FEDERAL COURT OF AUSTRALIA Carey v Field [2002] FCA 1173 INCOME TAX – withdrawal by the Commissioner of a Public Ruling on ground that there were material differences between the arrangement ruled upon and the arrangement carried out – consideration of what constitutes a material difference - whether error of law – whether there was an opportunity to be heard Taxation Administration Act 1953 (Cth) ss 14ZAAK and 14ZAAL Income Tax Assessment Act 1936 (Cth) s 170BA(3) Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 - applied Annetts v McCann (1990) 170 CLR 596 - applied Corio Bay and District Private Hospital NH Pty Ltd v Minister for Family Services (1998) 87 FCR 37 - cited Boucher v Australian Securities Commission (1996) 71 FCR 122 - considered Kioa v West (1985) 159 CLR 550 - cited Broussard v Minister for Immigration and Ethnic Affairs (1989) 21 FCR 472 - cited Ansett Transport Industries Limited v Minister for Aviation (1987) 72 ALR 469 - cited Pilbara Aboriginal Land Council Aboriginal Corporation Inc v Minister for Aboriginal and Torres Strait Islander Affairs (2000) 103 FCR 539 – applied Attorney-General of Hong Kong v Ng Yuen Shiu [1983] 2 AC 629 -cited Re Australian Railways Union; Ex parte Public Transport Corporation (1993) 117 ALR 1 – cited Stead v State Government Insurance Commission (1986) 161 CLR 141 - cited Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 - cited Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2002] FCAFC 223 - cited SHANE CAREY v CHERYL-LEA FIELD ASSISTANT COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA W 67 OF 2002 MERKEL J 20 SEPTEMBER 2002 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY W 67 OF 2002 BETWEEN: SHANE CAREY APPLICANT AND: CHERYL-LEA FIELD ASSISTANT COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: MERKEL J DATE OF ORDER: 20 SEPTEMBER 2002 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The decision of the Commissioner of Taxation of the Commonwealth of Australia ("the Commissioner") to withdraw Product Ruling PR2001/92 ("the Product Ruling") be set aside. 2. The question of whether the Product Ruling should be withdrawn, wholly or to an extent, be remitted to the Commissioner to be determined in accordance with law. 3. The respondent pay 80% of the applicant's taxed costs of and incidental to the proceeding. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY W 67 OF 2002 BETWEEN: SHANE CAREY APPLICANT AND: CHERYL-LEA FIELD ASSISTANT COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: MERKEL J DATE: 20 SEPTEMBER 2002 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The applicant has commenced a proceeding under the Administrative Decisions (Judicial Review) Act 1977 Cth ("the ADJR Act") to set aside a decision made on behalf of the Federal Commissioner of Taxation ("the Commissioner") on or about 7 December 2001 to withdraw Product Ruling PR 2001/92 ("the Product Ruling") as from 12 December 2001. Although the applicant relied on numerous grounds of review ultimately he submitted that the decision should be set aside as the Commissioner erred in law and in fact, misdirected himself as to the matters he was required to take into account and failed to comply with the rules of natural justice in making the decision. 2 The Product Ruling was a public ruling of the Commissioner pursuant to Pt IVAAA of the Taxation Administration Act 1953 (Cth) ("the TA Act"). Section 14ZAAF, which is in Pt IVAAA, provides: "The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to a class of persons in relation to an arrangement." 3 Subject to a contrary intention, s 14ZAAA defines an "arrangement" for the purposes of Pt IVAAA as including: "(a) scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; (b) part of an arrangement;" 4 The binding effect of a public ruling is provided for in s 170BA(3) of the Income Tax Assessment Act 1936 (Cth) ("the ITA Act 1936") which provides: "Subject to sections 170BC and 170BDA, if: (a) there is a public ruling on the way in which an income tax law applies to a person in relation to an arrangement ('ruled way'); and (b) that law applies to a person in relation to that arrangement in a different way; and (c) the amount of final tax under an assessment in relation to that person would (apart from this section and sections 170BC and 170BDA) exceed what it would have been if that law applied in the ruled way; the assessment and amount of final tax must be what they would be if that law applied in the ruled way." 5 Sections 170BC and 170BDA are not relevant to the present case. 6 Under s 14ZAAK(1) of the TA Act the Commissioner may withdraw a public ruling, either wholly or to an extent, by publishing notice of the withdrawal in the Gazette. Section 14ZAAL provides: "(1) A public ruling that is wholly withdrawn: (a) continues to apply to arrangements begun to be carried out before the withdrawal; and (b) does not apply to arrangements begun to be carried out after the withdrawal. (2) A public ruling that is withdrawn to an extent: (a) continues to apply wholly to arrangements begun to be carried out before the withdrawal; and (b) does not apply to that extent to arrangements begun to be carried out after the withdrawal." 7 On 7 December 2001 the Australian Tax Office ("the ATO") caused notification of decision to withdraw the Product Ruling to be submitted for publication in the Gazette to be published on 12 December 2001. The notice of withdrawal published in the Gazette on 12 December 2001 was in the following terms: "Notice of Withdrawal Product Ruling Income tax: Grampians Olive Project 2001 Product Ruling PR 2001/92 is withdrawn with effect from today. We have reviewed the Grampians Olive Project 2001 and determined that the arrangement, as implemented, is materially different from that described in the Ruling on the following grounds: (1) the Project arrangement as implemented involved seven separate partnership's which entered into separate sets of agreements, and (2) work to be completed by 30 June 2001 under the Planting Agreement and the Construction of Water Facilities Agreement was not commenced by that date. As a result, there is no class of persons to whom the Ruling applies. Commissioner of Taxation 12 December 2001" 8 A decision to withdraw a product ruling is required to be made by the Commissioner. The decision to withdraw the Product Ruling appears to have been made by the respondent as the delegate of the Commissioner. In the circumstances I have treated the decision as that of the Commissioner. 9 In reliance upon the Product Ruling, 94 investors, of which 87 were individuals, subscribed funds to seven partnerships, each of which was formed to carry on business as a commercial grower of olives in the Grampians region in Victoria on different parts of a property known as "Arizona". The business carried on by the seven partnerships was referred to in the Product Ruling as "Grampians Olive Project 2001" ("the Olive Project"). As a result of the withdrawal of the Product Ruling the partners in the seven partnerships are only entitled to rely upon s 170BA(3) of the ITA Act 1936 in respect of arrangements begun to be carried out before the withdrawal, which was on 12 December 2001: see s 14ZAAL(1)(a) of the TA Act. However, the notice of withdrawal stated that, as the arrangement implemented was materially different from that described in the Product Ruling, "there is no class of persons to whom the Ruling applies". 10 The applicant, a partner in one of the Olive Project partnerships, disputes that the arrangements implemented differ from those ruled upon and claims that the substantive and procedural errors made by or an behalf of the ATO should result in the decision to withdraw the Product Ruling being set aside by the Court. 11 In order to appreciate the issues arising in the present case it is necessary to outline the history of the matter. Initially, the promoter of the Olive Project, Grampians Olives Pty Ltd ("Grampians Olives"), applied to the Commissioner for a private ruling under Pt IVAA of the TA Act. After receiving advice from the ATO that it was more appropriate to apply for a public ruling under Pt IVAAA an application for a ruling under Pt IVAAA was lodged with the ATO on 22 March 2001 by Jonathan D Madgwick ("Madgwick"), a Chartered Accountant acting for Grampians Olives. The application contained details of the arrangements which were proposed to be carried out to implement the Olive Project. 12 The Olive Project described in the application involved a partnership, consisting of not more than 20 partners who were "known to each other" (see ss 601ED(2) and 708 of the Corporations Law), which proposed to carry on business as a commercial olive grower on up to 400 hectares of land at "Arizona", that was to be leased to the partnership. An attraction to partners participating in the Olive Project was an entitlement pursuant to the proposed Product Ruling to deductibility of the fees paid prior to 30 June 2001 in order for the partners to become members of the partnership. 13 The application for the Product Ruling, which is a public ruling, enclosed draft copies of a proposed partnership agreement, a proposed management agreement, a proposed planting agreement, a proposed water facility agreement and certain other agreements. Under the agreements, as varied prior to the Product Ruling, the planting of the olive trees was to be completed by 30 June 2001, the water facilities required for irrigating the olive trees were to be completed by 30 June 2001 and the management services in respect of those matters were also to be provided by 30 June 2001. 14 After the lodging of the application for a product ruling there were a number of communications between Madgwick and ATO officers. In the course of those communications the ATO officers requested information concerning the identity of the partners, whether the partnership complies with s 115 of the Corporations Law and as to the feasibility of carrying out all of the works by 30 June 2001. Madgwick informed the ATO that the identity of the partners could not yet be ascertained, the partnership complied with s 115 of the Corporations Law as it "will be limited to no more than 20 persons" and the relevant agreements required the carrying out of all works by 30 June 2001. Madgwick forwarded to the Commissioner revised agreements which provided for all of the relevant services and works to be completed by 30 June 2001. Madgwick, at the request of the ATO officers, also provided a draft of the product ruling that his client was seeking from the Commissioner. 15 Grampians Olives' draft letter dated 10 May 2001 to potential investors was also submitted to the ATO. It stated: "RE: 2001 GRAMPIANS OLIVES PROJECT We refer to enquiries with regard to our capabilities to carry out the works as outlined in the Management agreement, by the 30th June 2001. We have spoken with our contractors, together with our own internal labour, and see no reason why we cannot establish the plantations before the 30th June 2001, in accordance with the Management agreement, as contemplated to be entered into by investors in the Grampians Olives Project 2001. We have undertaken not to take on any work which cannot be planted by the 30th June 2001, bearing in mind the tax consequences of these actions. We look forward to discussing this matter with you at your convenience. Yours faithfully, [Signed] MILHAM HANNA DIRECTOR" 16 The ATO also inquired as to the value of "Arizona" and was informed that it was valued at "$720,000". The value was relevant to the entitlement of individuals to deduct partnership losses under Div 35 of the Income Tax Assessment Act 1997 (Cth) ("the ITA Act 1997"). Under s 35-55 one of the requirements for deductibility was that the land on which the horticultural part of the business of the partnership was being carried on has a value in excess of $500,000. Thus, if more than one partnership was to carry on business at Arizona then, subject to the question of the value to be attributed to improvements, that may result in the requirements for s 35-55 deductibility not being met. 17 The ATO officers were concerned about whether the Olive Project could be completed by 30 June 2001. In order to allay those concerns Grampians Olives provided an undertaking to the Commissioner on 14 June 2001 stating that no investor will be accepted unless the: "manager is satisfied that all work that must be completed by 30 June 2001, in respect of that investor, will be completed by that date." 18 On 14 June 2001 Grampians Olives also signed a "Terms of Use" agreement with the Commissioner in which Grampians Olives, as promoter of the Olives Project, agreed, inter alia, that: "6. The Promoter will notify the Australian Taxation Office if the Project is implemented in a manner which is in any way different to the description of the arrangement contained in the Product Ruling and/or supplied to the ATO by the Promoter." 19 The product ruling was sought by Grampians Olives in accordance with Product Ruling PR1999/95. Clauses 9 and 10 of that ruling provided: "9. A Product Ruling provides certainty to potential investors by confirming that the tax benefits set out in the Ruling part of the Product Ruling are available, provided that the arrangements are carried out in accordance with the information provided by the applicant and described in the Arrangement part of the Product Ruling. The highest levels of disclosure are expected of the applicant. If the arrangement described in the Product Ruling is materially different from the arrangement that is actually carried out, investors lose the protection of the Product Ruling: · the Ruling has no binding effect on the Commissioner, as the arrangement entered into is not the arrangement ruled upon; and · the Ruling will be withdrawn or modified. This is likely to occur when there is a material omission or misrepresentation in the application for the Ruling. 10. Potential investors in a particular project may wish to seek assurances from the promoter of the project that the arrangement will be carried out as described in the Product Ruling relating to the project." 20 The Product Ruling was set out over some 25 pages and dealt with the relevant provisions of the tax laws that impacted upon the Olives Project. Relevantly, for present purposes, the Ruling contained the following provisions: "Class of persons 6. The class of persons to whom this Ruling applies is those who enter into the arrangement described below on or after the date this Ruling is made. They will have a purpose of staying in the arrangement until it is completed (i.e., being a party to the relevant agreements until their term expires) and deriving assessable income from this involvement as set out in the description of the arrangement. In this Ruling these persons are referred to as 'Growers'. … Qualifications 8. The Commissioner rules on the precise arrangement identified in the Ruling. If the arrangements described in the Ruling are materially different from the arrangements that are actually carried out: · the Ruling has no binding effect on the Commissioner, as the arrangements entered into are not the arrangements ruled upon; and · the Ruling will be withdrawn or modified. ... Date of effect 10. This Ruling applies prospectively from 20 June 2001, the date this Ruling is made. … Withdrawal 12. This Product Ruling is withdrawn and ceases to have effect after 30 June 2003. The Ruling continues to apply, in respect of the tax law(s) ruled upon, to all persons within the specified class who enter into the specified arrangement during the term of the Ruling. Thus, the Ruling continues to apply to those persons, even following its withdrawal, who entered into the specified arrangement prior to withdrawal of the Ruling. This is subject to there being no change in the arrangement or in the persons' involvement in the arrangement. Arrangement 13. The arrangement that is the subject of this Ruling is described below. This description incorporates the following documents: · Application for a Private Binding Ruling dated 15 December 2000; · Application for a Product Ruling dated 22 March 2001; · Draft Private Offer Information Memorandum included with Application for Product Ruling; · Draft Management Agreement between Agreement between Grampians Olives Pty Ltd and the Partners, received 4 May 2001; · Draft Partnership Agreement received 4 May 2001; · Draft Planting Agreement between Tree Maintenance Services Pty Ltd and the Partners received 4 May 2001; · Draft General Maintenance Services Agreement between Grampians Olives Pty Ltd and the Partners, received 4 May 2001; · Draft Lease Agreement between Maclary Investments Pty. Ltd and the Partners received 4 May 2001; · Draft Accounting, Administrative, Secretarial and Other Services Agreement between Mezina Enterprises Pty Ltd and the Partners received 4 May 2001; · Draft Construction of Watering Facilities Agreement between Tree Maintenance Services Pty Ltd and the Partners received 4 May 2001; · Letters from the applicant's representative dated 4 May 2001, 14 May 2001, 22 May 2001, 24 May 2001 and 29 May 2001. Note: certain information received from the applicant has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 14. There are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Partnership will be a party to, that are part of the arrangement to which this Ruling applies, except agreements that come within paragraph 28 below, concerning the provision of finance. The effect of the agreements listed above is summarised as follows. Overview 15. The arrangement is called the Grampians Olive Project 2001: Location: Property known as 'Arizona' situated in the Grampians region of Victoria 5km from the township of Balmoral. Type of business each Grower is carrying on: Commercial growing of a number of varieties of olives for sale. Name used to describe the product: Grampians Olive Project 2001. Number of hectares under cultivation: Between 20 and 400 hectares. Minimum subscription for Project 20 hectares Minimum subscription per investor 10 hectares Number of trees per hectare 200 approximately The term of the investment 24 years. Initial cost per 10 hectare investment $551,850 Initial cost per hectare $55,185 Ongoing costs: $1168 in the second year increased by 4 per cent in each subsequent year. 16. Under the arrangement an investor will subscribe capital to a partnership. An investor will pay monies to the partnership as capital subscription on account of construction of watering facilities, lease fees, supply and planting of olive trees, accounting, secretarial, administration fees, general maintenance and management fees. No more than 20 partners will constitute the Partnership. The Partnership will enter into several agreements to carry on the business of commercial growing of a number of varieties of olives for sale as either fruit destined for the table olive market or for processing into a variety of olive oils. 17. The property on which the olive growing activities are to be carried out is known as 'Arizona' which is owned by Maclary Investments Pty. Ltd. The property is comprised of 616 hectares and is situated in the Grampians, 5 kilometres from the western Victorian town of Balmoral. The Project will not proceed unless the minimum subscription of 20 hectares is achieved. Agreements 18. Under the Partnership Agreement, the Partners agree to carry on a business of an olive tree plantation in partnership." 21 Under the Product Ruling: · the partnership, the subject of the Product Ruling, was referred to as a "tax law partnership"; · the allowable deductions to partners of the tax law partnership under s 8-1 of the ITA Act 1997 were calculated on a single partner basis on the assumption that the partnership incurred the expenditures set out per hectare in the Product Ruling for the services which were to be provided by 30 June 2001; · the allowable deductions to partners of the tax law partnership for capital expenses in respect of irrigation costs to be incurred by 30 June 2001 were also set out in the Product Ruling. 22 The Product Ruling set out the following information concerning the Div 35 deductions: "Division 35 - deferral of losses from non-commercial business activities Section 35-55 - Commissioner's discretion 37. For a Grower who is an individual, either alone or in partnership, and who enters the Project during the year ended 30 June 2001 the rule in section 35-10 may apply to the business activity comprised by their involvement in this Project. 38. Where either the Grower's business activity satisfies one of the objective tests in sections 35-30, 35-35, 35-40 or 35-45, the discretion in subsection 35-55(1) is exercised, or the Exception in subsection 35-10(4) applies (see paragraph 58 in the Explanations part of this ruling, below), section 35-10 will not apply. For the year ended 30 June 2001 and subsequent years at least $500,000 of real property is used on a continuing basis in carrying on the business activity in that year. The objective test in section 35-40 will therefore be satisfied. 39. This means that a Grower will not be required to defer any excess of deductions attributable to their business activity in excess of any assessable income from that activity, i.e., any 'loss' from that activity, to a later year. Instead, this 'loss' can be offset against other assessable income for the year in which it arises." 23 The Product Ruling concluded with an explanation of how each of the relevant provisions of the tax laws impacted on the Olive Project. The explanation in respect of the Div 35 deductions was as follows: "60. The Partnership will be carrying on a business activity that is subject to these provisions. For the year ended 30 June 2001 and subsequent years, at least $500,000 of real property is used on a continuing basis in carrying on the business activity in that year. The objective test in section 35-40 will therefore be satisfied. This means that the Partnership will not be required to defer any excess of deductions attributable to its business activity in excess of any assessable income from that activity, i.e., any 'loss' from that activity, to a later year. Instead, this 'loss' can be offset against other assessable income for the year in which it arises." 24 The explanation given in respect of the pre-payment provisions in the ITA 1936 was as follows: "Prepayments provisions - sections 82KZM, 82KZMA - 82KZMD and 82KZME - 82KZMF 61. The prepayments provisions of the ITAA operate to spread over more than one income year, a deduction for prepaid expenditure that would otherwise be immediately deductible, in full, under section 8-1. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (e.g., the performance of management services or the leasing of land) that is not wholly done within the same year of income as the year in which the expenditure is incurred. … 63. There is also no evidence that might suggest the management services covered by the fee could not be provided within the same year of income as the expenditure in question is incurred. Thus, for the purposes of this Ruling, it can be accepted that no part of the initial fee is for the Manager doing 'things' that are not to be wholly done within the year of income of the fee being incurred. On this basis, provided a Grower incurs expenditure as required by the agreements as set out in paragraph 25, then the basic precondition for the operation of the prepayment provisions is not satisfied and fees will be deductible in the year in which they are incurred." 25 The Commissioner withdrew the Product Ruling because he formed the view that the arrangements implemented differed materially from those that were the subject of the Ruling in that: · seven partnerships involving 94 partners, rather than one partnership of up to 20 partners, constituted the Olive Project as implemented; · the tree planting which was to be completed by 30 June had not been commenced by that date; · the water facilities that were to be completed by 30 June had not be completed by that date. 26 ATO officers became concerned about the Product Ruling after a site visit to the Olive Project by ATO officers on 3 July 2001. The visit confirmed the prior doubts of the ATO officers that there had not been sufficient time to complete the works required to be carried out by 30 June 2001. The site visit notes stated that, although the ATO officers observed that a lot of work had been done, a substantial amount of work had not been done. In particular, the notes stated that no olive trees had been planted, only about 40-50% of the stakes for the trees were in place, and there was an absence of evidence of any irrigation infrastructure in place. The officers noted that some 35,000 trees were in pots ready to be planted but they were informed that pre-30 June was the wrong time to plant the trees. 27 The applicant did not dispute that the trees had not been planted but contended there were sound horticultural reasons for not planting the trees. The applicant also did not dispute that the irrigation infrastructure was not in place but contends that the water facilities that were required to be completed by 30 June 2001 had been completed by that date and that the remaining water facilities were new facilities that were not required to be completed prior to 30 June 2001. 28 On 2 August 2001, the ATO sent a letter to Grampians Olives requesting "a list of the partners that will constitute the Partnership that will carry out the business of olive growing", details concerning the partners, dates for completion of the installation of the balance of the stakes and the watering facilities and for the planting of the olive trees. 29 By a letter dated 28 August 2001 Grampians Olives provided some of the information requested by the ATO. The ATO was informed that 94 partners had fully paid their subscriptions by 30 June 2001, the installation of the balance of the stakes was to be completed by 30 September 2001, the installation of the remaining water facilities was to be completed by 30 October 2001 and the planting of the remaining olive trees would be completed by 30 September 2001 provided the weather conditions were suitable. The evidence of the applicant's witnesses was to the effect that the reference in the letter to the remaining water facilities was a reference to the completion of two dams, which were said not to have been part of the water facilities required to be completed by 30 June 2001. 30 After further communications between Madgwick and ATO officers, by a letter dated 16 November 2001 the ATO made a further request for full details of the seven partnerships and for certain other information. The ATO also referred to the undertaking that investors would not be accepted into the Olives Project unless the manager was satisfied that all work would be completed by 30 June 2001 and asked why, in view of that undertaking, participants were accepted when the work to be done by 30 June 2001 was not in fact done by that date. 31 By letter dated 4 December 2001 Grampians Olives provided the further information which had been sought by the ATO. Relevantly, the information included the following information concerning the seven partnerships, which included partnerships that were formed in Western Australia, as at 30 June 2001: "(d) The following payments were made: Balmoral Grampians Olives Partnership 5,159,798 Batavia Grove Olives Partnership No 1 1,396,180 Batavia Grove Olives Partnership No 2 1,092,663 Batavia Grove Olives Partnership No 3 1,699,698 Batavia Grove Olives Partnership No 4 1,426,532 Batavia Grove Olives Partnership No 5 728,442 Batavia Grove Olives Partnership No 6 1,062,311 (e) Number of hectares that constitutes each partnership's interest are as follows: Balmoral Grampians Olives Partnership 93.50 Batavia Grove Olives Partnership No 1 25.30 Batavia Grove Olives Partnership No 2 19.80 Batavia Grove Olives Partnership No 3 30.80 Batavia Grove Olives Partnership No 4 25.85 Batavia Grove Olives Partnership No 5 13.20 Batavia Grove Olives Partnership No 6 19.25" 32 In response to the query concerning the completion of works by 30 June 2001 Grampians Olives informed the ATO that: "All work was completed by 30th June 2001 except those items that were restricted by seasonal conditions as outlined in the Managers letter to you of the 28th August 2001." 33 On 5 December 2001 Mr Ajzenszmidt ("Ajzenszmidt") the ATO officer responsible for dealing with the Product Ruling in respect of the Olives Project, telephoned Madgwick and advised that he was sending a letter to Grampians Olives "in relation to the potential withdrawal of [the] Product Ruling". Ajzenszmidt said that he was concerned that there was more than one partnership and that the irrigation and planting work required to be completed by 30 June 2001 had not been completed. Madgwick advised him that each partnership entered into an arrangement that was identical to the arrangement described in the Product Ruling. Ajzenszmidt agreed but responded that that was "not the arrangement described". Ajzenszmidt told Madgwick that applications from investors should not have been accepted by Grampians Olives where there was more than one partnership or where work could not be completed within the required timeframe. Madgwick's response was that it was not possible to know the number of applications that would be received given the timeframe and all work had been completed where practicable by 30 June 2001. 34 Ajzenszmidt told Madgwick that the decision to withdraw the Product Ruling "had not as yet, at that time, been made and further investigations into the partnerships in Western Australia would be made". Madgwick stated that Ajzenszmidt had made it clear to him that the ATO "required additional information from Grampians [Olives] to allow further consideration to be given prior to any decision being made to withdraw [the Product Ruling]". Ajzenszmidt said he would e-mail a letter to Madgwick but Madgwick requested that the letter be sent directly to Grampians Olives. 35 On or before 7 December 2001 the Commissioner made a decision to withdraw the Product Ruling as that was the closing date for notices to be placed in the Gazette to be published on 12 December. No explanation was provided as to why that decision was made without Grampians Olives being requested to provide the further information foreshadowed by Ajzenszmidt in his conversation with Madgwick or why the proposed letter to Grampians Olives was not sent. 36 By a letter dated 10 December 2001 the ATO informed Grampians Olives that as the arrangement described in the Product Ruling is materially different from the arrangement that had actually been carried out "the Product Ruling will be withdrawn on 12 December 2001". The material differences were described in the letter as follows: "1. the Project arrangement as implemented actually involved seven separate partnerships which entered into separate agreements; and 2. work to be completed by 30 June 2001 under the Planting Agreement and Construction of Water Facilities Agreement had not been commenced by that date. In your letter dated 4 December 2001 you stated, in your reply to question 10: 'All work was completed by the 30th June 2001 except those items that were restricted by seasonal conditions as outlined in the Managers (sic) letter to you of the 28th August 2001.' During a visit to the Project site on 3 July 2001, it was found that the Planting and Irrigation work had not commenced. Seasonal conditions did not appear to be adverse nor were they given as a reason for the work not having been completed, as planned by 30 June 2001." 37 The notice of withdrawal in the Gazette relied upon the same differences, albeit that they were expressed in slightly different terms. 38 On 24 December 2001 a request was made to the ATO pursuant to s 13 of the ADJR Act for a statement in writing of the reasons for the withdrawal decision. The reasons for the decision, which were subsequently given by the respondent, outlined her findings on the material questions of fact. The reasons for decision were stated as follows: "The Commissioner has concluded that [there] are material differences between the arrangements for the project which have been implemented and the way the Arrangement is described in the Ruling. As a consequence of this conclusion, the Commissioner withdrew the Ruling effective from 12 December 2001." 39 The applicant's submissions were largely based on the evidence of the applicant's witnesses as to the works that had been completed by 30 June 2001, as to why it could not reasonably be expected that the tree planting be completed by that date and as to why the seven partnership "arrangement" implemented by the partners could not result in any different tax consequences to the one partnership "arrangement" ruled upon by the Commissioner. The submissions failed to recognise that the applicant's case for judicial review under the ADJR Act must be founded upon the material before the Commissioner when he made his decision to withdraw the Product Ruling, rather than on the material the applicant now wishes to place before the Court. The evidence the applicant has placed before the Court, which either supplemented or sought to explain the material before the Commissioner, would be relevant to the Commissioner's assessment of the taxable income of the partners for the relevant years of income but the review on the merits sought by the applicant in the present proceeding is not permissible under the ADJR Act. 40 An associated error underlying the applicant's submissions was the endeavour to argue on his behalf that the matters relied upon by the Commissioner as constituting "material differences" were not material as, on the whole of the evidence now before the Court, the Court can conclude that those differences will not result in outcomes under the tax laws that are different to the outcomes provided for in the Product Ruling. That, however, is a matter for a Pt IVC proceeding under the TA Act consequent upon a taxpayer who has participated in the Olive Project objecting to the Commissioner's assessment of that taxpayer's assessable income. 41 The legal issues raised by the applicant on his application for judicial review of the Commissioner's decision to withdraw the Product Ruling are primarily concerned with whether, on the material before the Commissioner and upon which he relied, it was open to him to conclude that the differences he identified as "material differences" were considerations that he was entitled to take into account in deciding to withdraw the Product Ruling. Thus, the real issue between the parties related to what constitutes a "material difference" in that context. The Act does not use that term although cl 9 of Product Ruling PR1999/95 states that a product ruling has no binding effect and will be withdrawn if the arrangement "described in the Product Ruling is materially different from the arrangement that is actually carried out…". The Commissioner did not define what he meant by the term "material difference" when he used it in his correspondence with Grampians Olives and in his notice of withdrawal of the Product Ruling. 42 The Commissioner's power under s 14ZAAK(1) of the TA Act to withdraw a product ruling is expressed in terms that are unconfined. Consequently, the factors that may be taken into account in the exercise of the Commissioner's discretion to withdraw a product ruling are similarly unconfined, except insofar as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the Commissioner may legitimately have regard: see Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 ("Peko-Wallsend") at 39-40 per Mason J. In so far as there are factors that are impliedly not to be taken into account, judicial review is available on the ground that the decision-maker took into account an irrelevant consideration. 43 Further, in the absence of any statutory indication of the weight to be given to various considerations, it is in general for the Commissioner, and not the Court, to determine the weight to be given to the matters which are to be taken into account in exercising the statutory power: see Peko-Wallsend at 41. 44 The applicant submitted that for a difference to be material, and therefore not an irrelevant consideration, the difference must result in a different tax outcome to that provided for in the ruling. The problem with the submission is that it does not recognise the width of the discretionary power to withdraw a public ruling, the limited consequences of the withdrawal of a public ruling (which does not result in the loss of the benefit of s 170BA(3) in respect of arrangements "begun to be carried out before the withdrawal": s 14ZAAL(1)(a)), or the entitlement of a taxpayer under Pt IVC of the TA Act to contest an assessment made by the Commissioner that is inconsistent with the ruling: cf s 14ZVA of the TA Act in respect of private rulings. 45 Further, there is nothing in the legislative provisions governing binding public rulings or in the subject matter, scope and purpose of those provisions that would suggest that the Commissioner should only be entitled to withdraw a public ruling if differences between the arrangements ruled upon and the arrangements implemented must result in tax outcomes that will be different to those ruled upon. The actual tax outcomes are matters that are to be contested in a proceeding under Pt IVC of the TA Act, rather than in a proceeding for judicial review under ADJR Act. Further, the tax outcomes may often involve questions of mixed law and fact that do not permit of easy or quick answers. Generally, I would not expect the Commissioner to withdraw a binding ruling on the ground of a difference between the arrangement ruled upon and the arrangement implemented unless he was of the view that the differences were, at the least, likely to result in a different tax outcome to that ruled upon. However, I do not regard his statutory discretion as confined to that situation. For example, where the Commissioner forms the view that there are material differences which are capable of resulting in the tax outcomes being different to those ruled upon with the consequence that it is unsafe for taxpayers to rely upon the ruling because it may not apply to the arrangement implemented, it would not be an inappropriate exercise of power to withdraw the product ruling. 46 But, having regard to the subject matter, scope and purpose of the binding public ruling system the legislature should not be taken to have intended that the Commissioner was empowered to withdraw a binding ruling because of a difference that is not material in the sense that, on the material before the Commissioner, the difference was not capable of affecting the tax outcomes ruled upon. Thus, reliance upon such a difference would constitute reliance upon an irrelevant consideration for the purposes of judicial review of the decision. 47 That, however, does not answer the question of what is a "material difference". In my view if it is reasonably open to the Commissioner to form the view on the material before him that, because of a difference between the arrangement implemented and that ruled upon, the tax outcome for a taxpayer who is a member of the class of persons to whom the ruling was intended to apply is capable of being, or is or likely to be, different to that provided for in the ruling, that difference is a material difference, and therefore not an irrelevant consideration in the context of the judicial review of a decision to withdraw the ruling under s 14ZAAK(1) of the TA Act. While a purpose of the binding public ruling system is to provide certainty to taxpayers, that purpose is better served by the Commissioner having the power to withdraw a ruling if he forms the view that the differences between the arrangement implemented and that ruled upon are capable of having or likely to have a different tax outcome to that provided for in the ruling. Plainly, if it is reasonably open to the Commissioner to form the view that the tax outcomes ruled upon do not apply, greater certainty is provided by the withdrawal of the ruling. The object of certainty and the public interest are not served by the maintenance of a ruling where the Commissioner has formed a view, that is reasonably open on the basis of the material before him, that the ruling can no longer be safely relied upon because of differences between the arrangement implemented and that ruled upon. 48 Thus, it is of critical importance that taxpayers intending to rely on public rulings take heed of the Commissioner's warnings in the public rulings that any material difference between the arrangement ruled upon and that carried out will result in the ruling not being binding and in it being withdrawn. 49 The present case affords an example of why a public ruling, which is being relied upon by taxpayers in relation to the tax consequences of an investment, may be withdrawn when the Commissioner forms the view that their reliance is misplaced. The Commissioner formed the view that, as the arrangements implemented were materially different to those ruled upon, "there is no class of persons to whom the Ruling applies". If that view, which is based on questions of mixed law and fact, is reasonably open to the Commissioner on the material before him, subject to compliance with the rules of natural justice, the statutory scheme does not prevent him from withdrawing the ruling. Indeed, that situation is an a fortiori example of where it might reasonably be said that the Commissioner should withdraw the ruling as to leave it in place in those circumstances is likely to mislead the persons relying upon it and would be offering such persons uncertainty, rather than certainty. Further, as explained above, the contest as to the ultimate correctness of the view of the Commissioner is to take place in a Pt IVC proceeding and not an ADJR Act proceeding which, generally, is to be determined on the material before the Commissioner. 50 I am in no doubt that it was reasonably open to the Commissioner to form the view, on the material upon which he relied, that by reason of the "material differences" he identified he was entitled to exercise his power to withdraw the Product Ruling. The material disclosed a failure to complete the water facilities and the planting of the trees by 30 June 2001. While the applicant disputes the non-completion of the water facilities I am satisfied that that dispute relies upon explanations and other material that were not before the Commissioner. It is sufficient for present purposes that the letter of Grampians Olives of 28 August 2001, and other material before the Commissioner, disclosed the non-completion of the water facilities. There is no dispute about the failure to plant the trees and install all of the stakes for the tree planting, although the Product Ruling did not provide for a specific deduction for the tree planting. However, the completion of the tree planting and the water facilities by 30 June 2001, and the provision of the management and other services required for those matters, was plainly relevant to the operation of the prepayment provisions (ss 82KZM, 82KZMA-82KZMD and 82KZME-82KZMF of the ITA Act 1936) referred to in paras 61-63 of the Product Ruling and, in particular, to the deductibility in the 2001 year of income of the fees paid by the partners for those services. The relevance of the need to complete all of the relevant services by 30 June 2001 to the tax outcomes ruled upon was emphasised by the ATO officers and was accepted by Grampians Olives which, by the draft letter dated 10 May 2001, informed potential investors of the tax consequences of the failure to establish the plantations before 30 June 2001. Thus, it was open to the Commissioner to form the view that the failure to complete the relevant works was capable of resulting in different tax outcomes to those ruled upon. 51 Similarly, the emergence of seven partnerships totalling 94 partners with each partnership leasing different portions of the "Arizona" land is a different arrangement to that ruled upon, which was one partnership of not more than 20 partners leasing up to 400 hectares of the "Arizona" land. The difference is material as the Div 35 deferral of partnership losses do not apply unless the relevant partnership uses at least $500,000 of real property in carrying on the partnership's business activity: see paras 37-39 of the Product Ruling. The material before the Commissioner was to the effect that the Arizona land was valued at $720,000. Thus, it was open to the Commissioner to form the view on the material before him that, contrary to the Product Ruling, Div 35 may result in the deferral of losses for the individual partners in the seven partnerships as the partnerships did not meet the $500,000 threshold. The applicant disputes that conclusion but in order to do so has impermissibly relied upon evidence that was not before the Commissioner. 52 There is also the issue of whether the proper characterisation of the "arrangement" ruled upon for the purposes of s 170BA of the ITA Act 1936 is an arrangement that involves one partnership leasing up to 400 hectares of the Arizona land. I am satisfied that it was open to the Commissioner to form the view that the "arrangement" ruled upon is not the "arrangement" carried out because of the different partnerships established by the promoter and that that difference is capable of resulting in the benefit afforded by s 170BA not being applicable. The difference may also be material in other respects but it is not necessary to pursue that matter further. 53 Because I have found that each of the differences relied upon by the Commissioner were material differences it must follow that the Commissioner has not taken into account irrelevant considerations. I am also satisfied that it was open to the Commissioner to form the view that those differences cumulatively resulted in there being no class of persons to whom the Product Ruling applies. Whether that view, founded on questions of mixed law and fact, may ultimately be found to be erroneous in a Pt IVC proceeding is not relevant for present purposes. Thus, the applicant has not established that the Commissioner erred in law in reaching that conclusion. It must follow that the applicant's challenge to the Commissioner's decision to withdraw the Product Ruling on the ground that he erred in law, has taken into account irrelevant considerations, or has failed to take into account relevant considerations must fail. There is also no basis for any challenge to the decision on the basis of lack of bona fides or abuse or misuse of power on the part of the Commissioner or of the ATO officers who had the conduct of this matter. 54 It needs to be emphasised that in disposing of the applicant's case, which was founded essentially on error of law in relation to the Commissioner's view as to the materiality of the differences upon which the Commissioner relied, I have not found it necessary to form any view as to the likely outcome of any contest that may arise as a result of the Commissioner disallowing any deductions claimed by the partners for the year of income ended 30 June 2001. As explained above, that is a matter that will have to be determined on the evidence adduced by the parties in a Pt IVC proceeding and is not relevant to the issues required to be decided on the present application. I would add that in this case I have confined my consideration of the Commissioner's power to withdraw a public ruling to an exercise of that power on the ground of material differences between the arrangement ruled upon and the arrangement implemented. Thus, my observations are confined to that situation and are not intended to suggest that there may not be other circumstances, such as a material non-disclosure, in which a ruling may be withdrawn. 55 Thus far I have confined my consideration of the matter to the substantive issues raised by the applicant's case. The applicant, however, also claims there was a breach of the rules of natural justice. I now turn to consider that aspect of the applicant's case. 56 The Commissioner conceded that he was obliged to comply with the rules of natural justice in relation to his decision to withdraw the Product Ruling. The concession was plainly correct. It is now well established that when a statute confers power on a public official to destroy, defeat or prejudice a person's rights, interests or legitimate expectations, the rules of natural justice regulate the exercise of that power unless they are excluded by plain words of necessary intendment: see Annetts v McCann (1990) 170 CLR 596 at 598. In the present case the statute conferred a power upon the Commissioner to defeat the right of members of the class of persons to whom the public ruling was intended to apply, to rely on the Commissioner being bound by the ruling in accordance with s 170BA(3) of the ITA Act 1936. The right that can be defeated by the withdrawal of the ruling is a legal right arising under the statute. It is not a mere indirect and consequential financial interest: cf Corio Bay and District Private Hospital NH Pty Ltd v Minister for Family Services (1998) 87 FCR 37 at 43 and 47. 57 It is also well established that an obligation resting on an administrative decision maker to observe the rules of natural justice does not require the inflexible application of a fixed body of rules; what it requires is fairness in all the circumstances of the particular case, which include the nature of the jurisdiction or power exercised and the statutory provisions governing its exercise: see Boucher v Australian Securities Commission (1996) 71 FCR 122 at 128-129 and the authorities there referred to. Where natural justice applies to the making of a decision the party liable to be directly affected by the decision must be given an opportunity to be heard. That opportunity will usually require the decision maker to bring to the attention of the party entitled to be heard the critical issues or factors on which the decision is likely to turn so that the party may have an opportunity of dealing with those issues or factors: see Kioa v West (1985) 159 CLR 550 at 587; Broussard v Minister for Immigration and Ethnic Affairs (1989) 21 FCR 472 at 481. 58 Whether an opportunity to be heard has been afforded will depend upon all of the circumstances of the case. One of the circumstances that is relevant in the present case is that the ATO officers were dealing with Madgwick, who acted on behalf of Grampians Olives, in relation to the matters that led to the withdrawal of the Product Ruling. Madgwick is a Chartered Accountant who has had extensive experience in relation to Product Rulings and can be taken to have been aware of the significance of the matters being raised with him by the ATO officers and also of the likelihood of the Product Ruling being withdrawn in the event that those ATO officers formed the view that the arrangement implemented was materially different to the arrangement ruled upon: cf Ansett Transport Industries Limited v Minister for Aviation (1987) 72 ALR 469 at 497. Also, in the circumstances of the present case, it is sufficient if the opportunity to be heard is afforded to Grampians Olives or to Madgwick as its representative. 59 Determining whether the rules of natural justice have been complied with in the present case is not without difficulty. Although Madgwick can be taken to have been aware of the fact that the ATO officer's inquiries concerning the implementation of the Olive Project could lead to the withdrawal of the Product Ruling that possibility was not specifically raised prior to his conversation with Ajzenszmidt on 5 December 2001. Until that conversation the ATO officers had raised their concerns about the manner in which the Olive Project had been implemented and had requested information from Madgwick and from Grampians Olives in relation to those concerns, but they had not raised the issue of withdrawal of the Product Ruling. In a sense, the ATO officers did bring to the attention of Grampians Olives and Madgwick some of the factors upon which any decision to withdraw the Ruling was likely to turn. However, the factors upon which the decision to withdraw was likely to turn were not restricted to the differences between the manner in which the arrangement was carried out and the arrangement ruled upon. There are at least three issues that arise in relation to the exercise of the Commissioner's power to withdraw the Product Ruling in the present case. The first issue relates to the precise identification of the differences between the project ruled upon and the project carried out. The second issue relates to whether the differences are "material" differences and what that term means. The third issue relates to whether the Commissioner ought to exercise his power to withdraw the Ruling in whole or in part. 60 The communications between the ATO officers and Grampians Olives and Madgwick between 30 June 2001 and 7 December 2001, when the decision to withdraw the Product Ruling was made, related primarily to the first issue although some of the discussions touched upon the second issue. 61 However, the materiality of the differences and the prospect of withdrawal were not directly raised until Ajzenszmidt's conversation with Madgwick on 5 December 2001. In that conversation Ajzenszmidt, the ATO officer responsible for dealing with the Product Ruling, stated that no decision had been made to withdraw the Ruling and that further investigations would be made. He also made it clear to Madgwick that the ATO required additional information to allow further consideration to be given to the issue of withdrawal prior to any decision being made to withdraw the Ruling. It appears that the conversation concluded on the basis that Ajzenszmidt would e-mail a letter to Grampians Olives concerning those matters. 62 At the conclusion of the conversation Madgwick was entitled to believe that the procedure stated by Ajzenszmidt would be followed thereby affording Grampians Olives and himself an opportunity to present their case against withdrawal of the Product Ruling to the ATO prior to any decision being made to withdraw the Ruling. Put another way, Grampians Olives and Madgwick had a legitimate expectation that they would be afforded an opportunity to be heard in respect of all of the issues arising concerning the possible withdrawal of the Product Ruling prior to the Commissioner making a decision to withdraw that Ruling. There can be no doubt that that legitimate expectation was defeated by the Commissioner not affording to Grampians Olives or Madgwick that opportunity before making the decision to withdraw the Product Ruling. 63 Where an assurance has been given by a decision maker that a certain procedure will be followed a legitimate expectation arises that the decision maker is to act fairly by following that procedure: see Pilbara Aboriginal Land Council Aboriginal Corporation Inc v Minister for Aboriginal and Torres Strait Islander Affairs (2000) 103 FCR 539 at 553-554. The primary justification for this principle was explained by Lord Fraser in Attorney-General of Hong Kong v Ng Yuen Shiu [1983] 2 AC 629 at 638: "… when a public authority has promised to follow a certain procedure, it is in the interests of good administration that it should act fairly and implement its promise,…" 64 When the Commissioner in the present case decided that he would not or might not follow the procedure his officer had stated would be followed, he was required to alert Grampians Olives or Madgwick to that possibility in order to afford them a reasonable opportunity to put whatever case they might have wished against the withdrawal of the Product Ruling: see Re Australian Railways Union; Ex parte Public Transport Corporation (1993) 117 ALR 17 at 24. 65 In my view, in the circumstances set out above, the Commissioner failed to act fairly by not following the procedure that his officer stated would be followed and, as a consequence, the rules of natural justice have not been complied with in relation to the making of the decision to withdraw the Product Ruling. 66 It was submitted on behalf of the respondents that even if I found there was a breach of the rules of natural justice that should not result in the setting aside of the decision of the Commissioner to withdraw the Product Ruling as the breach did not deprive the applicant "of the possibility of the successful outcome": see Stead v State Government Insurance Commission (1986) 161 CLR 141 ("Stead") at 147. It was argued that the arrangement implemented but, in particular, the seven partnership arrangement, was qualitatively and materially different to the arrangement ruled upon and that in such circumstances the Product Ruling cannot apply to the partners as they do not fall within the class of persons to whom the Ruling applied. 67 As was stated in Stead (at 147) in order to negate the possibility of a successful outcome it is: "…necessary for the…Court to find that a properly conducted [hearing] could not possibly have produced a different result." 68 While not every breach of the rules of natural justice invalidates the decision made, once the breach is proved the Court should refuse relief only when it is confident that the breach could not have affected the outcome: see Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 at 122 and Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2002] FCAFC 223 at [77]-[79]. As was explained in Stead (at 145-146) that is because: "It is no easy task for a court of appeal to satisfy itself that what appears on its face to have been a denial of natural justice could have had no bearing on the outcome of the trial of an issue of fact." 69 There is some force in the respondent's submission that it is futile to remit the matter as that could not result in a different decision but I have concluded that I should not accede to it. While it is common ground that the seven partnership arrangement is different to the one partnership arrangement the question of whether that difference will prevent the partners from relying on s 170BA(3) in respect of the arrangements begun to be carried out prior to the withdrawal is not so clear. The proper characterisation of the "arrangement" ruled upon and the arrangement carried out involves questions of mixed fact and law, which in my view are matters appropriate for determination by the Commissioner after he has afforded an opportunity to Grampian Olives or Madgwick to be heard on those questions. As explained above, the question as to materiality of the difference between an arrangement ruled upon and the arrangement implemented requires consideration of the potential tax consequences that can arise from that difference. It is not self evident that the tax consequences of the seven partnership arrangements will necessarily differ from those that applied in respect of the one partnership arrangement. In all the circumstances I am not satisfied that, even if the Commissioner had afforded an opportunity to Grampians Olives or Madgwick to be heard in accordance with law, that could not possibly have produced a different result. 70 It follows that there should be an order setting aside the Commissioner's decision to withdraw the Public Ruling and an order that that matter be remitted to the Commissioner to be determined in accordance with law. 71 The applicant has succeeded in respect of the procedural errors of which he has complained but has failed in respect of the substantive errors of which he has complained. I have found that in relation to the challenge to the legal errors the applicant has adduced a great deal of evidence which was not strictly admissible in respect of that challenge, although it was admissible in relation to the challenge for procedural error on the ground that it was relevant to the issue of whether it would be futile to set aside the Commissioner's decision and remit the matter back to him. I am of the view that some allowance should be made in respect of costs incurred in relation to the issues on which the applicant has failed. In the circumstances it is appropriate to order that the respondent pay 80% of the applicant's taxed costs of and incidental to the application. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. Associate: Dated: 19 September 2002 Counsel for the Applicant: Mr FGA Beaumont QC with Mr N Rosenbaum Solicitor for the Applicant: Charlesworth Josem Partners Pty Ltd Counsel for the Respondent: Mr T Cavanough QC with Ms D Harding Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 4 September 2002 Date of Judgment: 20 September 2002