FEDERAL COURT OF AUSTRALIA Harts Fidelity Pty Ltd v Chapman, Deputy Commissioner of Taxation [1999] FCA 1033 TAXATION - recovery where assessment subject to appeal - garnishee notices - refusals to extend time for payment and defer legal recovery action - timing of debt - analysis of debt collection policy ADMINISTRATIVE LAW - whether application of policy appropriate - relevance of explanatory charter - whether decision making process afforded taxpayer procedural fairness - considerations relevant to exercise of discretion - analysis of officer's alleged bad faith and other improper exercises of power Income Tax Assessment Act 1936 ss 218, 204, 208, 209, 206, 207, 207A Administrative Decisions (Judicial Review) Act 1977 Judiciary Act 1903 s 39B Taxation Administration Act 1953 s 14ZZM, 14ZZR Hutchins v Commissioner of Taxation (1996) 65 FCR 269 Refd to Ruddy v Deputy Commissioner of Taxation (1998) 82 FCR 337 Refd to Golden City Car and Truck Centre Pty Ltd v Deputy Commissioner of Taxation 99 ATC 4,131 Refd to Snow v Deputy Federal Commissioner of Taxation (WA) (No 2) (1987) 87 ATC 4,302 Refd to British Oxygen Co v Minister of Technology (1971) AC 610 Cited R v Port of London Authority; ex parte Kynock [1919] 1 KB 176 Cited Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 Cited Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Cited Walker v Secretary, Department of Social Security (1997) 75 FCR 493 Cited General Electronics International Pty Ltd v Deputy Federal Commissioner of Taxation (1996) 96 ATC 5036 Cited Edelsten v Wilcox and Federal Commissioner of Taxation (1988) 83 ALR 99 Cited, Discussed Kioa v West (1985) 159 CLR 550 Cited Kanda v Government of Malaya [1962] AC 322 Cited McVeigh v Willarra Pty Ltd (1984) 57 ALR 344 Refd to Brian Gardner Motors Pty Ltd v McComish (1992) 26 ALD 688 Cited HARTS FIDELITY PTY LTD, HARTS PTY LTD and NORTHSIDE VETERINARY CLINICS PTY LTD as Trustee for the THELANDER FAMILY TRUST v STEPHEN CHAPMAN, DEPUTY COMMISSIONER OF TAXATION AND DELEGATE OF THE COMMISSIONER OF TAXATION Q 145 of 1999 And NORTHSIDE VETERINARY CLINICS PTY LTD as Trustee for the THELANDER FAMILY TRUST v STEPHEN CHAPMAN, DEPUTY COMMISSIONER OF TAXATION AND DELEGATE OF THE COMMISSIONER OF TAXATION Q 189 of 1999 KIEFEL J 30 JULY 1999 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 145 OF 1999 BETWEEN: HARTS FIDELITY PTY LTD First Applicant HARTS PTY LTD Second Applicant NORTHSIDE VETERINARY CLINICS PTY LTD as Trustee for the THELANDER FAMILY TRUST Third Applicant AND: STEPHEN CHAPMAN, DEPUTY COMMISSIONER OF TAXATION AND DELEGATE OF THE COMMISSIONER OF TAXATION Respondent JUDGE: KIEFEL J DATE OF ORDER: 30 JULY 1999 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application for review is dismissed with costs, including reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 189 OF 1999 BETWEEN: NORTHSIDE VETERINARY CLINICS PTY LTD as Trustee for the THELANDER FAMILY TRUST Applicant AND: STEPHEN CHAPMAN, DEPUTY COMMISSIONER OF TAXATION AND DELEGATE OF THE COMMISSIONER OF TAXATION Respondent JUDGE: KIEFEL J DATE: 30 JULY 1999 PLACE: BRISBANE THE COURT ORDERS THAT: 1. The application for review is dismissed with costs, including reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 145 OF 1999 BETWEEN: HARTS FIDELITY PTY LTD First Applicant HARTS PTY LTD Second Applicant NORTHSIDE VETERINARY CLINICS PTY LTD as Trustee for the THELANDER FAMILY TRUST Third Applicant AND: STEPHEN CHAPMAN, DEPUTY COMMISSIONER OF TAXATION AND DELEGATE OF THE COMMISSIONER OF TAXATION Respondent AND: IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 189 OF 1999 BETWEEN: NORTHSIDE VETERINARY CLINICS PTY LTD as Trustee for the THELANDER FAMILY TRUST Applicant AND: STEPHEN CHAPMAN, DEPUTY COMMISSIONER OF TAXATION AND DELEGATE OF THE COMMISSIONER OF TAXATION Respondent JUDGE: KIEFEL J DATE: 30 JULY 1999 PLACE: BRISBANE REASONS FOR JUDGMENT 1 On 4 August 1998 the Commissioner of Taxation issued an amended assessment with respect to the years ended 30 June 1993 and 30 June 1994 to the third applicant in its capacity as trustee for the Thelander Family Trust. The Commissioner disallowed the trustee's objection on 27 January 1999 and an appeal was filed on 11 May 1999. That appeal and forty-one others await the determination of the appeal in BRK (Bris) Pty Ltd & Ors v Commissioner of Taxation. It is thought that its outcome is likely to resolve the issue arising in the other appeals. Each appeal concerns the Hendon Unit Trust. Each of the taxpayers involved in those appeals are trustees of a family trust which appointed income to Westside Commerce Centre Pty Ltd ("WCC"), the trustee of the Hendon Unit Trust. At issue is whether WCC became presently entitled to that income or whether it is assessable in the hands of the taxpayers. 2 On 10 June 1999, the first and second applicants received a notice, issued under s 218 of the Income Tax Assessment Act 1936 ("the ITAA"), in respect of the third applicant, requiring them to pay the sums assessed out of funds held by them to its account. (I shall refer to both these applicants as "Harts"). These proceedings concern the decision to issue that notice and the decision made on behalf of the Deputy Commissioner of Taxation, refusing to extend the time for payment of the monies due. There are applications for review of decisions by thirty-nine of the taxpayers referred to above. I am told that notices under s 218 were served on fifteen of them. In the case of two taxpayers, the amount of the disputed tax which the Deputy Commissioner required to be paid (50 per cent) has been paid and a decision has been made not to issue notices in those cases. It is also hoped that a resolution of this application might answer the questions raised in the remaining applications. I shall refer to all the taxpayers involved in these applications as "the taxpayers" and the third applicant as "the trustee". Statutory Provisions 3 Section 204 of the ITAA provides that income tax assessed is due and payable by the person liable to pay the tax on the date specified in the notice. Section 208 provides that when income tax becomes due and payable it is a debt due to the Commonwealth, payable to the Commissioner in the manner and at the place prescribed. The Commissioner, or Deputy Commissioner, may sue for and recover tax unpaid (s 209). Section 218 then provides for the collection of tax from a person who owes money to the taxpayer. Subsection 218(1) provides: "218(1) [Commissioner's notice] The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require: (a) any person by whom any money is due or accruing or may become due to a taxpayer; (b) any person who holds or may subsequently hold money for or on account of a taxpayer; (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or (d) any person having authority from some other person to pay money to a taxpayer; to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held): (e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or (f) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied; and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice." 4 The Commissioner may grant an extension of time for payment: "206 Extension of Time and Payment by Instalments (1) [Commissioner's discretion] The Commissioner may in any case grant such extension of time for payment of tax, or permit payment of tax to be made by such instalments and within such time as he considers the circumstances warrant; and in such case the tax shall be due and payable accordingly. (2) [Additional tax] In subsection (1), "tax" includes additional tax under Part VII." 5 Section 207(1) Income Tax Assessment Act provides: "207(1) [Additional tax] If any tax remains unpaid after the time when it became due and payable or would, but for section 206, have become due and payable, additional tax is due and payable by way of penalty by the person liable to pay the tax at the rate of 8% per annum on the amount unpaid, computed from that time or, where, under section 206, the Commissioner has granted an extension of time for payment of the tax or has permitted payment of the tax to be made by instalments, from such date as the Commissioner determines, not being a date prior to the date on which the tax was originally due and payable." 6 The Taxation Administration Act 1953 (Cth) provides, by ss 14ZZM and 14ZZR, that the fact that a review or an appeal is pending in relation to a taxation decision, save for a review of one type of sales tax decision, does not affect the decision and any tax may be recovered as if no review or appeal were pending. Communications between the Parties 7 When applications for interlocutory relief were before the Court an issue was raised as to whether there had been an application for an extension of time within which to pay the tax, and whether that had been refused. The submissions for the Deputy Commissioner identify two decisions which have previously been made: on 1 October 1998, when the Deputy Commissioner refused a request for an extension of time for payment, under s 206; and on 25 May 1999. These letters are referred to shortly. The latter decision was however characterised by the Deputy Commissioner as a refusal "to defer the commencement of legal action for the recovery of tax in dispute" and a review of the correspondence supports that contention. The effect of that would be that the decision is not one susceptible to review, since it is not final and operative and does not amount to a determination of a substantive right: see Hutchins v Commissioner of Taxation (1996) 65 FCR 269; Ruddy v Deputy Commissioner of Taxation (1998) 82 FCR 337; Golden City Car and Truck Centre Pty Ltd v Deputy Commissioner of Taxation 99 ATC 4,131. A review of those decisions has in any event been rendered redundant by a further request, under s 206, for an extension of time and the following refusal of the Deputy Commissioner of 25 June 1999: see Snow v Deputy Federal Commissioner of Taxation (WA) (No 2) (1987) 87 ATC 4,302, 4,305. Another application for review has been filed with respect to that decision. Reasons were provided by the relevant officer, acting on behalf of the Deputy Commissioner, although it was submitted that they are not required by the Administrative Decisions (Judicial Review) Act 1977 (the "ADJR" Act). It is not necessary to determine that question. I do not understand the Deputy Commissioner to contend that this decision, made under s 206, is non-reviewable. 8 The approach taken by the trustee to a review of the two operative decisions however necessitates a consideration of the correspondence passing between the tax agent for the taxpayers (Harts) and their legal advisors and the Deputy Commissioner, in particular with respect to the decision to issue the s 218 notices. 9 On 22 September 1998, the then solicitors for the Hendon Unit Trust wrote to the Deputy Commissioner with respect to it and the taxpayer's assessments. On behalf of each of them they sought an extension of time for payment of the tax assessed until the determination of the objections and, in the event that those objections were determined unfavourably to them, until the determination of any appeals which their clients might bring. An officer of the Australian Taxation Office responded on behalf of the Deputy Commissioner on 1 October concerning the request for an extension of time to pay: "After considering your request for an extension of time for payment I advise that in the absence of complete financial details I cannot accede to your request." He went on to inform the solicitors however that a decision had been made to defer any legal recovery action while the objections were being considered; that should the objections be disallowed, recovery action would commence, irrespective of any appeals; and that a payment of all tax not in dispute, and 50 per cent of disputed tax, would be required to obtain a deferment of recovery; but where payment of the 50 per cent would cause serious financial hardship, acceptable security for an equivalent amount could be provided. On 27 January 1999, the objections were determined against the taxpayers. 10 On 24 February 1999, another solicitor acting for the taxpayers wrote requesting that any "recovery action" be held in abeyance until the conclusion of litigation, and that advices provided by counsel were that the taxpayers would succeed. On 3 March 1999, the Deputy Commissioner advised that the request was not acceded to. Specific reference was made to the application of the Policy for the Collection of Taxation Debts, which provides for deferment only on the basis above which had been outlined in the letter of 1 October 1998. The letter went on to explain that a request for deferment of legal recovery action should include details of assets and liabilities, profits and loss statements and projected cash flows to support a claim of hardship and details should be provided of any security offered. Where payment of the debt would cause hardship but not severe hardship, or if security was not possible, it advised that the Australian Taxation Office might agree to deferral of recovery action if the 50 per cent payment was made by approved instalments. On 23 March 1999 the Deputy Commissioner wrote to the first mentioned solicitors requiring them to lodge applications for deferral of legal action, in the case of those taxpayers who claimed they would suffer severe financial hardship, and proposed a timetable, which was subsequently amended. The information required was listed. It acknowledged that the time frame was "tight" but that the taxpayers had previously been advised of the requirements of the Policy. Information was also required of the details of the security to be offered. This was the first correspondence involving the ultimate decision maker in these matters ("the officer"). 11 Some further correspondence was exchanged and on 29 March the officer wrote confirming the revised timetable. On 8 April 1999, the new solicitors for the taxpayers wrote providing certain information and making the submission that the Australian Taxation Office should take the view that the provision of security would be appropriate and that it was not necessary for its officers to analyse the material to be provided in relation to the question of hardship. This was dealt with by letter dated 22 April 1999 from the officer, who again referred to the Policy and advised that, after review of the solicitor's comments, it was not considered that circumstances existed such as would lead her to override the Policy, even though she accepted that there was time and cost involved in making such an application. She reiterated that serious financial hardship had to be shown before security was accepted, and recovery action then deferred, and that the onus was upon the taxpayers to prove that such hardship existed. 12 Further correspondence followed. The solicitors for the taxpayers had proposed the giving of security over real property in South Australia for payment of the tax due by the taxpayers, although it later emerged that this was not with respect to all taxpayers involved. On 13 May 1999 Harts wrote, providing some information concerning the financial positions of eighteen of the taxpayers, and advised that "the taxpayers would suffer serious financial hardship if action is taken to recover the disputed amount of income tax". The officer wrote on 25 May advising that she had "decided not to grant the deferral of recovery action pending the outcome of the Federal Court action on the grounds that payment of 50 per cent of the disputed tax will cause serious financial hardship to the taxpayer". The basis for that decision, with respect to the eighteen requests then under consideration, was "…because I cannot come to an informed decision on the financial position and capacity of the taxpayer based on the information provided. … Accordingly, payment of 50 per cent of the disputed amount is required by 2 June 1999." It advised that should payment not be possible, a taxpayer should contact the officer. Another letter, written the same day, noted that the remainder of the applications for deferral were due for lodgement by 3 June. In it the officer reiterated that the Policy for recovery and deferrals was considered by her to apply. 13 A letter from the solicitors followed, in which they made submissions as to the course which should be adopted with respect to the Policy. On 4 June, the officer reiterated that each taxpayer was required to demonstrate serious financial hardship before the Deputy Commissioner would be prepared to consider whether recovery action should be deferred, and that there had been an exercise of the Deputy Commissioner's discretion with respect to eighteen of the taxpayers. 14 On the same day, 4 June, the solicitors responded, advising that the writer, Mr Andrews, had not had an opportunity of considering the matter in detail and that he had been engaged on other matters that day. He was instructed, however, to correspond with the officer with respect to the letter of 4 June. It went on: "We ask that you indicate as soon as possible and preferably by return that you will consider matters that are put before you in relation to these issues. We also request your undertaking, again preferably by return, that you will not take steps to commence recovery proceedings against any tax payers until these issues have been dealt with in full and adequately and appropriately explored and considered. In other words that you will not be commencing proceedings at this stage. At the very least we would ask that you provide us with a minimum of 48 hours notice of any intention of commencing proceedings against any tax payers. …" 15 It concluded by foreshadowing proceedings for judicial review in the event that further consideration did not take place. 16 On 7 June 1999, another letter was sent by the solicitors requesting a Statement of Reasons for Decision and asking for an indication as to whether or not the officer was prepared to reconsider the decision and whether, if further information was provided, it would be considered. In particular it enquired: "…Would you please confirm that you will consider that information when it is provided and make a decision on the request for deferral of legal action and an extension of time for payment of tax based on that material and on the other material which has previously been provided to you." 17 The officer drafted a letter dated 7 June, which was not sent. It had been intended as a response to the solicitors letter of 4 June and I take it was prepared before their letter of 7 June was received. Its relevance now is in relation to allegations of bad faith or improper exercise of power. It advised that the request to defer recovery action had been properly considered; that no new issues were raised; that the taxpayers had had ample time to raise issues; that no undertaking would be provided with respect to those applications which had been refused; and "As to your request that I provide you with a minimum of 48 hours notice of any intention of commencing proceedings against any taxpayer, I advised Mr Hart in a letter of 25 May 1999 that I will be commencing action to collect the debt after 2 June 1999. This is my 48 hours notification. I will not be providing you with more specific notification of the commencement of recovery action" 18 Mr Solomon of Harts also gave evidence that he spoke to the officer on the morning of 7 June, and advised that he was compiling current financial information for some of the taxpayers, as had been requested. The officer indicated that that information had been required by 4 June. He said that he was in the process of compiling the information and wanted to know if there was any additional information she required and asked "whether she required me to send a letter or facsimile transmission confirming this and otherwise making arrangements for the provision of the information", and she replied that she did not. No note of the conversation was referred to in Mr Solomon's evidence. This evidence is relevant to the taxpayers grounds of want of procedural fairness and, in particular, that it was denied the opportunity to put forward material prior to the decision being made to issue the s 218 notices. 19 The officer's recollection differs. The note kept by her of the conversation referred to Mr Solomon's advice that he was getting together current financial information on some taxpayers and that it would take a little while. From what follows in the record it is clear that the officer understood Mr Solomon to refer to the information yet to be provided with respect to the taxpayers claiming hardship, other than the eighteen to whom the decision of 25 May applied. It also seems clear that Mr Solomon did not have a full appreciation of the background of the matter and what issues the material he was collating was to address. That may be gleaned from his evidence. For that reason, I would tend to discount his evidence. It is unlikely, in my view, that he did clearly convey what was to occur and which group of taxpayers were involved. I accept the officer's evidence of the conversation as reflecting her understanding that he was referring only to the claims for deferral of action based on hardship which had not been determined. It is consistent with what had occurred to that date and with her view that a decision had been made with respect to eighteen of the requests. 20 By letter dated 9 June 1999, another officer in the Australian Taxation Office responded to the solicitors' letters advising that he did not expect the Office would be able to respond to them by close of business that day. The officer says that she was aware of the letters of 4 and 7 June and that a reply to them was under consideration but did not appreciate that the letter of 9 June had been sent when she caused the notices under s 218 to issue to 15 of the taxpayers that same day. She had determined to issue the notices, on 3 June 1999. 21 On 10 June 1999, the officer advised the solicitors for the taxpayer that the Deputy Commissioner would consider a variation or withdrawal of the notices if access to funds was needed or if lack of it would prejudice the ability of the trustees to carry on business. 22 On 11 June 1999, the first application for judicial review, and for interlocutory orders, was filed. The Debt Collection Policy 23 The introduction to the Policy commences with statements that taxation debtors are expected to pay their debts, but that payment in instalments would be permitted where they face genuine difficulty and have the capacity to pay the debt. The document is substantial and I will refer only to those parts which were relied upon in argument and which appear to be relevant. 24 Reference is made in the Policy to the "Taxpayers' Charter", a document upon which the applicant relies and to which I shall later refer. Clause 2.3.1 states that the Policy ought to be read in the context of the Charter, the income tax legislation and other policy documents. Clause 2.6.7 refers to conduct which officers must not engage in, in making decisions of the kind to which the Policy refers. It is not necessary to set that part of it out. It does not widen the grounds for review under the ADJR Act. 25 Chapter 9 of the Policy refers to "extending due date for payment". The introduction reiterates the statement that taxpayers will be expected to pay on the due date. It acknowledges the statutory provision for extensions from which, it is said, the Commissioner has two options, or a combination of them: to grant an extension of time to pay at a later date or by instalments, by varying the date upon which the tax is due and payable, which has the effect of delaying the commencement of imposition of additional tax to the amended date; or to allow the debtor to pay at a later date or by instalments over a period, but without varying the date on which the tax is due and payable. The latter option is dealt with in the Chapter entitled "Payment by Instalments and/or Deferring Legal Recovery Action". 26 The Policy relating to extended dates for payment is contained in Clause 9.5: "9.5 POLICY 9.5.1 In the majority of cases where the Commissioner allows a debtor to pay at a later date or by instalments, it would normally be on the basis that additional tax would accrue from the original date for payment. 9.5.2 The Commissioner will only extend the time for payment where debtors can demonstrate:- (i) payment cannot be, or has not been, made by the due date because of circumstances beyond their control, and the debtor has taken reasonable steps to mitigate the effects of those circumstances; and (ii) payment in full can be made at a later date (when the circumstances that led to non payment have been alleviated). 9.5.3 It is not possible to identify every circumstance likely to prevent payment by the due date that is beyond the control of a debtor or the debtor's representative (for example, the trustee of the debtor's deceased estate). However, it can generally be expected that an extension will be granted where the debtor can show the inability to pay on time can be directly attributed to:- (i) natural disasters (flood, fire, drought, earthquake and the like); or (ii) other disasters that may have, or have had, a significant impact on a debtor or region; or (iii) the serious illness of the debtor where there is no other person that can make (or could have made) the payment; or (iv) a legal impediment (for example, probate not being granted or access to funds being denied by the order of a Court). 9.5.4 In cases where the ATO makes a transfer pricing or profit re-allocation adjustment, the debtor may seek Competent Authority assistance, under the Mutual Agreement Procedure article contained in Australia's double tax agreements, to have the matter resolved. In such cases the debtor may apply for an extension of time to pay under section 206. A detailed discussion of payment of tax issues in cases where Competent Authority assistance has been sought will be covered in a taxation ruling. However as a general guide, the type of factors which should be taken into account include: · whether the assessment is disputed and whether the ATO accepts that the dispute is genuine and that arguable questions of law are involved; · the size of the tax liability and the ability or potential of the taxpayer to pay the tax liability; · risks to revenue; · whether actual double taxation will occur; or · any other relevant factors. 9.5.5 The Commissioner will not generally grant a blanket extension of time for payment to debtors in a particular industry or region. In all cases where an extension is being sought, the onus is on the debtor (or the debtor's representative) to satisfy the Commissioner:- (i) the inability to pay by the original due date is/was directly caused by the circumstances that were beyond control; (ii) payment in full of the particular liability or liabilities can be made by the extended due date; and (iii) once the circumstances are under control, continuing liabilities will be paid as and when they fall due (that is, the debt will not escalate). 9.5.6 Each request will be considered on its merits and the extended due date will be determined having regard to the particular circumstances of the debtor and the circumstances that led to the inability to pay on time. The fact that a debtor may have other outstanding debts or a poor compliance record should not prevent that debtor from applying for an extension of time to pay a particular liability, where the inability to pay that liability was caused by circumstances beyond the debtor's control. 9.5.7 The Commissioner will not agree to extend the due date for payment of any liability on a permanent basis. An extension will only be granted to assist the debtor to overcome the immediate problems caused by the circumstances that were beyond the control of the debtor. 9.5.8 Action to recover the debt and the additional charges for late payment (calculated from the extended due date) will be instituted if a debtor does not pay a liability by the extended due date and does not come to some alternate arrangement for payment of that debt. An alternative arrangement may be a further extension of the due date or may involve the Commissioner accepting payment of the debt by instalments, subject to the imposition of additional charges for late payment from the extended due date." 27 The Policy with respect to deferral of legal recovery action, in the case of disputed debts, is contained in Chapter 10.5: 10.5 POLICY 10.5.1 Responsibility for demonstrating that legal recovery action should be deferred and/or that payment cannot be made by the due date rests solely with debtors. The Commissioner expects all debtors who cannot pay on time to apply to him prior to the due date for payment for time to pay by instalments. If an application cannot be made by the due date, then debtors should apply as soon as possible after the due date. 10.5.2 An application to pay by instalments should:- (i) set out the reasons for non payment on time; (ii) contain a detailed statement of the debtor's current financial position (including details of what steps have been taken to obtain funds to meet the debt and what arrangements are in place to pay other creditors); (iii) contain sufficient information to satisfy the Commissioner that payment can be made by instalments without the total debt escalating (which would mean debtors will need to be able to show the steps taken to ensure future debts will be met as and when they fall due); (iv) be accompanied by an initial payment to the extent of the debtor's present means as a sign of genuineness and commitment to pay; and (v) if appropriate, be accompanied by a payment to meet the Commissioner's costs that has been incurred taking legal recovery action against the debtor. 10.5.3 Matters the Commissioner will take into consideration when deciding whether to agree to accept payment by instalments and/or to defer legal recovery action include:- (i) the information provided by the debtor and other information that may be held (or obtained) by the Commissioner; (ii) the circumstances that led to the inability to pay and the effect of requiring immediate payment; (iii) the current financial position, including other current payment obligations and actions taken by the debtor to rearrange finances or borrow to meet the debt; (iv) the stage legal recovery action has reached and the grounds put forward by the debtor to justify deferring legal action; (v) the offer made and the ability to meet payment of the debt (and the additional charges for late payment imposed by legislation) on those terms without seriously impacting on the ability to meet other obligations; (vi) whether there is a likely risk to the revenue by accepting payment by instalments and whether that risk could be overcome by seeking some form of security for the debt from the debtor; (vii) the solvency of the debtor and arrangements made with other creditors (arm's length or otherwise) to pay debts; (viii) compliance with other taxation obligations or commitments (for example, whether lodgments are up to date) and the history of the debtor's prior dealings with the ATO; (ix) whether there are alternative economic collection options that may see payment in a shorter timeframe (for example, the use of "garnishee" provisions); (x) the willingness of the debtor to enter into "direct debit" arrangements; and (xi) the willingness of the debtor to accept the conditions under which the Commissioner will agree to accept payment by instalments. 10.5.4 The Commissioner will not accept payment by instalments if his prospects of recovery in the longer term would be diminished or the revenue would be disadvantaged. If there is insufficient information to enable the Commissioner to make a decision, debtors will be advised the offer is unacceptable and formal action to recover the debt will be instituted or will continued. 10.5.5 Where the Commissioner has concerns about the solvency of debtors or the ability of debtors to meet the terms proposed, he may either seek an independent review from an insolvency practitioner or require debtors to provide adequate security or a surety. 10.5.6 The Commissioner expects debtors paying by instalments to finalise their debts in the shortest possible timeframe. However, he acknowledges there will be instances where that timeframe may extend beyond one, two or more financial years depending on factors such as a debtor's ability to pay, the size of the debt and the likely costs of alternative collection activity. 10.5.7 In these circumstances, the debtor may be required to provide security or surety. The matter will also be reviewed regularly (for example, three or sim monthly) to account for potential changes to the debtor's financial situation. 10.5.8 Where the Commissioner agrees to accept payment of a debt by instalments, he will advise the debtor in writing of the terms for payment. One term will be if debtors do not meet the terms of the agreement, action to recover their debts may be initiated (or continued) without further warning. It is expected the debtor will acknowledge the debt and, if legal proceedings have commenced or are about to commence, will consent to the Commissioner being granted judgment in the event of any default in payment. The terms should not inhibit recovery action if there are indications of risk to the revenue, preferential payments or a significant change in a debtor's financial situation. 10.5.9 In addition to the above, for Mutual Assistance Procedure cases involving Australia's double taxation agreements, the deferral of recovery action may also be subject to: · The debtor's timely cooperation in providing information to facilitate competent authority processes and determination of any objection; and · Some other financial arrangement to minimise risks to the revenue. 10.5.10 If a debtor is not prepared to agree to these terms, then formal legal action to recover the debt will be commenced/continued without further warning. 10.5.11 The Commissioner will terminate any agreement to accept payment by instalments and commence (or continue) action to recover the whole of the outstanding debt if:- (i) he establishes that the information provided by the debtor and upon which he based his decision was false or misleading; (ii) the debtor does not pay the instalments as required; or (iii) the debtor fails to comply with subsequent lodgment and payment obligations for the duration of the agreement." 28 And the Policy referrable to recovering debts, concerning recovery at the objections and appeals stage is found in Chapter 28. Clauses 28.4.9 and following provide for the conditions to be met for deferral at the appeals stage: 28.4.9 Action may be taken to recover disputed amounts at the appeals stage in all cases, unless:- (i) the debtor has paid all undisputed debts and a minimum of 50 per cent of the disputed tax; or (ii) the debtor can demonstrate that payment of a minimum of 50 per cent of the disputed tax would cause serious financial hardship and gives the Commissioner acceptable security for an equivalent amount of 50 per cent of the disputed tax (see chapter titled "Securities"); or (iii) the Commissioner is pursuing arguments which are inconsistent with a previous Public Ruling or Income Tax Ruling, or going against the weight of precedent cases (ie the Commissioner is challenging the previously accepted position). Even where these conditions are met, the Commissioner will still initiate recovery action where there is a risk to the revenue. 28.4.10 A request for deferment of legal action where the assessment is under review or appeal should be made in writing and lodged with the ATO as soon as possible after lodging the review or appeal. The Commissioner's decision on the request should also be in writing. All agreements to defer legal action should contain the following terms: - · The debtor continues to meet the terms discussed in the preceding paragraph; · The debtor agrees to take all reasonable steps to proceed with the review or appeal promptly; and · For the duration of the deferral, the debtor will pay the whole of any subsequently arising tax liability which is not in dispute and for which no other deferral of legal action has been granted. 28.4.11 Where an application for deferment of legal action is not made or is refused, recovery action may be commenced or continued. Where a debtor seeks to delay the recovery action by applying for a stay of recovery or of execution, the Court may be advised that the Commissioner will agree to recovery action being deferred, only in respect of any tax in dispute, of: · The debtor meets the Commissioner's requirements for a deferment of legal action set out above; or · The debtor or another party provides an acceptable undertaking to the Court that the tax will be paid; If the debtor declines to accept these terms, the recovery action should proceed. In rare cases, the debtor may be able to demonstrate they do not have sufficient assets to support an acceptable undertaking to the Court that the debt will be paid in full if the AAT or Court fully or partially disallows the appeal (ie the debtor must establish that all or almost all of the disputed debt is not payable if they are to remain solvent). In these circumstances, the Commissioner may consent to an adjournment until fourteen days after the decision of the AAT or Court." 29 Chapter 29 refers to securities. The Taxpayers' Charter 30 The Charter is a general document produced by the Australian Taxation Office and is said to deal with the "relationship" between the Office and taxpayers. It attempts to explain aspects of taxpayers' rights and obligations. The trustee relied upon it for certain statements which it says amount to promises and which have helped to create an expectation on its part as to the treatment it would receive. I propose only to outline the general nature of those statements: to treat the taxpayer fairly and reasonably; to treat the taxpayer as being honest in their tax affairs and to provide clear decisions. No statement is contained in that document as to deferral of tax due. To the contrary, the Deputy Commissioner points to a passage in one of the Explanatory Booklets which accompany the Charter, that entitled "Paying your taxes", p 8, in which it is made plain that liability is not automatically deferred because of a dispute about the amount assessed. With respect to legal proceedings which may be taken to recover tax, despite a request for review or filing of an appeal, it summarises the general requirement of the Policy in relation to deferral. Reasons for Issue of the Section 218 Notices 31 Schedule 2 of the ADJR Act, provides that reasons are not required to be given to decisions "in connexion with the enforcement of judgments or orders for the recovery of moneys by the Commonwealth …", would not seem to apply to a decision to issue a notice under s 218. In any event some reasons have been provided. The officer says that when determining to issue them she took account of the contents of the letter of 22 April 1999 and that the deadline for payment of 50 per cent of the disputed tax, 2 June, had passed. She says that she was aware of the solicitors' letters of 4 and 7 June 1999, but nothing in them changed her view and she did not wish to delay the issue of the notices. Reasons for Refusal of Extension 32 The request by the solicitors for the taxpayers on 23 June 1999 was one to which s 206 applies, for an extension of the due date for payment, but accepting that penalties would accrue from the original due date (s 207 and s 207A). That raised the question as to whether that part of the Policy, referring to extended due dates for payments, would apply. Its requirements were more stringent, necessitating the trustee and the other taxpayers to show that their inability to pay on the due date was due to circumstances beyond their control and that payment in full could be made at a nominated later date or was to be paid by instalments. The solicitors did not provide any information concerning the relevant taxpayers' inability to pay and said that they did not propose that the tax in dispute be paid by instalments, but rather: "What we propose is that payment of the tax in dispute be deferred until the resolution of the appeals instituted by our clients in the Federal Court." From what follows in their letter, it appears that they took the view that neither Chapters 9 or 10 of the Policy dealt with the situation confronting the taxpayers, which is to say their having appeals awaiting hearing in the Court and being required to pay half of the tax in dispute. Chapters 28 and 29 were said to be relevant to the question whether an extension of time should be granted under s 206. As to the requirements of Chapter 28, they provided detail of the security being offered, but did not address the question whether the taxpayers would suffer financial hardship if required to pay half the tax, which the Policy posed as the threshold question to the acceptance of security. 33 The officer applied the Policy regarding extensions of due date for payment which, it will be seen from the passage set out above, required there to be shown an inability to pay, arising from a very limited set of circumstances, and that it be shown that payment can be made by the extended due date or that it be paid by instalments. Not even the first of those requirements was addressed and it appears that the officer regarded that as concluding the matter, so far as that Policy was concerned. She went on, however, to deal with a number of other factors which she had taken into account some amounting to "concerns" she had with the value of the security which had been offered. 34 The officer, in explaining her decision to apply the Chapter 9 Policy, set out a number of provisions confirming the Commissioner's first position with respect to tax debts, namely that it was expected that they would be paid. She also observed that "It is not the practice of the ATO to extend time for payment pursuant to Section 206 awaiting the outcome of disputes, as can be seen from the policy on this matter …". She explained that part of the rationale for the Policy for extension took account of the fact that the Commissioner could not respond promptly to any risk to the revenue that arose, by taking recovery action (apart from the giving of s 218 notices), until after the extended date. The issue as to whether there was such a risk was addressed later in the reasons where the "concerns" were listed. 35 The officer advised that "I have not concluded that there is a risk to the Revenue" but went on to list the concerns held. Some of them are not accurately so described and are neutral for an assessment process. From them it appears that, whilst the officer could not come to a definite view as to risk, she could not be satisfied that there was none, particularly since necessary financial information had not been provided. The two factors which the trustee points to on this application, as relevant, are the auditor's opinion, expressed to the officer, that Harts had effected delays in the audit process and the observation that other creditors might be receiving preferential treatment. 36 The question of the security offered was addressed. The value of the security, for which the solicitors contended, was not accepted by the officer. The value of the property in South Australia held by the trustee of the unit trust was $5.5m - $6M. The officer preferred to place reliance upon the price paid for the property in May 1996, $4M, rather than accept the values put forward without any valuation evidence to support them. A value of $6M, she noted, would reflect an increase of 50 per cent in a short period. She allowed for an increase of 10 per cent. 37 Deposits of some $1.4M by some of the taxpayers were also relied upon, as they might be utilised to be applied to the mortgage debt if necessary. The officer however thought it just as likely that the bank, as first mortgagee, would sell the property first. Assuming that it did so, the value of the security available was $2.2M and that equated with 29 per cent of a total debt of some $7,485,541.50. Even allowing for further contributions, to the time a decision was likely in the tax appeal, penalties would take the debt to $9,040,000 in eight months. 38 The security was considered inadequate. The officer expressed additional concerns about the solvency of the trustee company. Contentions on the Refusal of the Extension 39 The trustee's position, and that of the other taxpayers as seen by the solicitor's letter of request, was simple. It was prepared to offer security for 50 per cent of the disputed debt and no more. It regarded, or was forced to argue, that the Policy with respect to extensions of the due date for payment (Chapter 9) could not properly be applied to its circumstances. Whilst it accepted that part of the Policy relating to recovering disputed debts (Chapter 28) could be said to apply to it, it further contended that it was illogical to require provision of the information to establish financial hardship as a precondition to acceptance of security in lieu of payment of 50 per cent of the disputed tax. In its submission, if payment of 50 per cent of the tax suffices, so should security for the same amount. 40 There are, it seems to me, two essential difficulties for the trustee with respect to these contentions. In the first place, whilst Chapter 28 clearly provides for a general deferral of recovery action that would otherwise be taken, in the circumstances of a bona fide appeal lodged challenging the assessment, that was not what the taxpayers sought in the letter of 23 June 1999. They sought to extend the date upon which payment was due. A deferral would have accepted the original due date as applying with respect to payment and simply postponed legal or other proceedings for recovery of the tax. The second difficulty arises because the taxpayers' argument was predicated upon the security amounting, in value to one half of the disputed tax. The officer's findings of fact in this connexion may be sufficient to dispose of this issue. 41 It cannot be doubted that an authority may create a policy for the guidance of its officers in exercising statutory discretions, especially where there will be a large number of applications to rule on: British Oxygen Co v Minister of Technology (1971) AC 610, 625; R v Port of London Authority; ex parte Kynock [1919] 1 KB 176; Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577, 589-90, so long as the authority and its officers remain willing to listen to what an applicant puts forward as pertinent to their case: British Oxygen, 625, R v Queensland Fish Management Authority; ex parte Hewitt Holdings Pty Ltd (1992) 27 ALD 335, 338-9. I did not understand the trustee to contend to the contrary. 42 The ITAA does not specify the matters which are to be taken into account in exercising the discretion given by s 206, to extend the due date for payment. In those circumstances, policy considerations may be taken into account so long as they conform to the statutory purposes and powers to which the decision relates: Drake, 589-590. Given the requirements of the ITAA, and the Taxation Administration Act, that tax is to be paid on the date nominated as due on the assessment, and that the currency of proceedings challenging the assessment do not affect that liability and the ability of the Commissioner to proceed to recover tax, it would not seem to me irrelevant or illogical to require an applicant for extension to explain, at the outset, why payment cannot be made. 43 The trustee submitted that the officer "blindly" applied the Policy in question without regard to its circumstances. It does not appear to me that the officer failed to consider what was put forward. The contention that there existed an appeal was not considered by her to be relevant to a request for an extension, because of the statutory provisions referred to above. It would follow that if payment were to be postponed, it would be for other reasons. A proven inability to pay could be one such reason. It could not be said that the officer's view as to the application of the Policy, to what was put forward as an application to which s 206 applied, was illogical or unreasonable. 44 The trustee's argument, in reality, is an attack upon what is said to be an illogical and unjustifiable requirement of the other part of the Policy, that relating to deferral of recovery action in the event of disputed debts, at the appeal stage. 45 The ITAA does not expressly provide for the exercise of such a discretion, although it would clearly follow from the power, and obligation, to recover tax and protect the revenue. The requirement for payment or the giving of security can be seen to accord with such an obligation, whilst at the same time recognising that circumstances might exist where payment of the required sum, one-half of the tax in dispute, would be difficult. The trustee's point is that the revenue would be no worse off if 50 per cent of the disputed debt was secured, but not paid, especially if, as they contend was the case here, the officer did not consider there was a risk to the revenue. 46 I do not consider the latter correctly conveys the officer's opinion. As I have earlier mentioned, the officer felt unable to conclude the question, but obviously had some reservations about the matter. For example, insufficient financial information was supplied, although it had been consistently requested, and there appeared to have been securities which had come into existence at a time when the taxpayers were aware of the assessments. 47 The submission that there is no difference between the payment of money and the giving of security is hardly strong. The more obvious differences are in the cost and delay realising the security and the risk that it will not achieve its stated value. The requirement that there be hardship shown before that course was to be permitted does not seem unreasonable. 48 The existence of an arguable case on the appeals and the lack of risk to the revenue were also advanced as matters which the officer failed to take into account. It is not necessary to address these further, save to add that they are not matters required to be considered by the legislation: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24. It was also submitted, as it had to the officer in the solicitor's letter, that taxpayers in another investment (The Bud Plan Investment arrangement) had been given a general deferral of all legal recovery action until fourteen days after the Court decision in the test case. They were not required to provide security. What was here required, it was said, was the consistent treatment of which the Taxpayers' Charter spoke. Any requirement of consistency, however, relates to taxpayers in a similar situation. Those circumstances may not however be limited to those personal to the taxpayer. I consider they may properly take account of the administrative difficulties in applying the Policy and processing applications, particularly if a reasonable early date is given by the Court for the hearing of an appeal. The factor identified by the officer from the Ombudsman's report on the Bud Plan case is one which would have operated to the benefit of the Australian Taxation Office, since there were apparently 10,000 investors. That decision creates no obligation to deal likewise with the Hendon Unit Trust taxpayers, and indeed to do so would be to ignore their individual circumstances. 49 It was also contended that the officer took into account irrelevant considerations, those summarised earlier in these reasons: that securities might recently have been created and the auditor's remarks about the creation of delay by the taxpayer's tax agents. As to the first, the prospect that other creditors might be receiving preferential treatment would seem to me an entirely relevant consideration where a substantial sum was outstanding and where the taxpayers were not providing full financial information. The reference to delay was made in the context of the officer's own experience with the matter. Before noting the opinion which had been expressed by the auditor, the officer listed the considerable correspondence and repeated requests for information. It would appear to me that the officer felt confirmed in a view she had thought possible, although it might have been preferable to make that plain. The reference was in any event superfluous to the decision based upon the Policy relating to extensions, which was to refuse it because no inability to pay had been shown. The concerns expressed with respect to the risk to the revenue appear to have been merely responsive to the solicitor's specific contentions. 50 Even on the basis for which the trustee contends, an obligation to defer in the case of legal dispute about the tax debt when security to a value of 50 per cent of the debt is produced, the trustee fails on this application. The findings of fact made on that matter by the trustee are not susceptible to review. The Decision to Issue the Section 218 Notices 51 The officer had said that in determining to issue the notices she relied upon the matters referred to in the letter of 22 April 1999. That letter had advised the taxpayers' solicitors of the Policy requirements relating to deferral of recovery pending appeal and of the need for information to be put forward to enable her to make a fully informed decision on the question of financial hardship. That was gone into with some emphasis, as was the period of time which had elapsed since the decision on the objections had issued. She expressed the view that the security was deficient. The officer also said that in reaching her decision she took account of the fact that the payments of 50 per cent tax if they were to be made, were to be provided by 2 June and they had not. 52 The trustee submits that the notices were issued on 9 June without further reference to it and without affording it an opportunity to provide the necessary information. The trustee also contends that it had an expectation that it would have that opportunity since it had requested an undertaking to provide at least 48 hours notice and it had not received a response. 53 The giving of notice of recovery action such as this would, in some cases, render its effectiveness negatory: Walker v Secretary, Department of Social Security (1997) 75 FCR 493, 500; General Electronics International Pty Ltd v Deputy Federal Commissioner of Taxation (1996) 96 ATC 5036, 5045; Edelsten v Wilcox and Federal Commissioner of Taxation (1988) 83 ALR 99,114. In Edelsten v Wilcox it was held that there were special circumstances which required the Commissioner to give the taxpayer an opportunity to comment. In that case, notices previously given requiring the Health Insurance Commission to pay sums owed to the doctor, were limited to a proportion of them. After some time, and further negotiations, the Commissioner issued further notices requiring 100 per cent of the sums due to be paid to him. That case can then be seen to be more concerned with a change in circumstances and not the commencement of recovery proceedings. Burchett J held that the doctor had an expectation that he would be afforded an opportunity to comment, particularly if allegations of impropriety on his part were involved. A requirement that an opportunity be given could have arisen out of the state of affairs which had existed between the parties. 54 It is difficult here to accept that the trustee had any real "expectation" that it was to be given an opportunity to provide further information prior to any s 218 notice being given. I do not accept that such an expectation could arise from the general provisions of the Taxpayers' Charter, assuming the trustee to have read it. A request, not acceded to, for notification of action does not itself create the necessary obligation. The letter of 9 June from the other officer of the Australian Taxation Office advised that the requests could not be properly responded to that same day and this may have led the trustee and its advisers to believe that nothing would occur in that time. Even so, I cannot accept that an obligation thereby arose to provide an opportunity for the provision of further information, particularly in the background of the previous communications between the parties. To hold that it could would be to permit a mere request to create an important right and an obligation. 55 There was nothing in what had gone before which required any further opportunity to be given to the trustee to present further information with respect either to deferral of recovery action or a request for extension of the due date for payment, the latter being what was later sought. Procedural fairness requires that a party be given a fair opportunity to address matters material to the decision to be made: Kioa v West (1985) 159 CLR 550, 629; Kanda v Government of Malaya [1962] AC 322, 337. Sometimes a delay, or an adjournment, in the decision-making process will be necessitated where new issues arise and where the party to be affected by the decision has not had the opportunity to address them: see eg McVeigh v Willarra Pty Ltd (1984) 57 ALR 344; Brian Gardner Motors Pty Ltd v McComish (1992) 26 ALD 688. The giving of a fair opportunity cannot, however, require that the decision-maker, who has already released previous applications for extension and deferral on the basis that there was insufficient relevant information provided, despite repeated requests of information, to permit yet another application to be put forward. The first application for extension was refused in October 1998 and at that point the prospect of the alternative of deferral was raised by that Australian Taxation Office officer, provided the information required by the Policy was provided. The Deputy Commissioner advised of the refusal to defer recovery proceedings with respect to the trustee most recently on 25 May 1999. The officer's letter of 4 June confirmed that an exercise of discretion had taken place and rejecting the contention that the taxpayers' circumstances were then such as those in the Bud Plan arrangement. The letters of 4 and 7 June 1999 were no doubt written with the prospect in mind that recovery action would be commencing shortly. 56 It was submitted for the trustee that there was no need for the Deputy Commissioner to act so promptly and that an opportunity could have been afforded it given that there was no apparent risk to the revenue. I have dealt with the officer's view of the last mentioned proposition. Given an apparent refusal to provide financial information going to the question of hardship or an inability to pay it may have been thought necessary to take steps to protect the revenue. In any event no available ground for setting aside that decision has been shown. Other Matters 57 The allegations of bad faith and improper exercise of powers do not warrant further mention. They went no further than to recast the matters already dealt with. The trustee does not suggest any want of good faith arising from the decision to attach all the monies owed to the trustee, although at other points hardship is said to have resulted. I observe that the offer made by the officer on 10 June 1999, to consider any requests for monies necessary to the conduct of the businesses, and to vary the notices accordingly, has not yet been acted upon. 58 Relief under s 39B Judiciary Act 1903 (Cth) was also included in the application, but the submissions on the grounds for review take it no further. Orders 59 The applications for review will be dismissed with costs, including reserved costs. I will hear from Counsel as to how the other taxpayers' applications for review are now to be disposed of. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice . Associate: Dated: 30 July 1999 Counsel for the Applicant: Mr D Russell QC with him Mr P Bickford Solicitor for the Applicant: Thompson Hannan Counsel for the Respondent: Mr J Basten QC with him Mr P Hack and Mr M Robertson Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 28 June 1999 Date of Judgment: 30 July 1999