FEDERAL COURT OF AUSTRALIA Queensland Trading & Holding Company Limited v Commissioner of Taxation [2004] FCA 1036 PRACTICE AND PROCEDURE – income tax dispute – taxpayer member of large public company group – taxpayer's unsuccessful application for review to this Court and subsequent unsuccessful appeal to Full Federal Court – pending application to High Court for special leave to appeal – very large number of public company subsidiaries related to taxpayer subsequently subjected to adverse income assessments including substantial penalties – agreement governing access to substantial funds already paid to Commissioner on account of income tax and penalties – whether access to funds be granted in principle pending outcome of special leave application – whether compliance by Commissioner of Federal Court Rules as to taxation disputes be dispensed with – whether standstill orders be put into effect – other directions of unusual nature Spassked Pty Limited v Federal Commissioner of Taxation (2003) ATC 4184 Spassked Pty Limited v Federal Commissioner of Taxation (2003) ATC 5099 Rippon v Chilcotin Pty Ltd [2001] 53 NSWLR 198 Income Tax Assessment Act 1936 (Cth) ss 51(1), 80G, 227(3) and Part IVA Taxation Administration Act 1953 (Cth) ss 255-5 and 260-5 Administrative Decisions (Judicial Review) Act 1977 (Cth) s 13(4A) and Schedule 1 item (ga) Federal Court Rules Order 1 rule 8, Order 10 rules 1 and 2(1)(e) and Order 52B rule 5 QUEENSLAND TRADING AND HOLDING COMPANY LIMITED, IEL FINANCE LTD v COMMISSIONER OF TAXATION N 540 OF 2004 N 539 OF 2004 N 543 OF 2004 CONTI J 11 AUGUST 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 540 OF 2004 N 539 OF 2004 N 543 OF 2004 BETWEEN: QUEENSLAND TRADING AND HOLDING COMPANY LIMITED FIRST APPLICANT IEL FINANCE LTD SECOND APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: CONTI J DATE OF ORDER: 11 AUGUST 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT 1. Draft forms of declaratory relief be submitted by each party to my Chambers on or before 4.00 pm on 17 August 2004, with any supporting submissions or explanations. 2. The respective parties have liberty to apply on two prior days notice in writing to the other for further consideration as to terms of any interlocutory relief, and for any directions as to the future conduct of the proceedings and any future collateral proceedings. 3. Costs of the proceedings to date be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 540 OF 2004 N 539 OF 2004 N 543 OF 2004 BETWEEN: QUEENSLAND TRADING AND HOLDING COMPANY LIMITED FIRST APPLICANT IEL FINANCE LTD SECOND APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: CONTI J DATE: 11 AUGUST 2004 PLACE: SYDNEY REASONS FOR JUDGMENT Background to and the nature of the interlocutory disputes 1 The applicants were at all material times members of the Industrial Equity Limited ('IEL') Group of public companies. That Group included Spassked Pty Limited ('Spassked'), which unsuccessfully appealed to this Court against notice of assessment of income tax for the year ended 30 June 1992, whereby the Commissioner disallowed a deduction for interest paid to or accrued in favour of another member of the IEL Group. The disallowance by the Commissioner was based upon what was considered to be non-satisfaction of either limb of s 51(1) of the Income Tax Assessment Act 1936 (as amended) ('the Tax Act'), and otherwise by reason of the operation of Part IVA of the Tax Act. 2 The initial appeal of Spassked to the Federal Court was dismissed by Lindgren J on 14 February 2003 (Spassked Pty Limited v Federal Commissioner of Taxation (2003) ATC 4184), and a subsequent appeal by Spassked from his Honour's decision to a Full Federal Court comprising Hill, Gyles and Lander JJ was also dismissed later on 8 December 2003 ((2003) ATC 5099). The basis for dismissal by the primary judge and the Full Court was confined in scope to the s 51(1) issues arising, it having been considered unnecessary for that reason, both at first instance and on appeal, to determine the Part IVA issues also raised by the Commissioner. 3 Spassked has made application to the High Court for special leave to appeal the Full Court's decision, and the hearing of that application is to take place on 10 December 2004. In the event that the special leave application is granted, the hearing of an appeal to the High Court would of course proceed at a later date. In the further event that the appeal is successful, which would be on the basis of Spassked's entitlement to s 51(1) deductibility, a further step in the proceedings would follow by way of resolution by the Federal Court of the outstanding Part IVA issue. 4 The tax losses for income tax purposes the subject of dispute by the Commissioner in the Spassked litigation in respect of the financial year ended 30 June 1992 were transferred by Spassked in varying amounts amongst many other subsidiaries within the IEL Group of companies, pursuant to s 80G of the Tax Act. Each of those subsidiaries apparently filed applications in the Court for review of their respective adverse income tax assessments, consequentially upon disallowance of those transferred tax losses relating to the fiscal year ended 30 June 1992 in the wake of the outcome of the Spassked litigation. 5 It appears that a similar course, to that taken by Spassked in relation to the fiscal year ended 30 June 1992, was adopted by other IEL Group subsidiaries in respect of the fiscal years ended 30 June 1991, 1993 and 1996. The present proceedings concern the fiscal circumstances of the following subsidiaries in respect of the fiscal years set opposite their names: 30 June 1991 : Queensland Trading & Holding Company Limited 30 June 1993 : IEL Finance Limited 30 June 1996 : Queensland Trading & Holding Company Limited. 6 The circumstances of each of those three IEL subsidiaries are said to be representative relevantly of numerous other IEL subsidiaries in relation to those respective three fiscal years, and have been apparently selected as prospective test cases for resolution of fiscal issues said to arise in respect of those three fiscal years. It was not explained to the court in what materially significant respect or respects the fiscal circumstances relating to those subsidiaries, and in respect of those three fiscal years, differed materially or significantly from the fiscal circumstances involved in the Spassked litigation. 7 Thus on 21 January 2004, the Commissioner wrote to the solicitors for the present applicants as follows: '1. Details of the material facts which are asserted lead to the conclusion that IEL Finance Limited is entitled to deductions for the transfer of losses from Spassked Pty Ltd which were different or absent in Spassked Pty Ltd v FCT [2003] FCAFC 282. 2. A copy of any document on which the claim is made which was not put into evidence or discovered by the applicants in Spassked Pty Ltd v FCT [2003] FCAFC 282. 3. Details of the difference, if any, in the legal basis on which it is claimed that IEL Finance Limited is entitled to deductions for the transfer of losses from Spassked Pty Ltd which were absent in Spassked Pty Ltd v FCT [2003] FCAFC 282.' 8 The negative response on behalf of the applicants to the Commissioner, by letter dated 9 February 2004, was in the following terms: 'You have asked us to provide both details of facts relied upon and the legal basis upon which deductions are claimed by the Company in respect of the income years ended 30 June 1993 and 1996. The details and documentary evidence requested by you are matters which will be raised by the Company before a Court or Tribunal and will be identified in the Company's statement of facts, issues and contentions or any other relevant documents lodged for the purposes of proceedings, if any. To that extent, the Company is not in a position to provide any information relating to the request until such time as any proceedings are commenced. We confirm that there are some other issues raised in the objections of the Company that do not directly relate to the entitlement to deductions for the transfer of losses from Spassked Pty Limited, and were not the subject of proceedings or considered by the Full Federal Court in respect of Spassked Pty Ltd v FCT [2003] FCAFC 282. Accordingly, the questions raised by you are not material or relevant to some of the issues identified in the Company's objections.' 9 Accordingly, before providing such 'details and documentary evidence' to the Commissioner, the applicants seek to progress the formalities and processes involved in the subject proceedings, as representative of three further exemplifications of the many existing, and likely future, thoughsimilar, applications for review on the part of certain IEL Group companies, to the stage where they would be ready to proceed to a final hearing at first instance, once the outcome of the special leave application of Spassked is known, and subject of course to that outcome being favourable to Spassked. It is said that experience derived from the Spassked litigation suggests that it would take considerable time to progress those further applications to a stage of readiness for final hearings at first instance, and hence the need from the applicants' perspective to place themselves in a position for the earliest final hearings. 10 The Commissioner's contention advanced in response was generally that it would be wasteful of resources, and futile in utility and purpose, to progress the same, at least prior to the outcome of the pending special leave application of Spassked to the High Court is known, if not also until the outcome of any subsequent final hearing of an appeal by the High Court is known, if special leave to appeal be granted to Spassked. That is because the circumstances relevant to the challenges to the adverse assessments of each of the two present applicants for the three fiscal years now in question are submitted to be not relevantly distinguishable from those circumstances attending the Spassked litigation. 11 The Commissioner initially provided estimates of the primary tax and the additional (or so-called penalty) tax in respect of the various IEL Group corporate members, being of course the transferees (inclusive of the applicants) of purported tax losses from Spassked, up to a relatively recent point in time. There are disagreements, or at least queries, which have arisen as to the correctness of those estimates. According to the Commissioner's calculations, the amount of primary tax asserted by the Commissioner to be in issue in relation to the amount of tax losses transferred from Spassked to the other IEL group companies, including the present applicants, is in the order of $723,461,137, in reduction of which $188,053,402 was paid on behalf of Spassked to the Commissioner on 8 April 2004, leaving a balance due of $535,407,735, exclusive of interest accruing pursuant to the Tax Act. 12 The Court has been informed by the applicants that if the total amount of primary tax assessed in respect of each of the relevant fiscal years (ie the aggregate of the respective IEL Group income tax assessments) is not dislodged by the time of the ultimate resolution of the present Spassked litigation, yet if nevertheless it be established by a Court ruling that the additional (or so-called penalty) tax assessed, as distinct from the primary tax assessed, was not legitimately imposed, or should have been in any event remitted, there would be a substantial excess of assets over liabilities which would remain or become available within, and thus for the benefit of, the IEL Group of subsidiaries relevantly involved, that is to say, notwithstanding payment of the primary income tax in dispute. The Court was further informed however by the Commissioner that irrespective of any successful challenge to the additional tax which has been assessed, the financial exposure thus broadly outlined is susceptible in any event to increase in favour of the Commissioner, since additional tax in the nature of interest charges at the rate of 12% per annum is presently accruing in favour of the Commissioner, which rate of accrual exceeds the revenue income being derived over any given comparable period of time from the relevant IEL Group assets, and moreover by a substantial margin. One consequence of all that is that the time involved in finalising the Spassked proceedings in the High Court, by way of appeal if special leave be granted, was said to involve a substantial financial detriment to the IEL Group, unless this Court intervenes with some appropriate relief in the meantime. 13 The Commissioner provided to the Court on 8 June 2004 details of the financial implications of the pending existing challenges to the income tax assessments affecting IEL Group members. The available assets of the IEL Group, and the total income tax liabilities thereof, were scheduled in Exhibit R1 as follows: 'III Available assets of the IEL Group Description [$m] Funds on deposit with three deposit holders. 702 Cash held up to April 2003 $273m Less: applied on 8 April 2004 $219m Balance 54 Total: 756 IV. Total assessments for SPA loss transferee coys (excl. Woolworths) Spassked Adjustment Primary Tax Additional Tax Total Tax Payable $ $ $ $ 1991 642,192,274 250,455,025.86 296,443,693.67 546,898,719.53 1992 513,486,146 200,259,596.97 212,653,873.49 412,913,470.46 1993 194,694,355 75,934,893.44 133,328,737.43 209.263.630.87 1994 232,328,568 76,668,427.44 139,630,280.90 216,298,708.34 1995 90,238,415 29,779,163.33 49,362,676.28 79,141,839.61 1996 123,133,973 44,328,230.28 68,341,506.40 112,669,736.68 1997 106,858,150 38,468,934.00 53,712,481.48 92,181,415.48 TOTAL 1,902,931,881 715,894,271.32 953,473,249.65 1,669,367,520.97' 14 The payment of $188,053,042 made by or on behalf of Spassked on 8 April 2004 occurred in the context of an agreement in writing reached on 7 April 2004, which was structured in the form of a letter of the Australia Government Senior Tax Counsel (Mr Chochula) addressed to the Chairman of Industrial Equity Limited (Mr Ryan), bearing their respective signatures and containing the following arrangements: 'Deferral of Action to Recover – Primary Tax 4. Pursuant to s 255-5 of the Taxation Administration Act 1953 and in consideration of the payments set out in clause 1, the Commissioner agrees to defer any action to recover the disputed primary tax from the Relevant Taxpayers in relation to the transfer of losses from Spassked until all litigation in relation to the application for special leave filed by IEL and Stanley Park Ltd are finalised, namely the last of: (a) 14 days after the hearing of the special leave application before the High Court in respect of the IEL and Stanley Park Ltd 1992 Spassked matters; (b) if the High Court grants special leave, 14 days after the handing down of its decision in any appeal where such decision is adverse to the appellants; (c) if the High Court orders that the matter be remitted to the Federal Court for hearing on whether Part IVA applies to the transactions in question to disallow the interest deductions claimed by Spassked, 14 days after those proceedings (and any appeal) are finalised. Deferral of Action to Recover – Other Disputed Tax 5. Pursuant to s 255-5 of the Taxation Administration Act 1953 and in consideration of the payments set out in clause 1, the Commissioner agrees to defer any action to recover the disputed tax from the Relevant Taxpayers in relation to the interest, penalty tax and general interest charges for the assessments and amended assessments set out in the Schedules, until the earliest date of the following occurrences: (a) withdrawal of any disputes in relation to the interest, penalty tax and general interest charges; (b) a deed of settlement is entered into between the parties in relation to the interest, penalty tax and general interest charges; (c) the Federal Court or the Administrative Appeals Tribunal delivers judgement in relation to the interest, penalty tax and general interest charges. 6. The Commissioner agrees that the obligation on him to "defer any action to recover" will preclude him from issuing notices pursuant to s 260-5 of the Taxation Administration Act 1953, or taking any other action or exercising any other power he may have to recover, collect, garnishee, access or encumber monies in relation to the tax liabilities of the Relevant Taxpayers until all litigation in relation to the application for special leave filed by IEL and Stanley Park Ltd are finalised. Taxpayers Right to Seek Remission of Interest 7. The Commissioner acknowledges that the Relevant Taxpayers reserve the right to seek further remission of interest, penalty tax and general interest charges relating to the assessments and amended assessments set out in the Schedules and that nothing in this agreement precludes them from seeking such remission.' 15 Under the heading 'Upstreamed Funds', IEL further agreed by this document of 7 April 2004 to provide to the Commissioner of Taxation monthly details in relation to the accounts reflecting those funds and the capitalising of interest. Paragraphs 9 to 11 of the document thereafter read as follows: '9. IEL acknowledges that the Commissioner is interested in the continued preservation of the Upstreamed Funds and the capitalising of interest into the accounts, so that the Relevant Taxpayers can pay any liability to tax. IEL agrees to notify the Commissioner in writing of any movement, withdrawal or dealing in relation to the Upstreamed Funds and the capitalising of interest into the accounts within three business days of such movement, withdrawal or dealing, other than funds used to meet the ongoing administrative, accounting and legal expenses of the RAGL group economic entity (which includes RAGL, FJL, Tooth, Dextran and their subsidiaries), including the costs and expenses incurred in funding the taxpayers in that group in relation to all the taxation disputes. 10. IEL acknowledges that members of the RAGL group economic entity have ceased to pay any further interest to their financiers. IEL further acknowledges that members of the RAGL Group economic entity will not conduct any business other than to seek resolution of the IEL Group's taxation disputes and to maintain the RAGL group economic entity's investments and bank deposits. 11. IEL further acknowledges that it shall continue to be aware of the need to preserve funds, including the Upstreamed Funds and the capitalising of interest into the accounts, so that the Relevant Taxpayers can meet, to the extent possible, remaining balances of the disputed tax, if any, and agrees to act in a way that is consistent with this need.' Those further arrangements demonstrate obligations of the IEL Group to act in good faith, pending the finalisation of the income tax disputes, and to confine the IEL Group's access to the income derived from the so-called Upstreamed Funds for its ongoing administrative accounting and legal expenses, including what would be required for the funding of 'all the taxation disputes'. Those disputes would appear to relate to the three fiscal years respectively ending 30 June 1991, 1993 and 1996. 16 Interlocutory proceedings, chiefly in the nature of directions hearings, have taken place before the Court on the following occasions, namely 27 May 2004, 8 June 2004, 23 June 2004 and 16 July 2004. Each have involved, directly or indirectly, the implications of the agreement of 7 April 2004. ADJR applications 17 Applications were also filed in this Court, earlier on 16 April 2004, apparently by IEL subsidiaries presently involved in the context of the Spassked litigation. Those applications seek declaratory relief pursuant to s 13(4A) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('ADJR Act'), to the effect that the IEL subsidiaries are entitled to reasons, pursuant to s 13 of the ADJR Act, for the decision made by the Commissioner under s 227(3) of the Tax Act not to further or fully remit additional tax imposed on each IEL Group applicant, in accordance with Part VII of the Tax Act, in relation to the year of income ended 30 June 1991. To date the Commissioner has apparently declined to provide any such reasons. 18 In written submissions provided to the Court by the Commissioner on 3 June 2004, the following propositions were advanced: (i) each of the ADJR Act applications were unnecessary, since if and when it might become appropriate to advance the appeals in relation to additional tax, interlocutory processes in those appeals, to the extent then perceptibly necessary, would overtake the utility of any separate requests for reasons; and (ii) each of the applications was in any event incompetent, since the decisions were not within any class in respect of which an entitlement to request reasons arises; I was referred in that regard to item (ga) of s 13 and Schedule 1 to the ADJR Act. Those ADJR Act issues do not fall directly for consideration in these reasons, but it is appropriate, in this complex context, to include reference thereto at this first stage of describing the context of what is likely to be ongoing interlocutory disputation, at least to facilitate the task of case management. I should also record that the Commissioner has objected to the competency of the ADJR applications, pursuant to s 13(4A) of the ADJR Act. 19 The Commissioner further informed the Court as follows: (i) one of the IEL Group members has appealed to the AAT against its assessment to additional tax in respect of the 1992 fiscal year, and has sought to progress that appeal before the High Court will have disposed of the special leave application (ante)to be heard on 10 December 2004, being a course which the Commissioner has opposed; and (ii) the AAT has reserved its decision as to whether it should adjourn that appeal, apparently on the basis that if the adjournment is granted, the appeal would be heard in any event on an expedited basis, once it became clear that it is appropriate to do so, in the light of a final determination in the High Court upon the appeal from the Full Federal Court's judgment in Spassked. 20 It is appropriate, for future reference on issues involving case management of what is inevitably shaping to be further substantial litigation, to record in summary what has occurred on the four occasions the present matters have been before the Court. The directions hearing of 27 May 2004 21 At the initial directions hearing on 27 May 2004, a number of matters were canvassed in a preliminary way. Counsel for the applicants referred to the following matters: (i) in relation to the many individual proceedings the subject of applications of corporate members of the IEL Group which had been filed in the Court, the issue arising related to the interest charge attributable in each case to a corporate member of the IEL Group, commencing from 1987, and in particular, for present controversial purposes, commencing from 1990; (ii) the total amount of income tax and penalties the subject of the existing assessments involve 'nearly a billion dollars'; it was predicted that 'there may well be an avalanche of cases coming to the court'; (iii) none of the penalty tax issues had 'yet been ventilated', whether before Lindgren J at the time of the Spassked hearing at first instance, or on the Spassked appeal; in that regard, complaint was made on behalf of the applicants that no details had ever been furnished as to how the imposed penalties had been calculated by the Commissioner; moreover it was pointed out that the 'penalty regime' in force prior to the 1992 tax year was materially different to that prevailing in respect of the 1992 tax year and subsequently; and (iv) the circumstance that the penalty tax issues related to matters of principle, in particular as to remission in whole or in part. 22 Consequently it was said on behalf of the applicants that the concern of the IEL Group, in relation to all foreshadowed issues yet to be resolved, apart of course from the High Court proceedings relating to the 1992 fiscal year, was to '… get the matter moving to a point no matter what the outcome of the special leave application', and to do so partly by reason of the accrual of interest on the outstanding income tax and additional tax at the rate of 12% per annum. It was further said on behalf of the applicants that the relief which would be sought from the Commissioner would be the 'reasons for imposing penalties as part of [the assessment] process'. 23 Senior counsel for the Commissioner produced calculations purporting to demonstrate that the total amount of the loans made between 30 December 1987 and 28 June 1990 from IEL Group members to Spassked were in the order of $3.7 billion, all of which loans were interest bearing. He indicated that whilst the Commissioner did not presently intend to adduce affidavit evidence, the Commissioner was 'considering an application for security to seek arrangements [to the effect] that costs would not be taken out of that otherwise available fund'. The directions hearing of 8 June 2004 24 Prior to the continuation of the proceedings on 8 June 2004, the applicants tendered evidence by affidavit to indicate (inter alia) how the sum of $118,053,402, already paid to the Commissioner since the Spassked litigation was finalised, was calculated by the IEL Group, having regard to the Commissioner's break-up of primary and additional tax assessment which I have already detailed, and also how that sum was apportioned between ninety-nine (99) IEL Group members, inclusive of the present two applicants. The Commissioner tendered evidence by affidavit to the effect that the disputed tax assessment in each case related entirely to '… tax losses said to have been transferred to each of the members of the IEL Group to Spassked Pty Limited'. 25 At the same time, senior counsel for the Commissioner referred to one effect of the agreement of 7 April 2004 in the following terms: '… that sum [is] available for payment of tax is earning interest… [which] will be available to contribute to the ultimate liability of the group and it has also been agreed that out of the interest that is being earned the group may make expenditures on ongoing administration including legal costs.' The sum referred to is of course the amount of $188,053,042. He stated the Commissioner's position, in relation to the implementation of that agreement, as follows: '… It's agreed that so far as it is necessary to run legal proceedings they may pay for them out of the interest that's being earned on the sum of money, but the Commissioner nevertheless takes the position that he doesn't want to see any more legal proceedings go on than are necessary.' 26 The Commissioner's updated fiscal calculations as at 8 June 2004 were said to be 'in round figures' as follows: Primary tax $719 million Additional tax $958.4 million General interest charge $539 million After taking into account the payment of $188,053,402 already made on behalf of Spassked, senior counsel for the Commissioner referred to an estimated liability of $2,064,000 million, together with yet a further sum of $135 million '… from today to the date when the High Court would make its decision'. That sum of $2,064,000 million would appear to comprise the amount of $1,902,931,881 I have earlier identified, together with accrued interest. It was submitted that in the light of the 'available assets of $756 million, it is entirely academic unless the taxpayer is successful on a number of very substantial issues which would remove either, for example, the entirety of additional tax or the entirety of the primary tax for some tax years or make some very big difference to what's been assessed according to these figures'. Reference to the amount of $756 million has earlier been mentioned. Senior counsel for the Commissioner further pointed out that additional or penalty tax issues were not agitated before the primary judge, though he said that '… an enormous amount of evidence… was presented before Lindgren J about the Part IVA case…'. Moreover he asserted that the presentation by the IEL Group at first instance involved 'no differentiation of one year from the other', the loans involved having been 'booked in the years 1987 to 1990', and that 'the purpose of the structure was laid down then'. It was also stated on behalf of the Commissioner that '… at least since the Full Court decision, a further $15 million interest has been earned on these three principal deposits'. 27 To enable the parties to further consider their respective positions, the interlocutory proceedings were stood over until 23 June 2004 for further hearing and consideration. The directions hearing of 23 June 2004 28 The Commissioner sought at the directions hearing of the proceedings on 23 June 2004 the following orders: '1. Order pursuant to Order 1 Rule 8, Order 10, Rules 1 and 2(1)(e) that further proceedings on each of applications Nos. N539-543/2004, N621-651/2004, N681-686/2004 and N765-795/2004 be stayed until further order of the court and that each of the said applications be stood out of the list. 2. Grant liberty to any of the parties to the said applications to apply to the Court to have any or all of them re-listed for the purpose of lifting the stay and making directions for their further conduct or disposal upon seven days notice of: 2.1 the High Court's determination of the special leave applications in matters Nos. S613, S614 and S615 of 2003 or 2.2 if special leave in any of the said applications be granted by the High Court, the High Court's determination of the appeal or appeals.' In summary, the Commissioner thereby sought the stay indefinitely of those 72 applications for review of income tax assessments lodged by members of the IEL Group, and presently in evidence before me. 29 In support of the Commissioner's application for those orders, the following submissions were advanced on behalf of the Commissioner on this occasion: (i) four judges of this Court had already determined adversely to Spassked the issues arising on the pending High Court special leave application; (ii) the essence of their reasoning was that 'this structure under which this interest was incurred was such that it never was envisaged that Spassked would earn any income at all and therefore the interest was simply not deductible ever and never was going to be…'; (iii) the presiding judges '… looked at the 1992 year but to do that they had to look at a structure which had been set up under which interest was incurred in the 1992 year, it had been set up between 1987 and 1990, and Spassked never earned any income in the subsequent years of 1993 and 1994. There were two years in which it earned nominal amounts of income and I think I am right in saying that it did not earn [income] in 1993 and 1994 but if it did earn any [income] it was nominal relative to the borrowings…'; (iv) '… having regard to the whole basis on which the disallowance was made, the Commissioner's case is that it necessarily governs the 1991, 1993 and 1994 years'; (v) if special leave to appeal is refused by the High Court, the Commissioner would forthwith make a strike-out application; and (vi) if special leave to appeal is granted by the High Court, and the Full Federal Court's decision is subsequently reversed, the proceedings will then have to be remitted to Lindgren J to determine the Part IVA issues raised by the Commission; consequently '… this will all have been a complete waste of time'. 30 Moreover the Commissioner further indicated that if any of the IEL Group transferee companies were to seek to implement in their favour the purported transfers of the tax losses asserted by Spassked in the context of the pending special leave application, the Commissioner would invoke at the appropriate time the doctrine of Anshun estoppel, as exemplified for instance in Rippon v Chilcotin Pty Ltd [2001] 53 NSWLR 198 at 202 et seq (per Handley JA with whom Mason P and Heydon JA agreed). 31 One difficulty presently arising with the Commissioner's submissions thus far summarised lie with the terms of the agreement in writing of 7 April 2004, reflected in what has been extracted from the agreement earlier in these reasons, concerning the extent of the purported entitlement of the so-called 'Spassked loss transferees' to meet ongoing administrative, accounting and legal expenses within the terms and conditions of agreement in writing of 7 April 2004. The Commissioner submitted however that the agreement between the parties of 7 April 2004 was 'completely silent on this question that the court is faced [with] now…'. 32 Ultimately senior counsel for the Commissioner accepted in principle, as an alternative course of action for implementation, that the applicants proceed with the interlocutory step of filing and serving, within the framework of the presently constituted proceedings, statements of facts, issues and contentions, upon the basis of access to the funds the subject of that agreement of 7 April 2004 for the purpose of paying the reasonable legal costs and expenses of the present applicants of the causes of action contemplated by the subject proceedings. 33 In response to what the Commissioner submitted should be at least one major outcome of the present interlocutory disputes, senior counsel for the applicants referred me to Order 52B Rule 5 of the Federal Court Rules, which is reproduced below for ease of reference: 'Within 28 days after a sealed copy of an application is served on the Commissioner, the Commissioner must, unless the appeal relates to a private ruling: (a) file: (i) [repealed] (ii) a copy of the notice of the appealable objection decision concerned; and (iii) a copy of the taxation objection concerned; and (iv) any return or other document in the Commissioner's possession or under the Commissioner's control to which the taxation objection relates that is relevant to the hearing of the matter; and (v) a statement outlining succinctly the Commissioner's contentions and the facts and issues in the appeal as the Commissioner perceives them; and (b) service on the applicant: (i) [repealed] (ii) a list of the documents filed under subparagraphs (a)(ii) to (iv) (inclusive); and (iii) a copy of the statement referred to in subparagraph (a)(v).' 34 It was consequently submitted on behalf of the applicants that I should make the following orders: (i) that the Commissioner file and serve the documents stipulated (other than its statement of facts, issues and contentions) under Order 52B Rule 5 of the Federal Court Rules within a specified time; (ii) that the Commissioner file and serve statements of facts, issues and contentions on or before one month thereafter; (iii) that the applicants file and serve statements of facts, issues and contentions on or before one month thereafter; (iv) that the applications be listed for further directions hearings within three days thereof; and (v) that the parties have liberty to apply on three days' notice to the other. 35 It was further submitted on behalf of the applicants that each of them had 'an undeniable right to contest these matters', pursuant to the agreement in writing between the parties on 7 April 2004 (supra), and reference was made in particular to the concluding words of par 9 thereof '… including the costs and expenses incurred in funding the taxpayers in that group in relation to all taxation disputes'. No notice of motion was required of the applicants to set matters in train for those purposes, so it was further submitted, nor for the purpose of the applicants obtaining access to the funds the subject of that critical agreement. The notice of motion of 16 July 2004 36 By notice of motion filed on 9 July 2004 in the present proceedings numbered N539, N540 and N543 of 2004, the Commissioner sought interlocutory relief to the effect set out in [28] above, or in the alternative the following orders: '3(a) Order that all applications listed in paragraph (1) be adjourned for further directions on 17 December 2004; 3(b) Order in relation to all applications listed in paragraph (1) that the requirements of Order 52B Rules 5(a) and (b) be suspended until 28 days after the directions hearing on December 2004.' In effect, the Commissioner thereby sought a 'standstill' situation until the outcome of the High Court proceedings. 37 However the major subject debated on 16 July 2004 was the emphatic emphasis of senior counsel for the applicants that the requirements of Order 52B Rule 5 of the Federal Court Rules were, in effect, intractable in operation in the context of taxation reviews initiated by a taxpayer against the Commissioner, and further that in the present context, no contention had been advanced on behalf of the Commissioner, adversely to the applicants, as to issue estoppel or abuse of process, such as to exclude the applicants from invoking the operation of Order 52B Rule 5. Consequently it was submitted that the Commissioner was bound to comply with that Rule in the context of the issues presently ventilated by the applicants, particularly since compliance was sought otherwise than for the fiscal year in issue in the Spasskedlitigation, namely that ended 30 June 1992. 38 The response of senior counsel for the Commissioner was that the Commissioner should not be compelled to defend its present position, adopted as it was said to have consistently been upon the basis of the Full Court's reasons for judgment in Spassked, asserting in that regard that '… all this is governed by what's been decided in the Full Court which is the Commissioner's position; its all decided by that….'. I was referred to the table appearing in the Australian Tax Cases report of the Full Court's decision in Spassked, which demonstrated that in respect of each of the financial years 1988 to 1994 both inclusive, there were only two fiscal years during which income (being of course dividend income alone) was derived by Spassked, namely the sums of $29,308,093 and $14,654,046 in relation to the fiscal years 1990 and 1992 respectively, as compared with the substantially greater interest expense incurred by Spassked in relation to the seven consecutive fiscal years 1988 to 1994. That material alone was said to be reflected in the findings of Lindgren J summarised on pages 4240 and 4241 of [2003] ATC 4184. 39 Senior counsel for the Commissioner thus submitted that there was overwhelming significance inherent in the applicants' failure to disclose, in the context of their conduct of the present interlocutory proceedings, the reasons or basis for changing the position adopted on behalf of the applicants in the Full Court, or before the primary judge, in the Spassked proceedings. On that footing, the Commissioner submitted that the applicants had not disclosed any reasonable basis or justification for their present interlocutory application. Moreover the Commissioner pointed out that the evidence which was induced by the Commissioner on the Part IVA issues, fully pleaded and argued as it was in the Spassked litigation, was readily to be discerned from the Australian Tax Cases' reports thereof in first instance and on appeal (which I have earlier identified), and this Court need therefore look no further in the course of resolving the present interlocutory application. It was reiterated that the Commissioner did not oppose, but did not consent, to the applicants assembling their affidavit and documentary evidence, implicitly pursuant to funding out of the so-called Upstreamed Funds, but that the Commissioner did not wish to incur any expenditure by way of response or other interlocutory step, at least until the outcome of the special leave application. 40 Although the Commissioner did not therefore seek to resile from the earlier indication on his part not to oppose the applicants accessing the Upstreamed Funds, or at least income derived therefrom, for the purpose of preparation of evidence for the prosecution of their respective applications for review of their respective taxation positions imposed related to any of the fiscal years 1988 to 1994, the Commissioner sought to be relieved from obligation to comply with the provisions of Order 52B Rule 5 upon the basis outlined above. The concluding submissions of the parties 41 The applicants accepted from the outset that it would be inappropriate to agitate issues (other than as to penalty) concerning the transfers of losses by Spassked to other IEL Group subsidiaries in relation to the fiscal year ended 30 June 1992, prior to Spassked's special leave application being determined by the High Court on 10 December 2004, and if that leave be granted by the High Court, prior to the subsequent hearing of the consequential Spassked appeal to the High Court. Nevertheless the applicants' case was that because the matters agitated before me are related to years of income of Spassked additional to that ended 30 June 1992, there was no reason for the applicants to be in effect compelled to delay the preparation of representative cases in relation to the 1991, 1993 and 1996 fiscal years up to the point where the same would be ready to be heard, or substantially so, once the outcome of Spassked's special leave to appeal application to the High Court was known in about four months time. As earlier explained, the experience of the applicants' solicitors in relation to the Spassked litigation was said to demonstrate that it would take considerable time to bring the further proceedings Spassked presently proposes for those three further years to a state of readiness for hearing by the Federal Court. 42 The Commissioner maintained its response that it would be futile and wasteful to progress the litigation of those issues, at least prior to the outcome of the hearing of Spassked's special leave application, since if special leave to appeal was to be granted by the High Court, and if the subsequent appeal of Spassked was to be successful, it would not be necessary for the presently contemplated applications for review to differentiate the basis for claims to deductibility for those three other fiscal years from that fiscal year ended 30 June 1992, being a differentiation it presently required the applicants to make. 43 It was emphasised on behalf of the applicants however, apart from its position maintained as to the three differing years of income further identified, that there were in any event significant issues arising for determination concerning the Commissioner's quantification of additional tax, each of which should be resolved without awaiting the outcome of the High Court proceedings. Moreover since the Commissioner was said to have declined to provide the IEL Group with documents pursuant to the Freedom of Information Act 1982 (Cth), and to provide reasons pursuant to the ADJR Act, it was further submitted by the applicants that '[i]n the absence of any information as to the matters taken into account by the [Commissioner] in deciding to impose and/or remit additional tax, the applicants do not know the extent to which the Commissioner may have made factual errors, or failed to take into account relevant matters, including a vast amount of information provided to the Commissioner by the IEL Group over many years of enquiry'. 44 The applicants emphasised that the present proceedings have their genesis in events which occurred as far back as 1986 and 1987, and which were implemented more than 10 years ago, and therefore to the extent that information 'going back' so many years may be relevant, the same would become more difficult to obtain, given the continuing effluxion of time. That was said to create problems 'particularly acute for the IEL Group', because it no longer had any employees, and its ability to locate relevant documents was becoming increasingly diminished. Moreover to the extent it might be necessary for the applicants to adduce evidence from former employees and directors, a number of those persons were said to now reside overseas or even to have died. My conclusions upon the various issues raised in the course of the interlocutory proceedings to date 45 It may reasonably be inferred that in charting the course set out in the agreement in writing reached on 7 April 2004, which was entered into after the conclusion of the Full Court's decision in Spassked given on 8 December 2003, the parties mutually settled upon a constructive compromise which took into account, on the one hand, the possibility of the Full Court's unanimous decision being reversed by the High Court following upon any grant of special leave, and on the other hand, the possibility of challenge to the substantial additional tax or so-called penalties set out in the table earlier extracted in these reasons. 46 The predominant interlocutory issue which has thus far arisen concerns the applicants' insistence that the Commissioner effect forthwith compliance on the Commissioner's part with the procedural requirements of Order 52B Rule 5. As I have earlier indicated, the applicants have not articulated as yet the basis upon which they would seek to distinguish the operation of the Spassked decisions at first instance and on appeal from the circumstances relevantly prevailing in relation to the financial year ended 30 June 1991, 1993 and 1996. Until they do so, there is no good reason why the Commissioner should not be entitled to rely upon the outcome and reasons for judgment in Spassked. 47 That conclusion disposes of what appears to have eventuated, in the course of the interlocutory proceedings to date, as the principal matter in contention. However there are a number of other issues which have arisen, in the course of the interlocutory proceedings which I have referred to, which should also be addressed. 48 In my opinion, the applicants should be permitted to implement in an appropriate way, and to a reasonable extent, the mechanism envisaged by the terms of the agreement in writing of 7 April 2004, by curial challenge to the substantial quantifications of additional tax in the nature of penalties, as distinct from additional tax reflective of accrual of interest on whatever may crystallise as the Commissioner's assessments of primary tax made in conformity with the requirements of the Tax Act. There is no good reason why the applicants should not be permitted at this present stage to require the Commissioner to account for the basis of his assessment of penalty tax and the justification therefor. Presumably the basis for calculation of additional tax upon the applicants would apply universally 'across the board', as it were. 49 The further course which I think the applicants should be presently authorised to take, at least in advance of the outcome to the pending special leave application, is whatever may be appropriate to enforce their entitlement, pursuant to the agreement of 7 April 2004, to access the so-called Upstreamed Funds in order to meet ongoing administrative, accounting and legal expenses of the applicants. Any such enforcement would need to be made by way of application to the Court in the usual way in accordance with the Federal Court Rules. The entitlement of the applicants to do so is contractually based, by reference to the terms of the agreement of 7 April 2004. There is no reason in principle that I can identify why the applicants cannot seek the enforcement of that arrangement, in advance of the outcome of the High Court special leave application. Moreover a ruling of the Court in favour of the present applicants should govern in principle the circumstances appertaining to the other members of the IEL Group relevantly involved, without the need for a multiplicity of applications, and the consequential incurring of court filing fees 'across the board' as it were. Doubtless the applicants will consider what relief needs to be precisely framed in that regard, within the present scope of course of the Federal Court Rules. Given the status of the Commissioner as a model litigant, my present anticipation would be that declaratory relief would suffice, without the need for consequential orders. 50 The next view I would express, in the light of the various issues canvassed in the course of the interlocutory proceedings to date, is whether Order 52B rule 5 provides an appropriate vehicle in any event in the present circumstances for originating the challenge(s) which the applicants seek to mount to the assessments of additional tax or sometimes so-called penalties. The inference I would draw from the carefully crafted terms of the agreement of the 7 April 2004 is that the processes thereby contractually stipulated were intended to govern, or at least principally govern, the resolution of the issues thereby addressed, such as penalty tax issues, and that I should not charter for the parties any inconsistent course of administrative review, pending the final conclusion of proceedings in the High Court, at whatever stage that may occur. To the extent that there presently exists an applicable objection decision or decisions, I would be inclined to, pursuant to Order 1 Rule 8 of the Federal Court Rules, dispense with compliance on the Commissioner's part in any event, unless I can be persuaded to the contrary, with the procedural requirements of Order 52B Rules 5(a) and (b) of the Federal Court Rules. Instead the applicants must bear the procedural onus of formulating and initiating such claims for relief as may be lawfully open to them to seek in the particular circumstances presently prevailing. The parties have seen fit to formulate a carefully crafted contractual basis for the regulation of their differences, pending the outcome at least of the High Court special leave application, and expression should be given to any enforcement of the terms of that contractual basis by appropriate process at the instance of the party seeking enforcement. I see no reason why the applicants do not have at their disposal a present entitlement to the enforcement of those arrangements, in accordance with its terms, in order to challenge the present quantification of the interest, penalty tax and general interest charges (to cite the areas of challenge stipulated by the agreement of 7 April 2004). That does not mean of course that the applicants, or any other affected members of the IEL Group, are entitled to access the fund in question other than by an appropriate process of administrative review which is geared to such expenditure as can be reasonably justified upon the true construction of the agreement in writing of 7 April 2004. 51 I do not think therefore that the Commissioner's proposed course of virtually an entire 'standstill' regime, pending the outcome of the special leave application, so far as the Commissioner's conduct is concerned, is consistent with the terms of the agreement of 7 April 2004 and their implications. Obligations are open to be implied in relation to those provisions of the agreement of 7 April 2004 concerning 'funding… in relation to all the taxation disputes'. On the other hand, the applicants are not entitled to engage in uncontrolled, unnecessary and unjustified expenditures. Since the parties appear presently to stand far apart in relation to their respective rights and obligations arising out of the agreement of 7 April 2004, it would seem that the Court will become involved, albeit reluctantly, in considering the grant of ongoing interlocutory and declaratory relief to either party. 52 There remains for immediate consideration what course should be implemented in relation to the presently outstanding applications of the IEL Group for declaratory relief. I am concerned as to the utility of the ADJR applications, geared as they presently purport to be to a statutory basis alone, and thus without reference additionally or alternatively to the provisions of the agreement in writing of 7 April 2004. I propose to list the proceedings the subject of those applications, as well as the current proceedings, for mention within seven days or so. I invite both parties to mutually consult in the meantime in order to produce an agreed framework for formal directions, with a view to the early resolution of an expedient process by which would be forthwith put in operation, in order to enable the parties relevantly and appropriately to carry into effect the terms of the agreement in writing of 7 April 2004, to an extent geared to disputes presently on hand, and in particular to facilitate the applicants obtaining a review of the appropriateness of quantification of the penalty regime imposed by the Commissioner. Draft forms of declaratory relief proposed by each party, consistently with these reasons, should be provided to my Chambers on or before 4.00 pm on 17 August 2004. Either party should have liberty to apply on two days prior notice. 53 Nothing indicated in these reasons should be taken as indicating one way or another any foreshadowed response to the presently filed ADJR applications. It will be necessary or appropriate for the parties to provide an analysis of existing authorities involving judicial review of penalties imposed by the Commissioner in the context of the present and previous statutory provisions, and of any material differences between the same. Consideration will need to be made to the standing of the present applicants, by reference to the relief to be sought. If it is necessary or appropriate to add all IEL Group members to the proceedings, I will give further consideration to a reasonable quantification of filing fees. 54 I will reserve the costs of the present proceedings for later consideration. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 11 August 2004 Counsel for the Applicant: CC Branson QC and PM Fraser Solicitor for the Applicant: Blake Dawson Waldron Counsel for the Respondent: DJ Fagan SC Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 27 May, 8 and 23 June and 16 July 2004 Date of Judgment: 11 August 2004