had been made clear to him by Messrs. Miller and Barclay in the discussion he had had with them. He agreed that he knew, after his discussion, what the guidelines provided. He aiso agreed that he provided no details of his clients' financial circumstances. In re-examination Mr. Scells was asked whether, during 26. his discussion with Mr. Talty, the name of any person was mentioned to him by Mr. Talty as the person handling, "the mandamus matter." Mr. Scells said:- "Yes. I omitted in my affidavit - and I have been thinking about it since - to state that he said that all these mandamus cases were being handled at much higher levels than his level, and that it was Second Commissioner Boucher in Canberra who was handling them." Counsel for the respondent sought leave to ask further questions because Mr. Scells' answer did not arise out of the cross-examination. I allowed him to do so. Im the course of that cross-examination Mr. Scells said that Mr. Talty mentioned that, "the whole matter of mandamus was being handled by Second Commissioner Boucher in Canberra." Later, Mr. Scells said:- "I do not know that I could repeat the precise words, but in the latter part of the conversation Mr. Taity indicated the fact that the mandamus cases were being handled by Commissioner Boucher in Canberra, and in the light of what I mentioned earlier on there about the questions of extensions, I naturally took it that Commissioner Boucher had control over the total situation of these mandamus cases - the actual applying for the writs as well as the collection of tax later on." Mr. Talty swore an affidavit. He was also cross-examined. Before that occurred, he gave oral evidence supplementing some of what he had said in his affidavit. In 27. the course of this evidence he explained his own position in the Brisbane office of the Commissioner of Taxation. Mr. Talty holds the position, Assistant Deputy Commissioner of Taxation (Compliance), Brisbane Taxation Office. The respondent, Mr. Scanlan, is the Deputy Commissioner of Taxation in Queensland. There are three Assistant Deputy Commissioners in his office. In addition to Mr. Talty, there are the Assistant Deputy Commissioner (Appeals), Mr. Taylor, and the Assistant Deputy Commissioner (Management), Mr. Venning. Each of the assistant deputy commissioners is in charge of a section of the operations of the Brisbane Taxation Office. Mr. Talty's area includes assessment and dealing with objections to assessments. Mr. Taylor's area, as his designation indicates, is that of appeals against assessments. Mr. Venning's area includes recovery of outstanding income tax and dealing with applications for extensions of time to pay outstanding income tax. Despite these different areas of responsibility, there is a certain overlapping. For instance, Mr. Talty's section may seek assistance from the Appeals Section if the consideration of whether an objection should be allowed or disallowed involves an especially difficult question. Mr. Talty's section may sometimes deal with applications for extensions of time, particularly if they are made pending the determination of an objection. Even after an objection has been disallowed, one or other of the officers in his area may 28. deal with an application because of his close knowledge of the problem which is involved in the case. Broadly speaking, however, there is the division of functions to which I have referred. Mr. Talty was asked whether he received telephone calls from time to time from various people, particularly accountants and solicitors, about aspects of income tax. His answer was, "I get them by the dozen." He was asked whether he made notes of telephone conversations and said:- "My policy or my modus operandi with recording telephone conversations is that if it 1s an innocuous telephone conversation that seems to me to have no call for any follow-up action, that I should not have to discuss it with anyone else, that it is complete in itself, I do not record it. If it is one that I think is important enough that I may have to recall it in the future, even if it is ona slip of paper three inches square, I will simply say, Friday. 4/11, so and so re so and so. Maybe no more than that.... It goes on to its relevant file." Mr. Talty's evidence about the alleged conversation with Mr. Scells needs to be considered against this background. In his affidavit he said that -Mr. Scells was not known to him either personally or by reputation nor could he recall having had any direct dealings with Mr. Scelis' firm of chartered accountants. He said that he had no recollection of any conversation with Mr. Scells on 9 June 1983 or, as I 29. understand his evidence, at any other time. Mr. Talty said that he was aware that twenty-seven taxpayers had obtained ordera nisi for mandamus but said that he had had no direct dealings with any individual taxpayer in that group nor had he dealt himself with any of the objections in respect of which the orders nisi were obtained. However, it was his responsibility to ensure that subordinate officers in his section determined all the objections which could be responsibly determined before the return date stipulated in the orders nisi. Mr. Talty said that he had no recollection of the conversation deposed to in paras. 7, 8, 9 and 10 of Mr. Scells' affidavit. He also said that to the best of his knowledge he did not think that Mr. Scells' clients or any other taxpayers involved in the applications for writs of mandamus had been treated differently to any other taxpayer applying for an extension of time to pay tax. By that I take him to mean that his understanding was that the applications had been dealt with by officers in accordance with the March and April guidelines earlier referred to and not otherwise. Those applications, as evidence to which [ shall in due course come indicates, were determined by officers in the Management branch or section and not the Compliance branch or section which was controlled by Mr. Taity. Mr. Talty said that he had taken no part in the determination of the applications for extensions of time for payment brought by 30. some of the taxpayers who had obtained the orders nisi for nandarus. He added that he had not discussed those applications for extensions of time with any of the officers involved in their determination. In his oral evidence Mr. Talty said that he could not recall ever having made off the record comments about a taxpayer's affairs. He said that if he were telephoned specifically about a taxpayer, provided he had knowledge of the taxpayer's affairs, then he had an obligation to discuss them to the best of his knowledge. There was no question of anything being on or off the record. He said that he did not make off the record comments. Mr. Talty was asked whether he had said to anyone that if the word got around that people could successfully mandamus the Commissioner without having to pay outstanding tax, certain results would follow. His answer was, "To the best of my knowledge, no." There was then put to him Mr. Scells' oral evidence concerning Mr. Boucher. His answer was, "Whether to Mr. Scells or anybody elise at that stage, yes, I would have mentioned Mr. Boucher's name." His evidence continued: - "In what context? ---In the initial stages of _ this set of mandamus actions, in my position I was advised by Mr. Bath, the director, that three mandamus letters from the relevant solicitors had turned up in the section. I phoned Mr. Ahern to find out how many there were. We sorted that out. I referred the matter to Miss Haley, the 31. principal appeals officer, and at the same time I. phoned my opposite number in Melbourne to see if there were any instances there, and also I was in touch with head office to forewarn them there. This is other mandamus proceedings? ---That particular group. But this particular group were past history at this point of time, were they not? ---No. I am talking about my connection with Mr. Boucher. The conversation I am asking you about is after the mandamus proceedings. This is Mr. Scells talking about a conversation which he says he had with you on 9 June, the conversation referred to in this affidavit. He says in that conversation you said - and I will paraphrase this - "Look, the question of extensions of time in respect of those people who took mandamus proceedings against us ts being dealt with in Canberra by Mr. Boucher." First of all, did you say that? ---I have no recollection of saying it, but the context could be this: once the mandamus actions were complete, once the objections were determined, for which I am personally responsible - once that was done, the matter is primarily a Matter for the appeals section. In any action taken thereafter, certainly in the appeals section, Miss Haley supplied me with copies of all correspondence relevant to this exercise which she considers it was necessary for me to know. In that context I know that a letter summarizing the situation after the issue of objections decisions had gone out, was in fact prepared, I presume - and I am only presuming - by Miss Haley and sent to head office, and it would have been dealt with by Mr. Boucher. Has that got anything to do with extensions of time in relation to people? ---No, it has not, except to say that that memorandum says that the March/April guidelines had been "applied at that point." Finally, in his oral evidence in chief Mr. a on Talty 32. reasserted that he had not himself been concerned at ail in any of the applications for extension of time which were made. He also said that he had searched his notes of telephone conversations and did not have a note of any conversation with Mr. Scells. His evidence continued:- "But you have not mentioned that before because not every conversation does go on to the mote? ---That is true, not every one does." Mr. Talty was cross-examined at length. In the course of the cross-examination it emerged that he had kept a file in relation to the mandamus applications. The file was headed with the name of the applicants' solicitors. He had had this file because he was charged with the task of ensuring that the objections in question were dealt with, so far as they could be, before the return date of the orders nisi for mandamus. During this period, that is, prior to the objections being dealt with, he had discussions more than once with the applicants' solicitor. It followed, and Mr. Talty conceded this, that on or about 9 June 1983 when Mr. Scells alleges he spoke to him on the telephone, he had well in his mind the general circumstances of the cases including the fact that each of the applicants amongst others had made application for writs of mandamus. His answers led me to ask some questions. Two of the questions and his answers were as follows:- 33. "Was this mandamus application something that caused a good deal of concern in the office? ---Yes, it did because there isa large group of them, 27. Up until that time, any mandamus actions that we had had or forewarnings that unless we determined objections or handled in other ways compliance files, they would go for a mandamus action, they are always matters which were under directive must be immediately brought to the attention of the Deputy Commissioner. He must know first up, and that being so, then he sets his deadlines to when reports will be completed and when action will be completed or the extent of almost all letters. Does this generate a certain amount of resentment inthe office? ---It does not generate resentment in Compliance because I guess we are fairly inured after the last four or five years. There 1s nothing much else that can come up in the way of priorities which we have not already struck, but if you get a group of 27 mandamus at the one time, that is certainly going to get top attention and that is what this lot got." In the course of the cross-examination counsel for the applicants put to Mr. Talty a hypothetical question asking him whether, if someone had rung him to ask about the position with respect to an extension of time, he would have expressed any view. He said:- "T doubt it. I would have stopped them at the point of saying "Have you received a recovery letter yet?" If they said yes, I ..Would say, "Do you intend to pay? Are you going to apply for an extension of time?" I would probably also have said, "Have you got a deferment arrangement? Have you paid 50 per cent of the tax in dispute or not?" 34. Mr. Talty's cross-examination continued:- "Apart from asking some questions, would you express an opinion about their prospects of getting a deferment? -~-I do not think so, no. You would just ask questions and not express any view at all? ---My normal response would be, "Look, as far as the decision on the extension of time is concerned, it will be under the policy as I understand it. It will not be decided in my office." What is the point of asking questions unless you are prepared to express an opinion? ---Because you can guide then. May I elaborate on that? Some of the calls I have had are pre-mandamus, so I would say before you entered into 1t - - - No, I am asking you about the events after the mandamus orders were made. I do not want you to digress into a situation that may have been the case before that. I am Simply asking you the question. I would like you to answer 1t, whether if people had asked you about this time - this is about 9 June 1983, for example - what their prospects were, having been involved in mandamus proceedings, of getting an extension of time, I suggest you would have answered them? ---I suggest I would answer them that it will" rest with someone a lot higher than me because of the importance of this whole group of 27, and knowing at that stage that the matter was being dealt with at the highest level. HIS HONOUR: So they were in a_ special category? ---They are in the sense that they are a group of 27 which has been given total priority to meet return dates. That is still happening. There 1s still a total -, interest at the highest echelons, because in a drop copy of the letter I got the Commissioner himself sent a report to the office of Mr. Grant, who is the chief of appeals and advising area in Canberra reporting progress on 11 May. 35. Now at that stage I have completed ny involvenent and responsibility and having the objections determined by my staff down the line. The rest of it as far as extension, recovery action, any other facet of it, the legal aspect of it, they are not in my corner at ail at that stage." Mr. Talty gave the following evidence in re-examination: - "In relation to the special categorisation you referred to their being in a special category because they sought mandamus, does that special categorisation apply to applications for extension of time after the determination of the objection? ---It applies equally to any compliance case and they are the ones I w1ll speak of and I will confine my comments to them because I know about them. But I am talking about after the Commissioner has complied or obeyed the mandamus order to determine the objection. Do they then stay in a special category for the purpose of determining whether a person gets an extension of time in which to pay tax? ---That I could not tell you beyond saying when they left compliance branch to go to appeals branch, I think they went to, or recovery branch or both, and I do not know in what order, they would have left us as agroup of files on a priority basis rather than any other nexus." In addition to Mr. Taity there were called in the respondent's case the respondent himself, a Mr. Milliner, who, at the relevant time, was the Assistant Director (Enforcement and Management Services) in the Management branch or section, Miss Cumpsty, Mr. Daly and Mr. Murr. Miss tt 36. Cumpsty, Mr. Daly and Mr. Murr were all, at the relevant time, employed in the Recovery section of the Management branch. They were responsible to Mr. Venning, not Mr. Talty. Two affidavits were sworn by the respondent. He said that a perusal by him of the files and records relating to the applications for extension of time made by the applicants aid not disclose any memorandum or other notation relating to the applications which in any way suggested that in the determination of the applications for extensions of time any different considerations should be applied or were applied from those which applied to applications for extension of time by taxpayers who had not taken proceedings for mandamus. The respondent also said that there was no policy in the Brisbane Taxation Office that in the determination of any application for an extension of time for payment of tax where the applicant had applied for a writ of mandamus against the Commissioner of Taxation requiring him to determine his objection, considerations were to be applied which differed from the considerations applicable to the determination of such applications from other taxpayers. He said that to his knowledge there had never been such a policy. I do not find it relevant to refer to the short cross-examination of the respondent by counsel for the applicants. It is enough to say that there was no cross-examination designed to suggest to the respondent that his evidence was incorrect in any respect. 37. In his affidavit Mr. Milliner said that he was the person who made the decision not to grant an application for an extension of time in which to pay outstanding tax made by Mr. Elliott. Mr. Milliner said that he reached his decision by applying the guidelines set out in the Commissioner's memorandum of 8 March 1983 relating to the granting of applications for extensions of time in which to pay outstanding tax. He said that he had had no discussions with Mr. Talty nor did he receive any directions from him in relation to his decision. He said that he did not take any account of the fact that the applicant had sought a writ of mandamus against the Commissioner of Taxation. He did not mention the guidelines of 28 April 1983. In his cross-examination Mr. Milliner explained this upon the basis that in the circumstances the guidelines of 28 April 1983 referred him back to those of 8 March 1983. Mr. Milliner agreed that it was his understanding that the files of those who had been involved in mandamus proceedings were being handled at the highest level in Canberra. He said, however, that this was not relevant. By this I take him to mean that it was not relevant to the task which he had which was to consider whether the extension of time applied for should be granted or not. Upon further questioning Mr. Milliner maintained very strongly that he had relied upon the guidelines alone to guide him in making his 38. decision. The fact that the matter may have been the subject of high level consideration in Canberra was not of moment to hin. Amongst other things he said, "I was only obeying or following the guidelines enumerated by those memoranda. Once we received that, that is our gospel. We attempt to follow it as far as the guidelines are enumerated." He was referred to the fact that the letter seeking the extension of time referred to the mandamus proceedings, but said that that would have made no difference to his decision. Mr. Milliner also said, "Once the objection was determined I had no further interest in mandamus. It was just a collectable item, to collect, and I had my guidelines for that." Miss Cumpsty's affidavit is in similar terms to that of Mr. Milliner except that she dealt with the application made by Paolo De Luca (No. G88 of 1983). Miss Cumpsty was cross-examined. Like Mr. Milliner she was firm that she had paid attention only to the guidelines. She knew that Mr. De Luca was one of the taxpayers who had obtained an order nisi for mandamus against the Commissioner but she said that this had no relevance to her. She denied that she had any direction to disallow the application. She discussed the matter with the supervisor of her section, Mr. Murr. There developed, in the course of Miss Cumpsty's evidence, some uncertainty as to whether it was really she who had made the decision. As I read her evidence it would seem that the decision was in fact made by Mr. Murr. But nothing turns on 39. this. Miss Cumpsty agreed that Mr. Murr had mentioned to her the mandamus proceedings at the time he or she made the decision. Mr. Daly was previously the Chief Recovery Officer. He made the decision in respect of the application for extension of time made by the applicant, Ronald Vincent Warren (No. G77 of 1983). His affidavit 1s in similar terms to those of Mr. Milliner and Miss Cumpsty. Like those witnesses he remained adamant during his cross-examination that he made his decision upon the basis of what was contained in the guidelines. The fact that there had been mandamus proceedings was of no relevance to hin. Mr. Murr was, at the relevant time, the Acting Supervisor, Deferred Tax Unit. He made the decision to refuse the extension of time sought by Edward John Ahern, (No. G83 of 1983). Again, his affidavit 1s in similar terms to the other affidavits sworn by those who made decisions to refuse extensions of time. As inthe case of the other witnesses he remained firm that he had regard only to the guidelines in determining the application. He denied that there was any outside pressure or that the fact that the applicant had taken mandamus proceedings affected his decision in any way. He said that he had no instructions from any superior to treat the matter specially because of that circumstance. 40. The proceedings on 4 November 1983 concluded with Mr. Murr's evidence. When the matter resumed on 7 December 1983, no evidence was given by any of the remaining decision makers. As earlier mentioned the notation made by each on the various applications for extensions of time is in evidence. Each of the notations is expressed in identical terms. Notwithstanding what he had foreshadowed on 4 November 1983 when the matter was adjourned, counsel for the respondent did not seek to lead evidence from any officer in the Commissioner's office in Canberra. In particular, Mr. Boucher, mentioned by Mr. Talty in his evidence, was not called. The remaining evidence led by counsel for the respondent was that of Mr. Barclay whose affidavit sworn on 7 December 1983 he sought leave to file in Court. Mr. Barclay said that he had prepared a number of letters requesting further information from each of the applicants. The requests were apparently made pursuant to s. 189 of the Act to enable the respondent to refer the decisions to disallow the objections to a board of review or a court. The affidavit showed that although some information had been received, there was a good deal of information still outstanding. Mr. Barclay was not cross-examined. When his affidavit had been read counsel for 4l. the respondent closed his case. Counsel for the applicants read in reply four affidavits sworn by the applicants' solicitor. Amongst other things these showed the detailed nature of the requests for information referred to in Mr. Barclay's affidavit. That concludes the account of the evidence called in the case. I next refer shortly to the relevant sections of the Act. Sections 166 and 169 provide for the making hby the Commissioner of assessments of the amount of income tax which persons are liable to pay. Section 174 provides for notices of assessment. Sub-section 177(1) provides that the production of a notice of assessment is to be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct. Section 185 provides for objections to assessments. Objections must be made within sixty days after service of a notice of assessment. By s. 186 the Commissioner is to consider the objection and may either disallow it or allow 1t in whole or in part. He is to serve the taxpayer with written notice of his decision. Section 187 provides for an appeal against or review of the Commissioner's decision to disallow an objection. A request in that behalf is to be lodged within sixty days after service of notice by the Commissioner that the objection has been disallowed either 42. wholly or in part. Section 188 provides for reference to a board or a court. Section 189 provides that if within sixty days after receiving the request the Commissioner does not refer the decision or forward the objection, the taxpayer may at any time thereafter give him notice in writing to do so and the Commissioner shall within sixty days after receiving the notice refer the decision or forward the objection to a board or a court. There is a proviso to s. 189. It is that if within sixty days after receiving the request the Commissioner requires the taxpayer in writing to furnish information relating to the decision or objection, the Commissioner shall not be bound to refer the decision or forward the objection to a board or court until the expiration of sixty days after the receipt by him of that information. I pause to note the leisureliness of the procedure which is provided for. The taxpayer has, first of all, sixty days within which to object to an assessment. No time limit is placed upon the Commissioner within which he 1s to consider the objection. If delay in dealing with the objection is unreasonable, the taxpayer may, as did the applicants in the present cases, seek to compel the Commissioner to deal with the objection by proceedings for mandamus. Once the decision to disallow an objection has been made a taxpayer has a further sixty days within which to request the Commissioner to refer the decision to a board of review or to treat the 43. objection as an appeal and to forward it to a court. The periods involved ins. 189 involve a further period of one hundred and twenty days before the matter must come before a board or a court. It is true that the period may be less than that, but it is possible that 1t will be up to one hundred and twenty days and still be within the section. Furthermore, if, as in the present cases, the Commissioner requires further information, there is a another open-ended period during which the information is sought and the taxpayer provides it. Thus total periods of two hundred and forty days are limited by the sections. Additionally, there are two open-ended periods, namely, the period during which the Commissioner may consider the objection and the period, if any, during which the Commissioner seeks further information before referring a matter to a board or court. Notwithstanding those provisions, s. 201 provides that the fact that an appeal or reference 1s pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending. Section 204 provides that, subject to the provisions of Part VI, any income tax assessed shall be due and payable by the person liable to pay it on the date specified in the notice as the date upon which the tax is due and payable not being less than thirty days after the service of the notice. Secton 208 makes income tax, when it becomes 44. due and payable, a debt due to the Commonwealth and payable to the Commissioner in the manner and at the place prescribed. By s. 209 any tax unpaid may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name. Section 206 enables the Commissioner to grant extensions of time for payment or to permit payment to be made by instalments. If he does, the tax shall be due and payable in accordance with the extensions which he has granted. There are no criteria provided for the exercise of his discretion. Section 206 is the section pursuant to which the applicants made their applications for extensions of time in the present cases. Finally, s. 207 makes provision for the payment of penalties in the case of tax not paid in accordance with the requirements of an assessment. It is unnecessary further to refer to that section. In Ahern's case (supra) [I discussed these various provisions and their applitation (pp. 188 - 190). I do not repeat what I there said except to say that the provisions of the Act which require payment, notwithstanding the lodgement of objections and the invocation of the appellate process, particularly when one bears in mind the period which will usually elapse whilst all that takes place, are, indeed, Draconian. I now come to the grounds upon which these applications 45. are made. The principal ground relied upon was that provided for in para. 5(1)(e) of the Act, namely, that the making of the decisions was an improper exercise of the power conferred by the Act in pursuance of which it was purported to be made. In other words, there was an improper exercise of the power conferred upon the respondent by s. 206 of the Act. The particular provisions of sub-sec. 5(2) which were relied upon were paras. (a), (b), (d) and (f). Those paragraphs provide respectively that a reference in para. 5(1)(e) to an improper exercise of a power is to be construed as including a reference to the taking of an irrelevant consideration into account, failing to take a relevant consideration into account, the exercise of a discretionary power in bad faith and an exercise of a discretionary power in accordance with a rule or policy without regard to the merits of the particular case. Particulars furnished by the solicitors for the applicants of the grounds relied upon were as follows:- ""(a) Relevant considerations not taken into account. 1. The fact that the applicant had objected to the assessment(s) 2. The fact that the applicant's objection(s) was/were genuinely based upon substantial grounds. 3. The fact that despite a request to do so, the Respondent has not forwarded the applicant's objection(s) to a Court for determination. (b) Exercise of power in accordance with a rule or policy without regard to the merits of the case. 46. 1. Application of the Commissioner's guidelines of 8 March 1983 on inflexible basis. (c) Irrelevant considerations taken into account. 1. That the applicant had applied for a Writ of Mandamus to compel the Respondent to determine his/her objection(s). 2. That the applicant had entered into tax minimisation arrangements. (ad) Exercise of Power in bad faith. 1. Determination of the applicants application upon assumption that it was important that the Respondent made an example of the Mandamus applicants because if word got around that people could successfully Mandamus the Commissioner without having to pay the tax then the floodgates would open and a flurry of Mandamus Orders would make the Tax Office unworkable." These grounds raise, in my opinion, three substantial questions. They are:- (a) (b) (c) What is the significance for the case of Mr. Scells' evidence? Whether the guidelines, insofar as they provide fora different approach in relation to paper or artificial schemes, are lawful? Whether the guidelines were not so restrictive of the discretion conferred by s. 206 of the Act that they prevented the Commissioner himself and his officers, including the respondent and officers employed in the 47. Brisbane Taxation Office, exercising any real discretion in determining applications made pursuant to the section? This statement of the issues leaves out of account the matters relied upon in para. (a) of the particulars earlier quoted. I have touched on this already in saying what I have about ss. 36 and 36A and the Westraders' case (supra). For the reasons mentioned I am clearly of opinion that the respondent was mot bound, asa matter of law, to take the matters relied upon by counsel into account. It seems to me that that must dispose of the matters relied upon in para. (a)2 of the particulars. The fact that the applicants in their solicitors' letters of 6 July 1983 said that their clients were confident of success and had shown their willingness to have the matter "determined by the Courts" was not of itself something which the respondent was obliged to take into account. Likewise, the mere fact that the applicants had objected to the assessments (para. (a)1l) is not a matter which the respondent was obliged to take into account. The legislative policy to be discerned from a consideration of the various sections of the Act to which I have referred militates against such a contention. In any event, I do not think that the evidence establishes that the respondent did not take this matter into account. He, through various officers in 48. his office, knew of the objections. It is drawing a long bow to say that they put the fact of them completely on one side. Furthermore, the guidelines themselves specifically deal with cases which are the subject of notices of objection. Finally, in relation to para. (a), there is the matter relied upon in sub-para. 3. There can be no basis for this ground. The respondent is acting in accordance with the Act. Pursuant to s. 189 he has sought further information. Again, the policy of the Act does not oblige him, as a matter of law, to take into account the fact that he is obtaining further information before forwarding the objections toa court for determination when determining the outcome of an application under s. 206. So the matters relied upon in paras. (b) and (c) of the particulars of the grounds raise the essential matters for decision, The issues to which they give rise are those earlier stated. The first concerns the significance of Mr. Scells'' evidence. At the outset 1s the question of whether I accept it. The thrust of the cross-examination of Mr. Scells by counsel for the respondent was to suggest to him that it would have been unlikely that he would have spoken to Mr. Talty because the position was foreclosed by reason of what he had been told by Mr. Miller and Mr. Barclay at the interview which occurred prior to his telephone conversation with Mr. Talty. They had informed him of what the guidelines 49. provided. He had not given particulars of his clients' assets and liabilities. It followed that it was most unlikely that any extension of time would have been granted. But Mr. Scells expressed reason for ringing Mr. Talty was that one of his clients had suggested that course. That is not something which was the subject of further cross-examination. All in all I do not think the cross-examination sheds light on whether it was likely or unlikely that Mr. Scells had the conversation with Mr. Talty to which he has deposed. There are, of course, a number of possibilities. There 1s the possibility of deliberate fabrication by Mr. Scells. This was relied upon by counsel for the respondent, notwithstanding that no suggestion of 1t was put to Mr. Scells in cross-examination. There 1s the possibility that Mr. Scells did not speak to Mr. Talty, but to some other officer. Again, this was not a matter suggested to Mr. Scells in cross-examination. Then there is the possibility that Mr. Scells may have misunderstood what Mr. Talty said to hin. Perhaps he took too much from it or gave Mr. Talty's words an emphasis or a slant that Mr. Talty did not intend them to have. No doubt there are other possibilities as well. Although I think counsel for the respondent sufficiently indicated to Mr. Scells that his evidence was being 50. challenged, the possibilities which I have mentioned were not the subject of cross-examination. This may have been because Mr. Talty had no recollection of any conversation but could not say positively that he had never spoken to Mr. Scells. I would not myself have thought that those circumstances would have prevented a cross-examination based on the possibility of mistake or misunderstanding. Again, the absence of cross-examination did not deter counsel for the respondent from putting submissions that that was an explanation for the evidence which I might well regard as satisfactory. Before I pass to consider the evidence of the other witnesses, I should say that I found nothing in Mr. Scells' demeanour which gave me the least anxiety about his veracity and reliability as a witness. He remained firm in his recollection of the conversation. It 1s true that he had not recollected for the purposes of his affidavit the mention by Mr. Talty of Mr. Boucher's name, but his explanation for this omission did not suggest to me that he was fabricating or reconstructing his evidence. In short, his evidence was consistent with that of a truthful and reliable witness. Whether it is to be accepted, of course, depends on the view I have of all the evidence in the case. I turn to the evidence called on behalf of the respondent. The principal witness whose evidence is to be considered is Mr. Talty. There are some background matters to be 51. mentioned before I come directly to the evidence concerning the conversation. Firstly, Mr. Talty was well aware of the mandamus proceedings. He had felt the impact of them in the course of his duties because it had been his branch's task to deal with each of the notices of objection as a matter of urgency. He denied feeling resentment, but, particularly in answers which I have earlier quoted, he made it clear that the applications had had an upsetting effect on his branch. Certainly he spoke feelingly about the matter as he gave his evidence. Then there is nothing extraordinary in his having received a call from Mr. Scells. It was customary for him to receive numerous calls from accountants and solicitors. Nor is the fact that he made no note of the conversation of significance. According to Mr. Scells it was "off the record". If that be true, one would not expect a note of it to be made. Of course, to be weighed in the balance in relation to that matter 't's Mr. Talty's evidence that it was not his habit to have "off the record" conversations about tax matters. Next there 1s the reference to Mr. Boucher. Mr. Talty's evidence makes it clear that if he did have a conversation with Mr. Scells about his clients, it would not have been unlikely that he would have mentioned Mr. Boucher's name or said that the outcome of the applications for extensions of 52. time was a matter for senior officers in the Commissioner's office in Canberra. On the other side of the coin is the plain fact that it was not the primary task of Mr. Talty nor those in his branch to deal with applications for extensions of time for payment of tax. Once the Compliance branch had dealt with the notices of objection, it became a matter for the Recovery Section which was part of the Management branch of the office. A different hierarchy was involved, notwithstanding the overlapping of function that sometimes occurred and to which I have earlier referred. And finally there were the guidelines. In the words of one of the witnesses they were "gospel". The decisions to refer the applications for extensions of time, so far as one can tell from the evidence, were, objectively speaking, all in accordance with the guidelines.- In other words, whatever attitude Mr. Talty or others may have had towards those who instituted mandamus proceedings, the applications appear to have suffered the same fate as one might expect any similar application umaffected by overtones of mandamus to have suffered. Indeed, that very fact 1s the basis for one of the applicants' submissions later to be dealt with. The thrust of Mr. Talty's more direct evidence about the conversation was to point to circumstances that would make it 53. unlikely that he would have said what Mr. Scells' attributed to him. He had to do this because he had no recollection of the conversation. I do not say that critically of him and, I would add, that the fact that he said that he had no recollection of the conversation is not a matter which I think points one way or the other to the probability of the conversation having taken place. Mr. Talty said that he did not have "off the record" conversations. The guidelines covered the matter entirely. The applications were not the concern of his branch. They were amatter for the Recovery Section in the Management branch of the Brisbane Office. Yet, if all that be so, why did he so readily say that if he had had a conversation about extensions of time with Mr. Scells, he would have mentioned Mr. Boucher's name and also said that the prospect of Mr. Scells' clients being granted extensions of time would "rest with someone a lot higher than me because of the importance of this whole group of 27". I refer to his evidence earlier quoted. One needs to read the whole of it to appreciate the context in which those statements were made. When he said that the matter would not be "decided in my office", I thought at first he was referring to the fact that that was because the applications would not be dealt with in the Compliance branch. But his later evidence made it clear that he meant that the matter would be decided in the Canberra Office; the decisions would not be made inthe Brisbane 54. Office at all. In weighing Mr. Taity''s evidence I have had regard generally to his demeanour. He did not make the same impression upon me as did Mr. Scells. But that is nota matter upon which I would place great weight. The witness box is a difficult place and affects people in varying ways. I do say, however, that I gained the distinct impression from Mr. Talty that he was, 1f not resentful of the applications for writs of mandamus, at least concerned and upset by then. A matter I should bear in mind, when making the compar1son between the two witnesses - and I say this with no disrespect to counsel for the respondent - is that the cross-examination of Mr. Scells could not be described as at all rigorous. In the end it is a question of weighing up the probabilities and coming to a conclusion. In assessing the probabilities I have taken into account the background matters I have earlier mentioned and the particular matters concerning Mr. Boucher and the applications being decided in Canberra to which reference was made by Mr. Talty in his evidence. I have taken into account the question of whether Mr. Scells would deliberately fabricate the conversation such as he has deposed to. It seems to me unlikely that he would. It also seems to me to be unlikely that it is a conversation 55. about which he could be mistaken. I have had regard to the evidence of the respondent himself and of the other officers called in his case. But that evidence cannot shed much light on the question of whether Mr. Talty said the words in question to Mr. Scells. It seems to me that the importance of this evidence is that it sheds light on the significance of Mr. Talty's words if I find them to have been spoken, not on the question of whether they were in fact said or not. A final matter to which I have had regard in reaching my conclusion 1s the seriousness of the allegation which Mr. Scells makes. I express no concluded view, but as mentioned during the argument, the making of the statements attributed to Mr. Talty could have involved him in the commission of a contempt of the High Court. A finding that the words were spoken is, therefore, not one which ought to be lightly made. Having reflected on the matter over a period and weighed the various considerations to which I have referred as best I can, I have reached the conclusion that I ought to accept Mr. Scells' evidence. Accordingly, I find that on 9 June 1983, he did speak to Mr. Talty and that Mr. Talty did say to him words, the substance of which are set out in paras. 7, 8, 9 and 10 of Mr. Scells' affidavit earlier referred to. 56. The next question is what flows from this. If it were not for one factor, I would have unhesitatingly answered that question, "Very little". That is because of the evidence given by the respondent, and the witnesses other than Mr. Talty, called in the respondent's case. The respondent, I am satisfied, knew nothing of any policy of special treatment of those who applied for writs of mandamus. His evidence to this effect should be accepted at its face value. There was no cross-examination of him which suggested that it should not. I formed a favourable impression of the other witnesses, Mr. Milliner, Miss Cumpsty, Mr. Daly, and Mr. Murr. They applied the guidelines. Once the view was taken that the applicants had been involved in an artificial scheme, these dictated their course. From the guidelines of 28 April 1983, they were referred back to those of 8 March 1983. Financial circumstances became the only criterion. The applicants had declined to put any matterY based on them in support of their applications. It followed that the applications must be refused. No instructions from the Canberra Office were needed to achieve this result. Of course, not all the decision makers were called and it is' true that each decision maker, whether called or not, used exactly the same language when he or she recorded the decision to refuse each application. But, bearing in mind 57. the existence of the guidelines and the fact that there was, according to them, no need to refer the applications to Canberra, their seems to be no reason not to accept the evidence of the respondent and the other witnesses. It is true that all knew of the mandamus applications. But, according to the evidence of each witness, these were irrelevant; it was to the guidelines that reference had to be made. All these considerations tend to lead ome to conclude that Mr. Talty's statements have no significance at all for the outcome of these applications. One could explain his statements as simply a series of unwise remarks in an off the record conversation. It could be that what he said was his way of making known to Mr. Scells his dislike of applications for writs of mandamus and the consequences they had had for his branch of the Brisbane Office. Evidence given by Mr. Barclay, to which I have not yet referred, would tend to explain his exasperation. This shows the enormous burden which is being shouldered by officers in the Commissioner's various offices. Mr. Barclay referred to the sixty-first annual report of the Commissioner of Taxation to Parliament for the year ending 30 June 1982. The report showed that at 30 June 1982 there were 25, 569 cases awaiting reference to boards of review in Australia. During the previous year only 456 cases were heard or part-heard. But for the year in question 4,473 cases were withdrawn by the taxpayer anda 58. further 10,763 involved objections which were either allowed by the Commissioner or resolved as the result of settlements. No doubt the making of the 27 applications for mandamus threw out the balance of the Brisbane Office. This may well have accounted for Mr. Talty's attitude towards the mandamus proceedings and go a long way to explain why he would speak to Mr. Scells as I have found that he did. But there are matters which have caused me to pause before disposing of these applications, insofar as they are based upon Mr. Scells' evidence, in this way. My hesitation arises because of Mr. Talty's evidence that, 1f he had had a conversation about extensions of time with Mr. Scells, he would have mentioned Mr. Boucher's name and that applications in these matters would have been a matter for somebody more senior than he in the Canberra Office. This evidence was given on 4 November 1983. The matters had to be adjourned to 7 December 1983 to be completed. Counsel for the respondent saw the desirability of calling evidence from the Canberra Office, whether from Mr. Boucher or some other officer. That was a matter expressly referred to by him towards the close of the proceedings on 4 November 1983. I have earlier referred to what he said. Yet when the hearing resumed over a month later on 7 December 1983, no such evidence was called. He read Mr. Barclay's affidavit and closed his cage. No explanation for not calling Mr. Boucher or any other officer from Canberra was given. Certainly it could not have 59. been due to any surprise on counsel's part nor on the part of the respondent or the Commissioner. The evidence given was explicit. There was plainly an issue about it and remarks had been made during the course of it which indicated that I took a serious view of it. In those circumstances there is no reason why one ought not to apply the principles laid down in Jones v. Dunkel (1959) 101 C.L.R. 298. By reason of what Mr. Talty had said about Mr. Boucher and the Canberra Office, the inference is open that the Commissioner, through one of his more senior officers, had decided that the applicants for mandamus would be denied out of hand extensions of time to pay the income tax for which they had been assessed and that the principal, if mot the only reason for this, was because of the applications they had made to the High Court. Nothing could be more serious. Yet, in the absence of any evidence from Canberra, why should I not draw the inference that that indeed was the position. In other words, should I not take the view that no evidence which might have been given by Mr. Boucher or any other Canberra officer would have been to any different effect from that which 1s to be inferred from Mr. Talty's evidence. I confess that this circumstance has caused me grave anxiety. The inference 18 open that what Mr. Taity said to Mr. Scells was not just a letting off of steam. Coupled with 60. what he said about Mr. Boucher and the decisions on the applications being for more senior officers in Canberra, it is capable of suggesting that there had in fact been decided upon at ahigh level in Canberra, a policy designed to disadvantage - really to punish - those who had had the temerity to force the Commissioner's hand by making applications for writs of mandamus. That policy was designed to ensure that anybody else minded to make such an application would be discouraged from doing so. That is the applicants' case. The question is whether I should accept at. After much reflection I have decided that I should not. My reason for not doing so 1s based entirely on my view of the evidence, other than that of Mr. Talty, called in the respondent's case. Notwithstanding the absence from the witness box of any officer from Canberra, I feel persuaded by that evidence that no improper considerations were taken into account by those who made the decisions, nor was any 1mproper influence brought to bear on them before their decisions were made. If there were the policy upon which the applicants rely, it would seem to me unlikely that the respondent himself would have been unaware of it. I accept his evidence that he did not know of any such policy or decision; there was no- cross-examination of him to suggest that he did. I accept also the evidence of those who made the decisions that they had regard only to the circumstances of each case and to 6l. the guidelines of 8 March 1983 and 28 April 1983. One matter I should mention in relation to these witnesses is this. Mr. Scells' affidavit was filed on 2 November 1983. Until it was served none of the witnesses who made the decisions could have had foreknowledge of what was alleged by him. The witnesses who gave evidence of how their decisions had been made swore affidavits on 3 November 1983. They were cross-examined on them on 4 November 1983. They came to the Court on that day, so far as I could tell, as a matter of urgency and without much notice. It appeared to me that they gave their evidence without any great opportunity to prepare themselves for the witness box. Furthermore, the proceedings had developed into a hearing on 4 November 1983 unexpectedly. The hearing had started as a directions hearing. But the matter was regarded as urgent because the applicants were being pressed for payment for the outstanding tax. The very circumstances in which the witnesses who made the decisions came to the witness box militate against them being involved in some sort of conspiracy which would have to be found to exist if the applicants' case were well founded. For the foregoing reasons I answer question (a) earlier posed, namely, what is the significance for the case of Mr. Scells' evidence, by saying that it has no relevant significance. It follows that the grounds relied upon in paras. (c)l and (d) fail. That leaves the grounds relied 62. upon in paras. (b)1 and (c)2. The matters to be considered are encompassed by the two questions (b) and (c) earlier posed. In relation to the guidelines I would firstly say that there does not seem to me to be anything inherently unlawful in the Commissioner laying down guidelines to guide those exercising the discretion conferred by s. 206 of the Act in the task which they have. Indeed, so it seems to me, it is desirable for the Commissioner to have a policy about how that discretion will usually be exercised. This will lead to consistency of decision making in his various offices in Australia and it will enable those seeking extensions of time to know what matters will be taken into account and how an officer making a decision is likely to approach his task. Nevertheless, there remains the question of whether the guidelines that have been laid down are too inflexible. Do they operate so as to take away the discretion which an officer making a decision under s. 206 was intended to have? The first matter that should be noticed when this problem is being considered 1s the Draconian policy of the Act earlier referred to, which, subject to the grant of an extension of time, obliges a taxpayer to pay tax which has been assessed notwithstanding that he may have objected to the assessment and invoked the appellate process which may take months, if not years, to work itself out. The basic consideration found 63. in the guidelines of 8 March 1983 is the taxpayer's ability to pay. That would encompass, in my opinion, not only the question of whether he was financially capable of paying but what impact upon the totality of his financial affairs the need to pay an assessment which was disputed, might have. Of course, if the assessment were not disputed, then one would think that in most cases, financial circumstances would he the most fundamental matter, if not the only matter, to he considered. For the foregoing reasons I do not find anything unlawful in the guidelines of 8 March 1983. The remaining question is whether the distinction drawn in the guidelines of 28 April 1983 between disputed cases which involve artificial or paper schemes and disputed cases of other kinds, is a distinction which 1s unlawful. This has caused me some concern. Taxpayers are entitled to arrange their affairs so as to reduce the incidence of income tax. Provided they act within the law, the law does not regard them any differently from any law-abiding group in the community. It 1s true that in recent years there has been a swing away from what might have appeared to be the support of the law for tax avoidance schemes. This has come about principally because of changes to the Act, and also, toa degree, because of a changed attitude on the part of the courts. Many schemes previously lawful have been specifically outlawed by legislation. The general tax avoidance provisions of Part IVA have been enacted. There 64. have been the decisions of this Court in Ure v. Federal Commissioner of Taxation (1981) 34 A.L.R. 237 and Federal Commissioner of Taxation v. Ilbery (1981) 38 A.L.R. 172; and there is the trend, at least in the United Kingdom, to take the firm view that where there is a pre-ordained series of transactions or a single composite transaction, steps inserted that have no commercial or business purpose other than avoiding liability to tax, are to be disregarded for fiscal purposes; see Furniss v. Dawson £1984] 2 W.L.R. 226. Having given the matter due consideration, I see nothing unlawful in the Commissioner adopting a general policy in relation to the grant of extension of time for payment of tax which distinguishes between disputes concerning artificial schemes and disputes concerning other matters. The only point of the distinction is that, inthe latter case, a taxpayer will usually be able to obtain a more favourable response to his application for an extension of time than he will if he has been involved in what the Commissioner considers to be an aritificial scheme case. I wish to repeat something to which I referred earlier in this judgment. If the scheme is one which current authority has decided has lawfully achieved the avoidance of the tax which the taxpayer hoped it would, different considerations might apply. Subject to such operation as might need to be accorded Part IVA of the Act (which does not a7] 65. apply to any scheme entered into prior to 27 May 1981), a scheme of that kind would be a scheme similar to that considered by the High Court in the Westraders' case (supra). As earlier said, there is insufficient material to enable me to make any judgment as to whether the schemes here in question were of that kind or not. If they were, the further question remains as to whether that would be a matter which the Commissioner or his officers would be bound, as a matter of law, to take into account. I think the real answer to the complaints which the applicants make is that the guidelines enable an officer considering an application for an extension of time to take well into account the financial circumstances of an applicant for an extension of time. Bearing 1n mind the policy of the Act to which I have earlier referred, 1f that is done, the Commissioner will have acted fairly in the great majority of cases. Furthermore, and perhaps more importantly, because of the reliance by the applicants on para. 5(2)(f) of the Judicial Review Act, the officer will not, because he takes individual financial circumstances into account, be exercising the power in accordance with a rule or policy without regard to the merits of the particular case. 'Accordingly, I am of opinion that question (b) earlier posed should be answered in the affirmative and question (c) in the negative. In consequence the applicants have not made 66. out the remaining grounds upon which they rely, that is, paras. (b) and (c)2 of the particulars of the grounds earlier set out. The applications, apart from that made by Herbert Peter John Sachs (No. G79 of 1983) which has already been disposed of, are dismissed. The applicants are to pay the respondent's costs of the applications but to the intent that he have only one set of costs in respect of costs incurred by him during the period 3 November 1983 until today. There will be liberty to apply. boarty cr hers oS svecoding pagzs ars" F fo 2s 2 sons icr judgment es 2 7 rae "Curac'2 Mr Justice S"12,, "4. S Pp. HUTCHISON Assoclata Dated /% Dun /78Y