FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Warrick (No 2) [2004] FCA 918 TAXATION – income tax – recovery action – application for summary judgment – defence and counterclaim – challenge to validity of amended assessments and penalty notices – alleged formal defects – alleged jurisdictional error – breach of natural justice – want of bona fides – improper purpose – production of certified copies of assessments and evidentiary certificate - operation of privative clause – scope of judicial review – clause effective – no arguable defence – summary judgment awarded – stay of proceedings or execution – objection lodged – failure to determine objections – no satisfactory explanation – stay of execution to enable deemed refusal to operate and Part IVC review or appeal proceedings to be instituted CONSTITUTIONAL LAW – Judiciary Act 1903 (Cth ) – s 78B – whether proceedings involve a matter arising under the Constitution or involving its interpretation – unarguable plea – no obligation to issue s 78B notices – no obligation to stay proceedings Taxation Administration Act 1953 (Cth) s 14ZY, s 14ZYA, s 14ZZ, s 255-1, s 255-5, s 255-45, s 255-50 Income Tax Assessment Act 1936 (Cth) s 6(1), s 166, s 167, s 169, s 170, s 175, s 175A, s 177 Administrative Decisions (Judicial Review) Act 1977 (Cth) s 13 Income Tax Regulations 1936 reg 172 Federal Court Rules O 20 Deputy Commissioner of Taxation v Warrick [2004] FCA 488 cited Caterpillar Inc v Sun Forward Pty Ltd (1996) IPR 411 cited CLC Corporation v Cambridge Gulf Holdings NL [1997] FCA 236 cited Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 cited Webster v Lampard (1993) 177 CLR 598 cited FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 cited Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 applied R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 cited R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 301 cited Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476 cited Applicant WAFV of 2000 v Refugee Review Tribunal (2003) 125 FCR 351 cited Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (1999) 167 ALR 303 cited Snow v Deputy Commissioner of Taxation (1987) 14 FCR 199 cited DEPUTY COMMISSIONER OF TAXATION v WAYNE PATRICK WARRICK W46 OF 2004 FRENCH J 13 JULY 2004 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W46 OF 2004 BETWEEN: DEPUTY COMMISSIONER OF TAXATION APPLICANT AND: WAYNE PATRICK WARRICK RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 13 JULY 2004 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. There be judgment for the applicant in the sum of $1,429,791.03 together with further general interest charges to be assessed. 2. There be a stay of execution on the judgment until 28 January 2005 or such earlier date as may be ordered. 3. There be liberty to apply as to the assessment of the further general interest charges and the lifting of the stay of execution. 4. The respondent's counterclaim be dismissed. 5. The respondent pay the applicant's costs of the application for summary judgment and of the proceedings. 6. The applicant pay the respondent's costs of the motion for a stay of proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W46 OF 2004 BETWEEN: DEPUTY COMMISSIONER OF TAXATION APPLICANT AND: WAYNE PATRICK WARRICK RESPONDENT JUDGE: FRENCH J DATE: 13 JULY 2004 PLACE: PERTH REASONS FOR JUDGMENT Introduction 1 A Deputy Commissioner of Taxation instituted proceedings against a taxpayer for recovery of unpaid income tax and penalties on 18 September 2003 in the Supreme Court of Western Australia. The proceedings have been transferred to the Federal Court. The Deputy Commissioner has applied for summary judgment. The taxpayer seeks to defend that application by arguing that the assessments relied upon by the Deputy Commissioner are invalid and should be set aside. Formal defects, breach of the rules of natural justice, want of bona fides and improper purposes are alleged against the Deputy Commissioner by the taxpayer. 2 For the reasons which follow, the matters raised by the taxpayer do not provide an arguable defence to the recovery action and the Deputy Commissioner is entitled to summary judgment. However because the Australian Taxation Office ('ATO') has delayed in resolving the taxpayer's objections to the assessments without any satisfactory explanation, execution of the judgment will be stayed until 28 January 2005. The taxpayer may still pursue his contentions about the correctness of the assessments through the appeal processes provided for in Pt IVC of the Taxation Administration Act 1953 (Cth ) ('TAA'). Procedural History 3 On 11 December 2002, the Commissioner of Taxation issued five notices of amended assessments of income tax to Wayne Patrick Warrick. The notices related to the income years ended 30 June 1998 through to 30 June 2002 inclusive. The amounts of the assessments included amounts for understatement penalty and interest. 4 On 19 December 2002, Mr Warrick's solicitors wrote to the ATO seeking information about the factual and legal bases for the amended assessments and, without admitting liability, requesting an extension of time for the payment of the tax assessed. 5 On 20 December 2002, two notices of assessment of penalty for having a tax shortfall issued to Mr Warrick in respect of the years ended 30 June 2001 and 30 June 2002. 6 Objections to all the assessments were lodged. The objection to the assessment for the year ended 30 June 1998 was lodged on 21 February 2003. The objections to the other assessments were lodged on 8 July 2003. On 4 August 2003, the ATO wrote to Mr Warrick's solicitors refusing the request for a deferment of legal action and requiring payment of $1,409,634.57 within seven days of the date of the letter. The objections have not yet been determined. 7 On 18 September 2003, the Deputy Commissioner of Taxation issued a writ of summons out of the Supreme Court of Western Australia claiming a total amount of $1,429,791.03 against Mr Warrick together with further general interest charges pursuant to s 204 of the Income Tax Assessment Act 1936 (Cth) ('ITAA 1936') and s 298-25 of the TAA. On 19 November 2003, Mr Warrick filed a defence and counterclaim in the Supreme Court. 8 In respect of each year of income Mr Warrick admitted that he had not paid the tax assessed but denied that the Deputy Commissioner had 'properly or validly made an assessment of income tax according to law'. He alleged that by reason of those matters he was not obliged as a matter of law to pay the tax or any part of it. He alleged that each of the disputed assessments had been issued to him on the basis of taxable income purportedly received when in fact no such taxable income was ever derived for the purposes of the ITAA 1936 in respect of any of the relevant years. He also alleged that none of the disputed assessments reflected any rational assessment of his income tax liability. By virtue of those matters and others he asserted that each of the disputed assessments was respectively void, invalid and not 'an assessment' as contemplated by the ITAA 1936. 9 Mr Warrick further pleaded that none of the disputed assessments was issued 'in any bona fide exercise or purported exercise of powers under the Act'. This allegation was particularised. The particulars will be referred to later. He further alleged that none of the assessments was issued 'for any proper purpose under the Act' and that they were all issued 'for an ulterior purpose'. Again, particulars of the ulterior purpose were provided. 10 Mr Warrick went on to refer to the lodgment of notices of objection against each of the disputed assessments and the failure or refusal of the Commissioner to make a determination in relation to any of the objections. In respect of the two assessments of administrative penalties the defence raised similar grounds for their invalidity. 11 Mr Warrick also asserted in his defence that the institution and continuation of the recovery action was an abuse of process in circumstances where each of the disputed assessments is null and void, and that the writ was issued at a time when the objections to the assessments were undecided. 12 The pleas going to the validity of assessments and the abuse of process were repeated by reference in the counterclaim. The relief claimed in the counterclaim was a declaration that the assessments are each null and void, a stay of the proceedings until determination of the objections and alternatively, in the event the objections are not upheld, a stay until determination of appeals to be lodged in the Administrative Appeals Tribunal. 13 On 24 December 2003, the Deputy Commissioner of Taxation filed an application in the Supreme Court seeking summary judgment pursuant to O 14 r 1 of the Supreme Court Rules. On 12 February 2004, consent orders were made transferring the proceedings to this Court. On 23 April 2004, a declaration was made that the proceedings had been validly cross-vested pursuant to the consent order – Deputy Commissioner of Taxation v Warrick [2004] FCA 488. Directions were made for the hearing of the summary judgment application. The application was set down for hearing on 4 June 2004. On 3 June 2004, Mr Warrick filed a motion seeking a stay of proceedings pursuant to O 20 r 2(1)(c) until the determination of his objections and penalty objections to the amended assessments. The Commissioner's Evidence 14 The Deputy Commissioner's application was supported by the affidavit of Victor John Eikelboom, sworn 24 December 2003, which exhibited copies of the notices of assessment as to income tax and the assessment of administrative penalties, certified by Deputy Commissioner Holland as true copies. Also exhibited to the affidavit was an evidentiary certificate under s 255-45 of Schedule 1 of the TAA. Bearing a facsimile signature of Deputy Commissioner Holland it certified that notice of the assessments for the years ended 30 June 1998 to 30 June 2002 'were, or are taken to have been served on Wayne Patrick Warrick under a taxation law...'. Notices of amounts of administrative penalties imposed pursuant to s 284-75(1) of the TAA for the years ended 30 June 2001 and 30 June 2002 were also covered by the certificate. The certificate went on to state that the sum of $1,475,386.99 was, at 24 December 2003, a debt due and payable by Mr Warrick to the Commonwealth. Mr Warrick's Evidence 15 Mr Warrick's affidavits of 28 May 2004 and 4 June 2004 set out a history of dealings and transactions to which the contested assessments relate and of his dealings with the ATO. The history is somewhat convoluted. As set out here it does not embody findings of fact but rather an account of the background which Mr Warrick claims is relevant to the determination of his liability and to the question whether he should be given leave to defend the action. 16 Mr Warrick is an accountant. In August 1992, he became bankrupt on a creditor's petition. He attributed the bankruptcy to claims against him which he could not meet and which arose out of a misappropriation of funds, by one of his former accounting partners, from the firm's trust account. He was discharged from bankruptcy in November 1995. He continued to work as a contract accountant after his discharge. In July 1996, he became the in-house accountant for a construction firm run by George Ongarezos, retaining a right of private practice. He had previously endeavoured to raise funds to acquire an accounting practice but was unable to do so because of his recent bankruptcy. Mr Ongarezos suggested to him that they should form a company to undertake construction work and also to acquire accounting practices which Mr Warrick could run. He considered that Mr Ongarezos had the financial resources to acquire accounting practices. They decided to set up a company called Queststyle Pty Ltd to undertake the enterprise. Queststyle was formed in late 1996. It acquired two accounting practices, one in Geraldton and one in Leederville. 17 By May 1997, Mr Warrick decided that the arrangement with Queststyle and Mr Ongarezos had become unbearable for a number of reasons. He was concerned that Queststyle would become insolvent. He spoke to a solicitor, Warwick Mowbray, whom he had known for about 15 years. He told him about his problems with Queststyle. Mr Mowbray told Mr Warrick that he had a colleague who was an accountant in Hong Kong with clients looking to invest or to get their funds out of Hong Kong because of the then impending changeover of control from the United Kingdom to the Peoples Republic of China. The accountant's name was Mr Alan Chueng. Mr Mowbray arranged an introduction with Mr Chueng. 18 In June 1997, Mr Warrick telephoned Mr Chueng and between June 1997 and March 1998 had a number of negotiations and discussions with him and another accountant in Hong Kong, Mrs Lillian Fung. As a result of his negotiations Mr Warrick received a letter of approval for a loan of $600,000. The letter signed by Mr Chueng, and dated 3 March 1998, was under the letterhead of 'Fortune House Management'. It said: 'Further to our recent discussions, we are pleased to confirm that we have successfully negotiated a personal loan facility to you for the amount of A$600,000. Given Proof Enterprises Limited, the financier, will issue a formal offer letter for your acceptance prior to your drawdown of the loan.' Two documents, described respectively as a Personal Guarantee and a Corporate Guarantee were executed on 18 March 1998. The first was executed by Mr Warrick and the second by his company, Swanway Enterprises Pty Ltd ('Swanway'). In each case the deed was executed by Given Proof Enterprises Limited ('Given Proof') as lender. Mr Warrick is the sole director of Swanway and has been since March 1996. 19 The first drawdown from the $600,000 loan was made on 18 March 1998 in the amount of $65,000 paid into Swanway's bank account. This money was applied to part payment of the purchase of an accounting practice in Geraldton by Kingprince Holdings Pty Ltd ('Kingprince'), a company of which Mr Warrick was a director, through which he operated his practice, and which traded as WP Warrick & Co. Subsequent drawdowns were made as follows: Date Amount Recipient Purpose 13 July 1998 $ 45,000 Swanway Payment of balance of moneys required by Kingprince to acquire Geraldton practice. 6 September 1998 $175,000 Swanway Repayment of a loan owed by Ongarezos to acquire two accounting practices for Queststyle. 15 March 1999 $ 11,000 Swanway Kingprince for working capital. 23 June 1999 $ 12,000 Swanway Kingprince for working capital. 29 June 1999 $132,000 Unstated Purchase of accounting practice of Pass Newton. 17 September 1999 $ 50,000 Ralph Cooper Kingprince for further repayment of Ongarezos loan. 17 November 1999 $190,000 Swanway Advance to Warrick to acquire land at Ascot Waters on loan from Swanway. 20 On 1 March 1999, Mr Warwick sought the consent of Given Proof to borrow $400,000 from Challenge Bank. On 8 March 1999, Given Proof approved the proposed borrowing. Its approval was on condition that Kingprince would provide a corporate guarantee to Given Proof and that Mrs Warrick would provide Given Proof with a personal guarantee for the Given Proof loan facility. Kingprince and Mrs Warrick executed personal guarantees on 11 March 1999. 21 On 16 November 1999, Mr Warwick sought approval to increase the amount of the loan from Given Proof from $600,000 to $1.2 million. On 25 November 1999, Given Proof agreed to the increase subject to the granting of a registered debenture in its favour over the assets of Kingprince. On 31 December 1999, Kingprince executed a fixed and floating charge over its assets in favour of Given Proof. Drawdowns on the facility for the year ended 30 June 2001 were as follows: Date Amount Recipient Purpose 19 September 2000 $254,000 Kingprince Acquisition of accounting practice in Carnamah. 10 October 2000 $ 90,000 Kingprince Acquisition of accounting practice in Geraldton. 11 April 2001 $ 39,500 Swanway Finance investment by Mrs Warrick in Grampian Olives project. 26 June 2001 $ 20,000 Kingprince Working capital. 22 Mr Warrick sought another increase in the facility with Given Proof to $1.75 million. He requested this increase on 12 June 2001. His stated object was to enable Swanway to acquire a 20% interest in a liquor store in Mindarie, operating as Mindarie Liquor Merchants. He offered by way of additional security an assignment of a partnership interest from himself to Given Proof. Given Proof responded on 17 August 2001 accepting the assignment of the partnership interest in Mindarie Liquor Merchants as additional security. 23 Drawdowns on the facility from Given Proof to the year ended 30 June 2002 were as follows: Date Amount Recipient Purpose 20 September 2001 $190,000 Kingprince Acquisition by Swanway of interest in Mindarie Liquor Merchants' partnership. 13 May 2002 $ 80,000 Kingprince Acquisition of one third interest in Circuit Nightclub in Geraldton. 5 June 2002 $ 13,500 Kingprince Working capital. According to Mr Warrick the various drawdowns described above were the only moneys advanced under the facility with Given Proof. 24 Mr Warrick described the accounting arrangements for the loan moneys. He said that as between Swanway, Kingprince and himself the loan from Given Proof which he had procured in his own name was treated as a loan made in the first instance to Swanway with Swanway then advancing the moneys to Kingprince or to Mr Warrick himself (in the case of the purchase of the Ascot Waters' land) or to his wife (in the case of her investment in something called the Grampian Olives' project). Mr Warrick did not have his own bank account at any time. He conducted his affairs by making payments using a credit card, with the credit card account paid out by Kingprince or by causing Kingprince to write out cheques reflected in the accounts of Kingprince, including his loan account with it. He recorded moneys lent by Given Proof as a loan to Swanway. It received the moneys. He did not receive any immediate benefit but at all times remained liable to the lender in terms of the original agreement. 25 On 2 November 2002, Mr Warrick repaid the sum of $290,000 to Given Proof. This came from the sale of his house at Noranda. In May 2003, he sold the Kingprince accounting practice in Geraldton to Westwood Accountants for $502,000. He repaid $300,000 to Challenge Bank and paid the balance to Given Proof. In June 2003, Kingprince sold the accounting practice in Carnamah. The sale of the Carnamah practice included the land and buildings on which it was conducted. He could no longer find the documents for this sale but said he believed they were in the Commissioner's possession as a result of the investigations which the Commissioner had carried out. The consideration for the sale of the Geraldton and Carnamah practices was in each case to be provided by way of payments over time which were fulfilled. All payments after settlement were paid to Given Proof. Subsequently Swanway disposed of its interest in the Mindarie Liquor Merchants' partnership and the Circuit Nightclub and from those sales proceeds of $200,000 were paid to Given Proof in reduction of the loan. Having given this account of his dealings with Given Proof, Mr Warrick then turned to the history of his dealings in investment products which were evidently structured to attract tax deductions for the benefit of the investors. 26 In 1997, Mr Warrick was introduced by Mr Mowbray to a product known as 'infomercial investments'. This was described to him as '... an investment in an information type documentary with a product advertising and marketing purpose'. It was to be produced for use on television in the American market. Mr Mowbray showed Mr Warrick a legal opinion which referred to the tax implications of the investment. He made an arrangement for Mr Warrick to meet with Peter Ambrosy, the project manager for the investments. Mr Warrick met Mr Ambrosy at his office in St Kilda. It was at this office that infomercials were to be filmed and edited. 27 Mr Warrick gave his own consideration to the cases and rulings referred to in Mr Mowbray's legal opinion and concluded that the infomercial investments could be of benefit to his accounting clients. He had received from Mr Ambrosy information memoranda concerning the infomercials and he left them in the waiting room of the Kingprince accounting practice. He attached a sheet to the memoranda which set out the cost of the project, the fees to be incurred and tax deductions which would be available to anybody making an investment in them. Kingprince was to charge a fee of 1.5% of the tax deduction actually obtained by its clients who entered into an infomercial investment. This would be charged once a return had been lodged with the ATO and an assessment issued. He never received any money himself on this basis. The only moneys that were received were received by Kingprince. The fees earned by Kingprince in the first year from clients who took up investments in infomercials were in the vicinity of $50,000 to $60,000. They were all paid to Kingprince and accounted for in its records and tax returns. In November 2001, there was an investigation by ASIC in relation to the marketing of the infomercials and other 'tax structured investments'. However, according to Mr Warrick, no further action was taken in this respect. He said that the opportunity presented by the infomercial investments lasted for about two years. Swanway itself invested in the products in the years ended 30 June 1997 and 30 June 1998. Subsequently he found that the ATO '... did not consider the tax advantages which had flowed from the Infomercial Projects to be supportable under the terms of the Income Tax Assessment Act ('Act')'. He denied in his affidavit that he had received any money in respect of the infomercial project investments from any other person by way of commission or otherwise. 28 In 1999, Mr Warrick was introduced, by Mr Don McGregor, to a 'tax structured investment' called 'Theme-Based Music Collaborations'. This was set up in the same way as the infomercial investments. He brought the product to the attention of Kingprince's clients in the same way as he had done for infomercial projects. Information memoranda were made available in the reception areas of the accounting practices carried on by Kingprince. Again, there was a sheet added prepared by either himself or Kingprince's staff showing the costs and benefits. Kingprince's fee for services in getting its client into the investment was 1.5% of any tax deduction payable in the same manner as the fee for the infomercial investments. In the event, the tax benefits were disallowed. Swanway invested in the Theme-Based Music Collaboration projects in the same way as it had done in the infomercial investments. Mr Warrick said he received no moneys from any source in relation to clients of Kingprince who invested in the music projects. 29 At the time that Kingprince's clients were investing in the Theme-Based Music Collaborations projects, Mr Warrick received a brochure or explanatory memorandum for something called the 'Venture Hedge Trading Fund'. This appeared to have come from Mr Chueng's address in Hong Kong. He had never discussed the Venture Hedge Trading Fund with Mr Chueng or with Ms Fung or anyone associated with them. The same went for the infomercial investments and the Theme-Based Music Collaborations investments. After receiving the documentation for the Venture Hedge Trading Fund he telephoned Mr Mowbray and discussed the taxation implications with him so far as they related to the payment of withholding tax. Mr Mowbray told him that withholding tax might not apply as part of the structure for the Venture Hedge Trading Fund would be deemed to be a loan in Australia. An accountant who worked for Kingprince, Mr Cassidy, arranged for some of the clients he controlled to invest in the Fund. None of the clients that Mr Warrick dealt with did so. Mr Cassidy received a fee, which was a fixed fee of maybe $1,000 for each client. Mr Warrick said that neither Kingprince nor he had received any amounts by way of fee, commission or otherwise in relation to the Venture Hedge Trading Fund. 30 In 2000, further documents were received at Kingprince's office, again from Mr Chueng's offices, regarding investments in the Dragon Asia Fund. Mr Warrick asked Mr Mowbray for a 'taxation opinion of Dragon Asia'. Mr Mowbray came to Perth and gave his views about the taxation implications of the Dragon Asia investment to some of Kingprince's clients and two other accountants who were also in attendance. Clients of Kingprince entered into investment with Dragon Asia. Mr Warrick left information memoranda or prospectuses for Dragon Asia in Kingprince's waiting room with an attached sheet setting out other information. Again, Kingprince charged its clients 1.5% of the tax benefit they obtained. Clients of Kingprince did enter into agreements with respect to Dragon Asia and Kingprince was paid fees. According to Mr Warrick these payments were recorded in the company's accounting records and also in its tax returns. He never received any moneys in person by way of commission or otherwise from any person or entity, including Given Proof. He said he had never discussed Dragon Asia with Mr Chueng or with Ms Fung. 31 Swanway invested in Dragon Asia for the year ended 30 June 2000. As with the infomercial project, the deductions claimed in Dragon Asia were disallowed. Mrs Warrick has lodged an objection to an assessment she received in that respect. 32 Sometime after 30 June 2000, Mr Warrick was introduced to an olive growing project known as 'Grampian Olives' by Mr Mil Hanna. He was told by Mr Hanna that the promoter of Grampian Olives was seeking a private ruling from the ATO for one of the investors. Mr Warrick was later told that the Grampian Olives project obtained a positive product ruling in June 2001. Again, he promoted the investment scheme by leaving information memoranda in Kingprince's waiting room with a sheet attached setting out costs and benefits of entering into the project and Kingprince's fee which was fixed at 1.5% of the tax deduction obtained by its client. There was a financier involved in the scheme, known as Saville Finance Pty Ltd. 33 Mr Warrick was told by someone from Saville Finance that money raised for the project had to be deposited in bank accounts in Hong Kong. At that time he held money for clients invested in the project in Swanway's trust account. Kingprince did not have a trust account and he always used Swanway's trust account to hold money on behalf of Kingprince's clients. He said he was not going to release funds until such time as a favourable product ruling was obtained. He was also not prepared to send Kingprince's clients' money to Hong Kong unless he had some control over it by way of being a signatory on the bank account into which the money was deposited. To organise this he flew to Hong Kong, at Kingprince's expense, in March or April 2001 and met with Mr Chueng and Ms Fung. He was advised that it would be very difficult for him to become a signatory on bank accounts in Hong Kong. In the event he arranged with Mr Chueng that Mr Chueng would act as signatory for a fee to be paid by each individual investor. Mr Warrick told Mr Chueng, who agreed, that a full audit trail should be provided including all bank statements, invoices and other documents evidencing the moneys coming into the bank account from the investors. 34 Following the issuing of a positive product ruling on the Grampian Olives project, Mr Warrick said he arranged for moneys to be transferred from Swanways' trust account to the Hong Kong bank accounts. The only money Kingprince received was the 1.5% fee which was recorded in its accounting records and its tax returns. Mr Warrick said he received no moneys whether by way of commission or otherwise from anyone in relation to the Grampian Olives project. His wife had also invested in it. The tax deductions claimed under the project have been disallowed by the ATO. 35 In October 2000, Kingprince's premises were searched by officers of the ATO. Mr Warrick was visited by Paul Robb, an investigator from the ATO who told him he was going to go through all Kingprince's records. The search took two days. Mr Warrick said he did not recall ever receiving a receipt for copies of documents which were taken. He did claim privilege on some of them and these were put in a sealed envelope to be delivered to the Australian Government Solicitor. He called Mr Mowbray to get advice about his own rights and Kingprince's rights. However Mr Mowbray could not talk to him because his offices in Melbourne were also being searched by officers of the ATO. 36 In December 2000, Mr Warrick underwent an examination under s 264 of the ITAA 1936 in which questions were put to him by officers of the ATO. He heard nothing further following that examination until he received a notice to attend another examination under s 264, which he attended and which was held on 17 May 2002. 37 Following the second examination he heard no more until he and his wife received letters from the ATO dated 2 December 2002. The letter addressed to Mr Warrick stated that a review of his income tax returns for the years ended 30 June 1998 to 30 June 2002 had been finalised. The findings of the review resulted in increases of his business income by the following amounts: 1. Year Ended 30 June 1998 $123,000 2. Year Ended 30 June 1999 $375,000 3. Year Ended 30 June 2000 $295,000 4. Year Ended 30 June 2001 $403,500 5. Year Ended 30 June 2002 $270,000 The letter recorded that alternatively and without prejudice to anything contained in the letter, the Commissioner was of the opinion that for the years ended 30 June 1998 to 30 June 2002 tax had been avoided due to fraud or evasion: 'As a result, the payments from Given Proof Enterprises Ltd have been included in your business (non-primary production) income in each of the years under review as stated above.' Adjustment sheets and tax shortfall penalty calculations were attached. The letter concluded by advising that relevant notices of assessment including penalties and general interest charges to reflect the adjustments would be issued under separate cover. In each case the adjustment sheet included as the item by which his income was increased 'Funds from Given Proof Enterprises Ltd considered to be commission income'. 38 Mrs Warrick received a similar letter dated 2 December 2002. It notified increases in her income for the relevant financial years on the basis of increasing distributions to her from the LH Warrick Family Trust No 2 in each of those years. It was also claimed by the Commissioner that for the years ended 30 June 1998 to 30 June 2001 tax had been avoided due to fraud or evasion. Adjustment sheets were attached to the letter addressed to Mrs Warrick. 39 Mr Warrick contended that the claims against himself and Kingprince were in effect that the loan from Given Proof was not a loan but somehow income. He inferred from questions asked of him during the course of his second examination that the Commissioner might consider those loans to represent commissions on either all or some of the projects in which his clients invested including the infomercial project, the music project, Dragon Asia and the Grampian Olives project. 40 On 6 December 2002, departure prohibition orders were issued under the TAA to both Mr Warrick and his wife. The order made against Mr Warrick and signed by a delegate of the Commissioner was, in the relevant parts, in the following terms: 'Pursuant to sub-section 14S(1) of the Taxation Administration Act 1953, I Suzette Laker, delegate of the Commissioner of Taxation, believing on reasonable grounds that it is desirable to do so for the purposes of ensuring that Wayne Patrick Warrick, a person subject to the tax liability referred to in the Schedule, does not depart from Australia for a foreign country without – (a) wholly discharging the tax liability; or (b) making arrangements satisfactory to the Commissioner of Taxation for $1,341,057.99 the tax liability to be wholly discharged hereby prohibit the departure of Wayne Patrick Warrick from Australia for a foreign country.' A schedule then set out details of asserted tax liability for each of the financial years from 1998 through to 2002. 41 Notices of amended assessments issued on 11 December 2002 to both Mr Warrick and his wife. The adjustment sheets attached indicated that payments received from Given Proof were considered to be commission income. Mr Warrick caused objections to the assessments to be lodged. Although in his affidavit he says the objections were lodged on 20 February 2003, it appears from the exhibits to the affidavit, that the only objection lodged on that date was an objection in respect of the 1998 assessment. The remaining objections were lodged on 8 July 2003. 42 Considerable correspondence was exchanged between the solicitors then acting for Mr and Mrs Warrick, Minter Ellison, another firm Halsey & Associates who were assisting Minter Ellison in the matter, and the ATO. The correspondence from Minter Ellison and from Halsey & Associates included: 1. A request under s 28 of the Administrative Appeals Tribunal Act 1975 (Cth) for reasons for the decision to issue departure prohibition orders. 2. Requests for reasons for the decisions to adjust the Warricks' taxable income for the years ended 30 June 1998 to 30 June 2002 including findings on material questions of fact referring to the evidence on which such findings were based. 3. Requests for copies of any supporting documentation, including any internal position papers prepared by the ATO in relation to the adjustments. 4. Requests for extensions of time to pay the tax assessed under the amended assessments until the objections to be lodged in relation to those assessments could be determined. 5. A request under the Freedom of Information Act 1982 (Cth) for access to documents concerning the following: (a) adjustment of Mr Warrick's taxable income in the relevant years; (b) the issue of the amended assessments; (c) the imposition of penalties in the amended assessments; (d) the opinion of the Commissioner that for the relevant years tax had been avoided due to fraud or evasion; (e) departure prohibition orders dated 6 December 2002 issued by Suzette Laker, Delegate of the Commissioner of Taxation under the cover of a letter from Neil Mann, Deputy Commissioner of Taxation, Small Business – International to the Warricks also dated 6 December 2002. A copy of any position paper prepared in relation to the amended assessments was also requested. 43 On 3 January 2003, a Deputy Commissioner of Taxation wrote to the Warricks' solicitors in relation to their requests for further information about the amended assessments stating: 'We advise that as the nature of the information was not specifically stated in your request, we are not obliged under the TAA to provide the information requested. However we have attached copies of the notice of amended assessments that were earlier sent to your clients. These documents have stated the reasons why we had adjusted your clients' taxable income for the financial years stated above. They also provide you with details of the reasons for the penalties imposed.' 44 On 10 March 2003, Mr and Mrs Warrick's solicitors wrote to the Senior Assistant Commissioner International at the ATO complaining about the behaviour of officers of the ATO and their refusal to provide sufficient detail for their clients to draft objections with any confidence. 45 A statement of reasons issued on 25 March 2002 for the decisions to issue departure prohibition orders against Mr Warrick and his wife. The letter covering the reasons was signed by Suzette Laker. The statement of reasons was expressed to be pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth). Under the heading 'Findings on Material Questions of Fact and Evidence on which the Findings were Based', she said: '8. The ATO discovered that funds were transferred a number of times between 1998 and 2002 from a company called Given Proof Enterprises to Mr Warrick. These transfers totalled $1,466,000 and were done via entities that Mr Warrick fully controls. Mr Warrick claims that these amounts are loans and are not assessable to him. 9. There is sufficient evidence that the transfer of funds was not a loan but a commission for promoting various arrangements to which Part IVA of the Income Tax Assessment Act 1936 ("ITAA 1936") applies. These amounts are therefore assessable to Mr Warrick under section 6-5 of the Income Tax Assessment Act 1997. 10. On 2 December 2002 Amended Notices of Assessment under section 167 of the ITAA 1936 for the 1998, 1999, 2000, 2001 and 2002 financial years were issued. 11. As a result of these amendments the following debts were owed to the Commissioner by Mr Warrick: Year ended 30 June 1998 $ 120,939.60 Year ended 30 June 1999 $ 382,500.55 Year ended 30 June 2000 $ 274,549.10 Year ended 30 June 2001 $ 351,266.24 Year ended 30 June 2002 $ 211,802.50 $1,341,057.99 12. As at 6 December 2002, ATO records indicate that this tax liability had not been discharged. 13. The ATO has information from sources such as ASIC (Australian Securities and Investment Commission) and the Registrar of Titles, Western Australia indicate that Mr Warrick (and entities that he controls) have sufficient assets to discharge this tax liability.' 46 The reasons went on to deal with the evidence of Mr Warrick's alleged intention to leave Australia without discharging his obligations. It referred to advice he gave to his business banking manager that he planned to sell his practice by 30 June 2003 and move to Bali, take up residence and purchase a business there. He also allegedly told the manager that he planned to purchase a villa in Bali. Reference was made to Mr Warrick's previous bankruptcy and an objection which had been lodged by his trustee to his discharge on the ground that he had failed to disclose a liability to the trustee and had left Australia and not returned. It referred to his frequent travel to Bali in recent years and summarised records from the Department of Immigration and Multicultural Affairs. Under the heading 'Reasons for Decision' it was said: '17. Mr Warrick has a substantial tax debt. He has sufficient assets to fulfil his tax obligations. 18. There is evidence that Mr Warrick intends to sell his practice and leave Australia by 30 June 2003. He has taken steps to carry out this plan. 19. Mr Warrick has been identified as a promoter of various arrangements to which Part IVA of ITAA 1936 applies. He has used tax haven countries as a conduit for collecting payments from investments and diverting income to himself through related entities. Evidence indicates that Mr Warrick has sufficient funds to maintain a comfortable lifestyle overseas. 20. For the reasons outlined above, I believe that Mr Warrick intends to leave Australia without discharging his tax liability nor making arrangements for the tax liability to be wholly discharged before he departs Australia. 21. Accordingly, I made the decision to issue the notice.' 47 In May 2003, default assessments were raised against Kingprince under s 167 of the ITAA 1936. Details of the default assessments were summarised in a letter dated 2 May 2003. They involved the assessment of taxable income for each of the financial years 30 June 1998 to 30 June 2001 in precisely the same amounts as had been raised against Mr Warrick as set out in the letter of 11 December 2002 from the ATO. For the year ended 30 June 2002 the income assessed for Kingprince was $283,500. The income assessed against Mr Warrick in that year was $270,000. 48 On 29 May 2003, Minter Ellison on behalf of Mr Warrick and Kingprince Holdings made a complaint to the Commonwealth Ombudsman about the conduct of the ATO. Their letter referred to the assessments issued to Kingprince as 'amended assessments'. So too did Mr Warrick's affidavit. However it appears from copies of the assessments exhibited to Mr Warrick's affidavit that they were in fact default assessments under s 167 of the ITAA. In the letter to the Ombudsman Mr Warrick's solicitors asked the Ombudsman to encourage the ATO to respond to their request for reasons so that they could prepare objections to the Kingprince assessments for 1998 and subsequent years which had to be lodged by 11 July 2003. 49 Departure prohibition orders were issued to Mr Warrick and his wife on 30 May 2003 and superseded those which had earlier issued. Again reasons were requested for the departure prohibition orders. On 3 July 2003, the ATO confirmed that the reasons relied upon to support the orders of 6 December 2002 were also relied upon for the issue of the later orders. 50 The ATO wrote to Mr and Mrs Warrick's lawyers on 24 June 2003 in relation to the request for the deferment of legal action. At that time objections had only been lodged in respect of the amended assessment for the year ended 30 June 1998. The solicitors were asked to provide details of their clients' asset and income position by 11 July 2003. They were also informed that unless objections in respect of the financial years ended 30 June 1999 to 2002 were lodged by 11 July 2003 the amounts owing in respect of those years would be treated as not being subject to dispute. 51 On 30 June 2003, the Taxation Ombudsman informed the solicitors for the Warricks that their letters of 1 May 2003 and 29 May 2003 had been referred to his office for consideration. He had decided at that stage to make preliminary inquiries of the ATO including the possibility of according priority attention to requests made pursuant to the Freedom of Information Act and for extended time to pay the tax. A further letter from the ATO dated 2 July 2003 said the taxation debts for the years ended 30 June 1999 to 2002 in respect of Mr and Mrs Warrick would be treated as though subject to dispute provided the objections were lodged by 25 July 2003. They still required details of the asset and income position to be forwarded by 11 July 2003. 52 On 25 July 2003, the ATO acknowledged receipt of letters dated 4 July 2003 objecting to the assessments issued to Mr and Mrs Warrick for the years ended 30 June 1999 to 30 June 2002 inclusive. In its acknowledgment it said: 'In accordance with the Taxpayers' Charter, a decision on your objection is to issue normally within 56 days of receipt of your letter, unless we determine that we need more information and/or we are unable to reply within this time because of, for example, the complexity of the matter. As the present matter is extremely complex, it is expected that we will need more time to reply.' The letter went on to state that the tax assessed was payable by the due date even if disputed. The request for deferment of legal action remained under consideration. 53 On 4 August 2003, the ATO wrote to Minter Ellison stating that the Commissioner would not defer collection action in respect of the assessments raised against Mr Warrick. The letter stated: 'After considering all the information currently available, including the details provided by you on 4 July 2003, the Commissioner is of the view that to defer collection action pending the outcome of the objections would pose a significant risk to the revenue. Pursuant to the ATO Receivables Policy, paragraph 28.4.2, your request for deferment has been refused. Payment of $1,409,634.57 is required within 7 days of the date of this letter.' Legal action was threatened in the event that payment was not made. 54 On 8 August 2003, the solicitors for the Warricks were sent preliminary estimates of the costs of complying with their Freedom of Information Act requests. In the case of Mr Warrick the estimate was said to be $77,244.17. This was based on the following: 'Search and retrievable time. 295 hours and 50 minutes at $15 per hour $ 4,437.50 Decision making time 3,615 hours and 20 Minutes at $20 per hour $72,306.67 Photocopying 5,000 pages at 10 cents per Page $ 500.00 Total $77,244.17' In the case of the request relating to Mrs Warrick the estimate was $19,260. 55 According to Mr Warrick, he was unaware of anything in any of the documents taken by the ATO from any of Kingprince's premises which showed that moneys paid by Given Proof were anything other than a loan. He said: 'Of course, I am unaware of what other documents they have got from other parties, save I can say that as the monies were a loan, there can be no authentic documents or credible evidence in existence to show that it was in commissions as alleged because it is simply not the fact.' He referred to his decision not to pursue the FOI requests because of the amount the ATO wanted to be paid. He characterised this as absolutely prohibitive and alleged that there had been no bona fide attempt made to identify what was really relevant. He went on to say that as at the date of swearing his affidavit there had been no decision on his objections nor those of Kingprince which had been outstanding for over 12 months. He said: 'The ATO has told me the matter is 'very complex' but I have not seen or heard anything suggesting even an attempt by the ATO to come to grips with the real issues.' Evidence – The Section 264 Examination of May 2002 56 A s 264 examination conducted by a barrister and officers of the ATO on 17 May 2002 elicited that Mr Warrick's income tax returns for the years ended 30 June 1998 to 30 June 2001 disclosed total income at $5,000, $5,200, $5,400 and $8,000 respectively. For the year ended 30 June 1997 he had returned $26. The payments in 1998 and following years were 'wage payments' made out of a discretionary trust of which Kingprince was the trustee. He accepted that the payments were arbitrary and made so that he would have a wage for the year. The balance of the proceeds of his accounting practice flowed through the Kingprince Discretionary Trust. That Trust made weekly distributions to his wife. Mr Warrick paid domestic expenses such as medical benefits, school fees and telephone charges through the LH Warrick No 2 Family Trust account. He also paid housekeeping to his wife through one or other of the Trusts. 57 Mr Warrick told the examiner that he had an ongoing relationship with Mr Mowbray in connection with providing tax planning advice to his clients. Correspondence from his practice to clients was put to Mr Warrick which was said to be indicative of a proactive promotion of tax planning investments for his clients. He denied that characterisation and denied that certain of the letters, sent out over the name of an employee, Ricky Bejawn, reflected a 'practice decision'. But in a letter dated 13 November 1997 to a Mr SV Scott he referred to the need to process applications and cheques in relation to infomercial investments by mid-March 1998 and said: 'I will be allocating all of my time during the month of February to try and catch up with all clients interested in making such contributions.' 58 Mr Warrick was examined about the loans made to him by Given Proof. It emerged that the fixed and floating charge security was prepared by his own lawyers. No further security was required in relation to the increase in the amount advanced from $1.2 million to $1.7 million. There was no provision for repayment of principal within any particular time. Repayment of principal was on demand. There was no time limit on the term of the facility. Mr Warrick was asked whether he was ever told there was a time limit on the facility or whether it would have to be rolled over or renewed by a certain date. In answer to that question he said 'No'. The examination was directed in part to whether the loans were truly loans or in fact disguised payments for commission. It was put to Mr Warrick that he had received fees and commissions for introducing clients to the Dragon Asia investments. The contributions made by the clients had been telegraphically transferred to accounts in Israel and Switzerland but his fees and commissions were said to have been retained in Hong Kong. It was further put to him that in respect of the infomercials, the music schemes and the Venture Hedge Trading Fund, his fees and commissions flowed through from a company called Berrimah International to an account in Hong Kong and from the United Mizrahi Bank in Israel to accounts in Hong Kong where the funds were held for his benefit. It was also suggested that, as he required funds, they were drawn down and came back to Australia by way of 'loans'. Mr Warrick characterised this proposition as 'absolutely insane'. The examination was more extensive than summarised here but the proceeding summary refers to salient features relevant to the basis upon which the amended assessments were said to have issued. Statutory Framework 59 The provisions of the ITAA 1936relating to returns and assessments are still in operation and were, at all material times, not yet having been replaced by the progressive rewriting project reflected in the Income Tax Assessment Act 1997 (Cth). 60 The term 'assessment' is defined in s 6(1) thus: 'assessment means: (a) the ascertainment of: (i) the amount of taxable income; or ... and of the tax payable on that taxable income or net income. ... (b) the ascertainment of the amount of additional tax payable under a provision of Part VII.' 61 Part IV of the ITAA 1936 is entitled 'returns and assessments'. The obligation upon persons to provide annual returns of income arises under s 161. Section 166 provides: 'From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.' 62 Default assessments are provided for in s 167: 'If: (a) any person makes default in furnishing a return; or (b) the Commissioner is not satisfied with the return furnished by any person; or (c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income; the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied and that amount shall be the taxable income of that person for the purpose of section 166.' Section 169 provides: 'Where under this Act any person is liable to pay tax, the Commissioner may make an assessment of the amount of such tax.' The amendment of assessments is authorised by s 170, which provides inter alia: '(1) The Commissioner may, subject to this section, at any time amend any assessment by making such alterations therein or additions thereto as he thinks necessary, notwithstanding that tax may have been paid in respect of the assessment.' 63 Amended assessments are treated as assessments for all purposes of the ITAA 1936 (s 173). Notice of assessment is to be served in writing by post or otherwise upon the person liable to pay the tax as soon as conveniently may be after the assessment is made (s 174(1)). Section 175 then provides: 'The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.' Objections to assessments are referred to in s 175A: 'A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.' Judicial notice is to be taken of the signature of Commissioners and Deputy Commissioners provided it is attached or appended to an official document (s 176). 64 A key provision for present purposes is s 177 which provides, inter alia: '(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a second Commissioner or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment that the amount and all the particulars of the assessment are correct.' 65 Part IVC of the TAA provides for taxation objections, review and appeals. Division 3 of Pt IVC of the TAA relates to taxation objections. It requires that a person making taxation objection must make it in the approved form and lodge it with the Commissioner within the period set out in s 14ZW and state in it fully and in detail the grounds that the person relies on (s 14ZU). Section 14ZW provides for time limits for the lodgment of taxation objections. No issue of time arises in this case. 66 The obligation of the Commissioner to decide taxation objections is set out in s 14ZY: '(1) If the taxation objection has been lodged with the Commissioner within the required period, the Commissioner must decide whether to: (a) allow it, wholly or in part; or (b) disallow it. (2) Such a decision is in this Part called an 'objection decision'. (3) The Commissioner must cause to be served on the person written notice of the Commissioner's objection decision.' 67 Section 14ZYA deals with the circumstance in which the Commissioner does not make an objection decision within 60 days: '(1) This section applies if the taxation objection has been lodged with the Commissioner within the required period and the Commissioner has not made an objection decision by whichever is the later of the following times: (a) the end of the period (in this section called the 'original 60 day period') of 60 days after whichever is the later of the following days: (i) the day on which the taxation objection is lodged with the Commissioner; (ii) if the Commissioner decides under section 14ZX to agree to a request in relation to the taxation objection – the day on which the decision is made; (b) if the Commissioner, by written notice served on the person within the original 60 day period, requires the person to give information relating to the taxation objection – the end of the period of 60 days after the Commissioner receives that information. (2) The person may give the Commissioner a written notice requiring the Commissioner to make an objection decision. (3) If the Commissioner has not made an objection decision by the end of the period of 60 days after being given the notice then, at the end of that period, the Commissioner is taken to have made a decision under subsection 14ZY(1) to disallow the taxation objection.' 68 Rights of review and appeal are set out in s 14ZZ: 'If the person is dissatisfied with the Commissioner's objection decision, the person may: (a) if the decision is both a reviewable objection decision and an appealable objection decision – either: (i) apply to the Tribunal for review of the decision; or (ii) appeal to the Federal Court against the decision; or (b) if the decision is a reviewable objection decision (other than an appealable objection decision) – apply to the Tribunal for review of the decision; or (c) if the decision is an appealable objection decision (other than a reviewable objection decision) – appeal to the Federal Court against the decision.' 69 In the present case it is not suggested that the objections relate to other than appealable and reviewable objection decisions. 70 Division 4 of Pt IVC of the TAA deals with the Administrative Appeals Tribunal reviewable objection decisions. On a review application to the Tribunal the applicant has the burden of proving, if the taxation decision concerned is an assessment, that the assessment is excessive (s 14ZZK). A similar burden lies on the taxpayer in appeals to the Federal Court (s 14ZZO). 71 Section 255-1 of Schedule 1 of the TAA provides: 'A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).' Section 255-5 provides: '(1) An amount of a tax-related liability that is due and payable: (a) is a debt due to the Commonwealth; and (b) is payable to the Commissioner. (2) The Commissioner, a Second Commissioner or a Deputy Commissioner may sue in his or her official name in a court of competent jurisdiction to recover an amount of a tax-related liability that remains unpaid after it has become due and payable.' 72 Section 255-45 provides: '(1) A certificate: (a) stating one or more of the matters covered by subsection (2); and (b) signed by the Commissioner, a Second Commissioner or a Deputy Commissioner; is prima facie evidence of the matter or matters in a proceeding to recover an amount of a tax-related liability. (2) A certificate may state: (a) that a person named in the certificate has a tax-related liability; or (b) that an assessment relating to a tax-related liability has been made, or is taken to have been made, under a taxation law; or (c) that notice of an assessment, or any other notice required to be served on a person in respect of an amount of a tax-related liability, was, or is taken to have been, served on the person under a taxation law; or (d) that the particulars of a notice covered by paragraph (c) are as stated in the certificate; or (e) that a sum specified in the certificate is, as at the date specified in the certificate, a debt due and payable by a person to the Commonwealth.' 73 Section 255-50 of Schedule 1 of the TAA gives prima facie effect to statements or averment made by the plaintiff in recovery actions: '(1) In a proceeding to recover an amount of a tax-related liability, a statement of averment about a matter in the plaintiff's complaint, claim or declaration is prima facie evidence of the matter. (2) This section applies even if the matter is a mixed question of law and fact. However, the statement of averment is prima facie evidence of the fact only. (3) This section applies even if evidence is given in support or rebuttal of the matter or of any other matter. (4) Any evidence given in support or rebuttal of the matter stated or averred must be considered on its merits. This section does not increase or diminish the credibility or probative value of the evidence. (5) This section does not lessen or affect any onus of proof otherwise falling on a defendant.' 74 Regulation 172 of the Income Tax Regulations 1936 provides: '(1) Judicial notice shall be taken of the names and signatures of the persons who are, or were at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner. (2) A certificate, notice or other document bearing the written, printed or stamped name (including a facsimile of the signature) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner in lieu of that person's signature shall, unless it is proved that the document was issued without authority, be deemed to have been duly signed by that person. (3) In this regulation, "certificate, notice or other document" includes a certificate, notice or other document under the Income Tax Assessment Act 1997 or Regulations made under that Act.' The Application for Summary Judgment 75 The Commissioner moves for summary judgment. The application was brought in the Supreme Court under O 14 r 1 of the Supreme Court Rules. The orders sought are that: '1. Judgment be entered for the Plaintiff against the Defendant in the sum of $1,475,386.99 together with further general interest charged pursuant to s 204 of the Income Tax Assessment Act and Division 1 Part IIA of the Taxation Administration Act 1953 ('TAA 53') calculated upon an amount or amounts and for a period or periods at the rates prescribed. 2. The Defendant to pay the Plaintiff's costs of this application, and the action, including any costs reserved, such costs to be taxed.' The application now falls to be determined under O 20 of the Federal Court Rules relating to summary judgment which provides: "(1) Where in relation to the whole or any part of the applicant's claim for relief, there is evidence of the facts on which the claim or part is based, and – (a) there is evidence given by the applicant or by some responsible person that, in the belief of the person giving the evidence, the respondent has no defence to the claim or part; or (b) the respondent's defence discloses no answer to the applicant's claim or part; the Court may pronounce judgment for the applicant on that claim or part and make such orders as the nature of the case requires. (2) Where the Court pronounces judgment against the party under this rule, and that party claims relief against the party obtaining the judgment, the Court may stay execution on, or other enforcement of, the judgment until determination of the claim by the party against whom the judgment is directed to be entered. (3) The Court in any application under this rule may give such directions, whether for amendment of the pleading or otherwise, as may be thought fit.' 76 Considered against the backdrop of the case management system of the Federal Court embodied in O 10, the function of O 20 is to provide '... an expeditious means of resolving litigation where the applicant can clearly demonstrate that there is no real defence to particular claims made by it' – Caterpillar Inc v Sun Forward Pty Ltd (1996) 36 IPR 411 at 414 (Drummond J). The criteria for the award of summary judgment require that it be given only '... where it is clear that there is no arguable defence to the claim. If there is an arguable issue to be tried, in particular where there are matters of fact to be resolved which can only be resolved at trial, the court gives leave to defend and the case goes to trial to be heard out. Summary judgment is a means of short-circuiting that system in the clear case where it is shown that, even if it went to trial, the defence could not succeed.' – CLC Corporation v Cambridge Gulf Holdings NL [1997] FCA 236 (Carr J). The power should be exercised with great care and never exercised unless clear that there is no real question to be tried – Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99. See also Webster v Lampard (1993) 177 CLR 598 at 602 (Mason CJ, Deane and Dawson JJ). The Operation of Sections 175 and 177 of the ITAA 77 Sections 175 and 177 are to be read together. Their operation was described in FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at 376 as effectively confining a taxpayer to the appeal procedures for which the taxation legislation provides. In the joint judgment in that case Mason and Wilson JJ, with whom Stephen and Aickin JJ agreed, said that the production of a notice of assessment (at 378): '... will put beyond contention the due making of the assessment so that the court cannot find that no assessment was made or that, if made, it was made for an inadmissible purpose.' 78 Relevantly for the present case, Mason CJ in Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 said of the observation quoted from Bloemen's case that it (at 187): '... proceeds upon the footing that the paramount purpose of the Act is to ascertain the liability of taxpayers to tax and that the Act, with that object in view, sets up a legislative regime whereby the Commissioner assesses a taxpayer to tax, the taxpayer being liable to pay the amount stated in the notice of assessment, subject to a reference to the Administrative Appeals Tribunal or an appeal under Pt IVC to the Federal Court. In such an appeal, it is for the taxpayer to show that the assessment is excessive. In that context, the existence of an inadmissible purpose on the part of the Commissioner plays no part. The central element of the legislative regime is the making of an assessment by the Commissioner which ascertains the taxpayer's liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantive liability to tax. In such an appeal, the taxpayer is at liberty to challenge the exercise of any relevant discretion by the Commissioner. Thus, on appeal, the court will set aside the assessment if any relevant exercise of discretion by the Commissioner is affected by error of law, if he has taken an extraneous factor into account or if he has failed to consider a material factor.' 79 The observations by Mason CJ in Richard Walter reflected a view of the effect of s 177 as a privative clause influenced by the decision in R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598. At 180 in Richard Walter, Mason CJ referred to the Hickman 'principle' as expressed in the Hickman decision at 615 where, speaking of privative clauses, Dixon J said: 'Such a clause is interpreted as meaning that no decision which is in fact given by the body concerned shall be invalidated on the grounds that it has not conformed to the requirements governing its proceedings or the exercise of its authority or has not confined its acts within the limits laid down by the instrument giving it authority, provided always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body.' Applying that 'principle' to s 177, Mason CJ saw the section as 'consistent with the Hickman principle' on the basis that (at 188): 'Section 177 gives effect to the substantive provisions of the Act, in particular s 175, the effect of which is to ensure that the validity of an assessment does not depend upon compliance with any of the particular provisions of the Act or considerations of purpose'. 80 The Hickman principle as enunciated in the judgment of Mason CJ does not extend the protection of ss 175 and 177 to assessments which are not made in good faith or which are, on their face, not assessments at all or where there has been a concession that the Commissioner has made no attempt to ascertain or estimate the taxpayer's taxable income – R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 301. 81 The effect of ss 175 and 177 together precludes judicial review of assessment decisions in proceedings under s 75(v) of the Constitution or s 39B of the Judiciary Act 1903 (Cth) for error of law, failure to take into account mandatory relevant considerations and breaches of procedural fairness. In Richard Walter, Brennan J said (at 196): '... if s 175 confers validity on assessments made in a bona fide attempt to exercise the power to make them, it authorises the Commissioner to determine in good faith, rightly or wrongly, the application of the general provisions of the Act to the facts of the particular case subject to correction by the objection, review and appeal procedures. That accords with the policy of the Act which most clearly appears from the text of s 177(1).' Deane and Gaudron JJ applied the Hickman principle to the operation of ss 175 and 177 (at 211): 'The result of its application is that s 175's protection from invalidity is applicable only if the purported "assessment" (i) is "a bona fide attempt" by the Commissioner or other authorised officer to exercise powers conferred by the Act, (ii) "relates to the subject matter" of the Act and (iii) "is reasonably capable of reference to" those powers.' To avoid constitutional invalidity their Honours took the view that s 177 had to be read down so as not to apply to a case in which it was alleged that the assessment had not complied with the Hickman criteria (at 213). 82 Dawson J, at 220, saw s 177 as only operating: '... to create a situation in which, upon the evidence constituted by a notice of assessment, liability and recovery proceedings is conclusively established, rather than to deny the jurisdiction to grant the remedies referred to in s 75(v).' 83 Toohey J, at 227, appeared to reject a contention that an assessment could be challenged, other than in proceedings under Pt IVC, for jurisdictional error: '... the weight of authority is clearly against any general proposition that a court may inquire into the making of an assessment with a view to determining whether there has been an abuse of power.' See also at 233-234 and per McHugh J at 242. 84 The weight of High Court authority in relation to the operation of ss 175 and 177 stands against any challenge to the validity of an assessment where the purported assessment is a bona fide attempt to exercise the powers conferred by the Act, relates to the subject matter of the Act and is reasonably capable of reference to those powers. 85 Counsel for Mr Warrick argued that the decision of the High Court in Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476 required a reconsideration of the line of authority on ss 175 and 177. The decision in Plaintiff S157 was relied upon for the proposition that an assessment should be able to be challenged in proceedings under s 75(v) of the Constitution or s 39B of the Judiciary Act for jurisdictional error including want of procedural fairness. It would be inappropriate to award summary judgment where there was a potentially arguable defence of that character. 86 Plaintiff S157 characterised the so called Hickman principle as '... simply a rule of construction allowing for the reconciliation of apparently conflicting statutory provisions' (at [60] Gaudron, McHugh, Gummow, Kirby and Hayne JJ). On that basis it followed that there could be '... no general rule as to the meaning or effect of privative clauses'. The conclusion in Plaintiff S157 that decisions under the Migration Act 1958 (Cth) were amenable to review for jurisdictional error turned upon the limited application of the privative clause, s 474, to 'decisions made under the Migration Act'. A purported decision affected by jurisdictional error would not be a decision to which s 474 applied. Whatever broader propositions may be extracted from Plaintiff S157 they do not stand against the weight of authority in the High Court on the operation of ss 175 and 177 stated recently and authoritatively in Richard Walter. It is not open to a single judge at first instance to infer that the correctness of Richard Walter is now open to question to the extent that there is an arguable defence based on that premise. Formal Objections to Assessments by the Respondent 87 In support of the application for summary judgment the Deputy Commissioner relied upon the production of certified copies of the notices of assessments and the certificate of their service upon Mr Warrick. Upon service of the notices Mr Warrick became liable to pay the tax assessed and shown as due to the Commonwealth, payable to the Commissioner and, by s 255-5 of the TAA, recoverable in a court of competent jurisdiction. The evidentiary certificate bearing Deputy Commissioner Holland's facsimile signature was relied upon as evidence of the service of the notices upon Mr Warrick and that the sum of $1,475,386.99 was a debt due and payable to the Commonwealth by him. She relied upon s 255-45 of Schedule 1 of the TAA. 88 A point was taken in the submissions made on behalf of Mr Warrick that Deputy Commissioner Holland did not issue any of the amended assessments or penalty assessments relied upon. They bore the imprinted names of two other persons each described as a Deputy Commissioner. Mr Eikelboom who swore the affidavit exhibiting the certified copies of the notices of assessments was said to be 'clearly wrong and/or relying on inadmissible hearsay' when he said in his affidavit that the documents 'were issued and sent by pre-paid mail by the plaintiff to the defendant'. The fact that he said, in effect, that Deputy Commissioner Holland issued the notices when they clearly bore a different person's name undermined any formal validity or s 177 protection which might otherwise be available to documents of such a class. 89 In my opinion there is no substance in the point. It is plain from Mr Warrick's own affidavit that the notices of assessment and of administrative penalties were sent to and received by him. The production of the notices of assessment was, by virtue of s 177, and subject to other arguments going to their validity, conclusive evidence of their due making not to be undermined by arguments that Mr Eikelboom's affidavit contained hearsay evidence. In any event, Mr Eikelboom's affidavit referred to the issue of the notices of assessment by 'the plaintiff' and in so doing, in my opinion, referred to a person occupying the office of Deputy Commissioner of Taxation. 90 An argument was also advanced that the evidentiary certificate was not signed by 'the Commissioner, a Second Commissioner or a Deputy Commissioner'. Counsel for Mr Warrick accepted that, under reg 172 of the Income Tax Regulations 1936, a Deputy Commissioner can sign by affixing a facsimile of her signature. In this case a facsimile signature of Erin Holland was affixed to the certificate. Below it and below her signature the words 'Deputy Commissioner of Taxation and delegate of the Commissioner of Taxation' appeared. Below these words were handwritten letters 'pp' and an indecipherable signature. It was suggested that it could be inferred from this that some person other than Ms Holland had affixed her facsimile signature. 91 In my opinion, a Deputy Commissioner can affix a facsimile signature personally or through an appropriate officer acting under her authority. The facility of a facsimile signature for which the regulations provide suggests a signature that can be affixed for the Deputy Commissioner by someone acting under her direction or with her authority. In any event, where a certificate, notice or other document bears a facsimile of the signature of a Deputy Commissioner reg 172 has the effect that the onus lies upon the person challenging its authenticity to show that the document was issued without authority. This is not established by the existence of the handwritten letters 'pp' together with another signature. In my opinion there is nothing in the submission to detract from the evidentiary force of the certificate. 92 Section 177 is proof against the contention in the defence that the person who purportedly issued the assessments was not authorised to do so pursuant to the Act. It also stands against the plea that Mr Warrick did not receive the assessed taxable income. That is a matter to be taken up in proceedings under Pt IVC of the TAA. Breach of Natural Justice 93 It was submitted that the making of the relevant assessments was vitiated by want of procedural fairness to Mr Warrick. The case against Mr Warrick, it was said, has never been particularised. He had been given no opportunity to deal properly, in his objections, with the asserted omissions in his returns. By the failure to decide his objections he had been denied access to Pt IVC appeal proceedings. All of this was said to be contrary to the Taxpayer's Charter. 94 Reliance was placed upon the Taxpayer's Charter as giving rise to enforceable legitimate expectations on the part of taxpayers and, in particular, on the part of Mr Warrick that he would be dealt with in a particular way. 95 Arguments as to want of procedural fairness cannot provide any defence against summary judgment in recovery proceedings under the ITAA 1936 and the TAA. This is the combined effect of ss 175 and 177 and the evidence of certified notices of assessment and the evidentiary certificate produced to the Court. For the reasons already set out, the recovery proceedings cannot be resisted upon the basis of jurisdictional error short of the failure of the Commissioner to observe the criteria referred to broadly under the rubric of 'the Hickman principle'. While the failure to determine objections may have a bearing on the question whether a stay of proceedings should be granted, they have no bearing on the question of liability. In my opinion therefore, the argument based upon breach of the requirements of procedural fairness does not provide any defence to the claim. Want of Bona Fides and Ulterior Purpose 96 It was submitted for Mr Warrick that the amended assessments and the tax shortfall penalties were not imposed in a bona fide exercise or attempted exercise of power. This was said to be a proposition at least sufficiently arguable to warrant leave to defend. It was submitted that there had been no real or proper attempt to investigate or determine the facts. The material before the Court was said to point to the Deputy Commissioner acting on a 'hunch' and a speculative 'scenario'. The parallel decision-making process of imposing a departure prohibition order on Mr Warrick revealed decision-making premised upon out dated information, error and half-truth. 97 The alleged capriciousness of the decision-making process relating to the amended assessments and penalties was indicated by the ATO's failure to observe procedural fairness despite the Taxpayer's Charter. When Mr Warrick was interviewed the case against him was never put except as a speculative scenario. His solicitor's requests for grounds and reasons went unanswered. No particulars had ever been given. No position paper was ever issued. His FOI request was met with a requirement for payment of $77,000 to access 'a sea of documents'. Reliance was also placed upon the fact that his objections to the amended assessments had been outstanding since 21 February 2003. There was no evidence that they are even being considered. The Deputy Commissioner had instituted and pursued recovery proceedings while failing to decide the objections. This meant that Mr Warrick could not institute any Pt IVC appeal. 98 It was submitted that the impositions were made for an ulterior purpose, namely that the respondent and his 'entrepreneurial activities' should be targeted because he was seen by the ATO as a tax promoter. Such a purpose was said to be ultra vires of the tax legislation allowing for the making of amended assessments. 99 Counsel referred to the absence of any discernable 'basis' for the ATO's actions. He submitted that there could be no genuine dispute that Mr Warrick obtained the payment in issue from Given Proof. He had deposed on affidavit that they were all loans. He was the borrower. The loan and security documents had been produced. The payments had been accounted for in books and records in Western Australia. The loan documentation and related securities had been produced. Substantial repayments of interest and capital had been made. As at 6 December 2000, the ATO knew that Kingprince was sending money to Given Proof in Hong Kong. The Deputy Commissioner had issued purported assessments labelling the relevant payments the income of both Mr Warrick and Kingprince. The only ground disclosed to Mr Warrick for the amended assessments was that payments from Given Proof were 'considered to be commission income'. 100 In my opinion there is nothing in the materials put before the Court by Mr Warrick that would arguably support a finding of lack of bona fides on the part of the Commissioner. That is so even on the basis that want of bona fides may be established not only by showing bad faith, but also by showing the absence of a diligent and conscientious approach to the decision-making process involved in making an assessment – Applicant WAFV of 2000 v Refugee Review Tribunal (2003) 125 FCR 351. Whatever deficiencies can arguably be inferred about the reasoning process which may have been adopted by the Deputy Commissioner in characterising payments received by Mr Warrick as commission rather than loans, whatever non-sequiturs may be demonstrated, there is not disclosed an arguable failure to endeavour diligently and conscientiously to exercise the power entrusted to her by the statute. In particular, questions put in the course of the s 264 examination do not constitute evidence of the basis upon which the Deputy Commissioner finally made the assessments which are here under challenge. The reasons for the departure prohibition orders are also, at best, a slender basis for any inference and in this case do not support any inference of want of bona fides. The threshold for demonstrating a failure to exercise a power bona fide is not a low one. While it does not require proof of malice or dishonesty it does import a serious dereliction of duty which borders upon, if not amounts to, recklessness in the decision-making process. Want of bona fides is not a vehicle through which the taxpayer may challenge the adequacy of the Commissioner's logic in making assessments of taxable income. 101 By the same token I do not consider that any arguable case of improper purpose has been made out. The reference in the reasons for the departure prohibition order to Mr Warrick's activities as a promoter of tax avoidance arrangements had some basis in facts which were put to him and which emerged in the course of the s 264 examination. That characterisation was made in the context of justification of the departure prohibition order made against him. Its logical support for that order may be questionable but it does not go to demonstrate, even arguably, an ulterior purpose or improper purpose in the making of the assessment. Even if it did, it would not seem to rise higher than the level of an irrelevant consideration which would not be a basis for the grant of prerogative relief in the face of the provisions of ss 175 and 177 as construed by High Court authority. A Constitutional Question – Whether Section 78B Notices are Required 102 The defence appeared to raise a constitutional question. In par 6(p) it was said that the persons responsible for issuing the disputed assessments had not made a calculation of 'taxable income' or an assessment of 'income tax' as authorised by s 51(ii) and/or s 55 of the Constitution. In par 6(q) it was alleged that there is no power under the Constitution '... which empowers the Commissioner or any Officer or any delegate of the Commissioner to assess the defendant to income tax when there is not a sufficient connection between the object of the tax and the subject of the tax'. In the premises it was said in par 6(r) that the disputed assessments were invalid because they were not made or issued 'pursuant to the law with respect to "taxation" within s 51(ii) of the Constitution'. 103 In my opinion there is no viable defence disclosed by these pleadings. They seem to be drawn without regard to the operation of s 51(ii) as a head of legislative power. There was no argument advanced in respect of the constitutional points pleaded. They do not in my opinion lead to the characterisation of these proceedings as involving 'a matter arising under the Constitution or involving its interpretation' for the purposes of s 78B of the Judiciary Act. That section does not impose a duty on the Court not to proceed pending the issue of notices to the Attorneys-General in every case in which the Constitution is mentioned in a pleading no matter how trivial, unarguable or concluded the constitutional point may be – Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (1999) 167 ALR 303 at 308 [14] and the cases there cited. No arguable defence and no basis for staying the proceedings pursuant to s 78B of the Judiciary Act was disclosed by reason of the reference in the pleadings to the Constitution. Conclusion and Orders 104 In my opinion, for the preceding reasons, no arguable defence has been disclosed to the claim in the recovery action. The Deputy Commissioner is entitled to summary judgment. I am concerned however that these proceedings have been brought notwithstanding the failure to determine the objections lodged by Mr Warrick to the amended assessments and administrative penalty assessments. It is not a complete answer to that concern that Mr Warrick can force the Deputy Commissioner to a deemed disallowance of the objections under s 14ZYA of the TAA. The Commissioner has a clear duty to determine objections so that if there is a basis upon which an assessment can be revisited administratively that can be done expeditiously and with a minimum of expense and inconvenience to both the Commissioner and the taxpayer. 105 Absent a determination of objections and absent any reasonable explanation for the failure to determine them, the question arises whether the recovery proceedings or execution of the judgment should be stayed. In Snow v Deputy Commissioner of Taxation (1987) 14 FCR 199, I set out factors relevant to the question whether or not a stay of recovery proceedings should be ordered. They were as follows: 1. The policy of the ITAA 1936 as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer's appeal against his assessment. 2. The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it. 3. The merits of the taxpayer's appeal constitute a factor to be taken into account in the exercise of the discretion. 4. Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax. 5. A stay may be granted in the case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay. 6. The mere imposition of the obligation to pay does not constitute hardship. 7. The existence of a request for reference of an objection for review or appeal is a factor relevant to the exercise of the discretion. 106 In the present case, in my opinion, the priority given to recovery of the revenue should be qualified by an appropriate recognition of the taxpayer's right to object and to have his objection determined and the Commissioner's duty in that respect. I express no view as to the merits of Mr Warrick's position with respect to the assessments. Nor do I express any view on whether he is a party to a contrivance to avoid his liability to payment of tax. I do not suggest that the present case is one of abuse of office by the Commissioner, but I do consider that no satisfactory explanation has been given for the delay in and failure to deal with the objections to the assessments. In my opinion, execution of the judgment should be stayed for a period sufficient to enable Mr Warrick to require the making of an objection decision pursuant to s 14ZYA of the TAA and to take advantage of the deemed refusal at the expiry of 60 days from that period to institute a review process. The stay will be subject to liberty to apply. 107 Having regard to the basis upon which I have decided to award summary judgment in this case, it follows that the counterclaim must also be dismissed. I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 13 July 2004 Counsel for the Applicant: Mr JD Allanson Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Dr JT Schoombee Solicitor for the Respondent: Christensen Vaughan Date of Hearing: 11 June 2004 Date of Judgment: 13 July 2004