FEDERAL COURT OF AUSTRALIA VN Railway Pty Ltd v Commissioner of Taxation [2013] FCA 265 Citation: VN Railway Pty Ltd v Commissioner of Taxation [2013] FCA 265 Appeal from: Confidential v Commissioner of Taxation [2012] AATA 178 Parties: VN RAILWAY PTY LTD and VRONDIS NOMINEES PTY LTD v COMMISSIONER OF TAXATION File number: VID 317 of 2012 Judge: TRACEY J Date of judgment: 27 March 2013 Catchwords: TAXATION – appeal from Administrative Appeals Tribunal – proper construction of phrase "eligible employee" in s 82AAC of the Income Tax Assessment Act 1936 (Cth) – whether entitlement to deduction where superannuation contribution allegedly made in respect of an employee – whether book entries sufficient to show that contribution has in fact been made – whether open to Tribunal to determine intentional disregard for law where certain witness allegedly not cross-examined with respect to beliefs as to tax obligations – whether denial of procedural fairness – whether determination unreasonable Legislation: Administrative Appeals Tribunal Act 1975 (Cth) – s 44 Income Tax Assessment Act 1936 (Cth) – ss 82AAA, 82AAC, 82AAR, 226J Taxation Administration Act 1953 (Cth) – s 14ZZK Cases cited: Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 70 FLR 447 – referred to Attorney General (NSW) v Quin (1990) 170 CLR 1 – cited Browne v Dunn (1893) 6 R 67 – considered, applied Commissioner of Taxation v P Iori & Sons Pty Ltd (1987) 15 FCR 363 – considered, applied Confidential v Commissioner of Taxation [2012] AATA 178 – considered, followed Ermogenous v Greek Orthodox Community (2002) 209 CLR 95 – cited Ex parte Applicant S20/2002 (2003) 198 ALR 59 – cited Harris v Commissioner of Taxation (2002) 125 FCR 46 – considered Howard v Commissioner of Taxation (No 2) [2011] FCA 1421 – considered, distinguished Kioa v West (1985) 159 CLR 550 – cited Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 – cited Minister for Immigration and Citizenship v SZMDS (2010) 240 CLR 611 – cited MWJ v The Queen (2006) 222 ALR 436 – cited Nozzi Pty Ltd v Federal Commissioner of Taxation (2003) 52 ATR 521 – cited Lend Lease Corporation Ltd v Federal Commissioner of Taxation (1990) 95 ALR 427 – cited LVR (WA) Pty Ltd v Administrative Appeals Tribunal [2011] FCA 1146 – cited Reid v Kerr (1974) 9 SASR 367 – cited Tadrous v Tadrous [2010] NSWSC 1388 – considered White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 – considered, applied Date of hearing: 22 November 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 72 Counsel for the Appellants: Mr M Y Bearman Solicitor for the Appellants: Herbert Geer Counsel for the Respondent: Dr P Bender Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 317 of 2012 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: VN RAILWAY PTY LTD First Appellant VRONDIS NOMINEES PTY LTD Second Appellant AND: COMMISSIONER OF TAXATION Respondent JUDGE: TRACEY J DATE OF ORDER: 27 MARCH 2013 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 317 of 2012 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: VN RAILWAY PTY LTD First Appellant VRONDIS NOMINEES PTY LTD Second Appellant AND: COMMISSIONER OF TAXATION Respondent JUDGE: TRACEY J DATE: 27 MARCH 2013 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This is an appeal from the Administrative Appeals Tribunal ("the Tribunal"). The Tribunal had affirmed certain objection decisions made by the Commissioner of Taxation ("the Commissioner"): see Confidential v Commissioner of Taxation [2012] AATA 178. Relevantly the objections related to the second appellant's tax liability for the 2001-2003 financial years and a decision to impose penalties for its understatement of taxable income in the financial years between 1993 and 2000 and 2002. 2 The moving party in the Tribunal was the second appellant ("Vrondis"). At that and other relevant times Vrondis was the trustee of a discretionary trust which operated a supermarket business. After the Tribunal had handed down its decision, and before the present appeal was lodged, the first appellant ("VN Railway") had replaced Vrondis as trustee. 3 The appeal is brought on questions of law pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"). 4 It raises three issues. The first issue relates to the proper construction of the phrase "eligible employee" in s 82AAC(1)(a) of the Income Tax Assessment Act 1936 (Cth) ("the Act"). The second concerns the requirements for a "contribution" to be "made" to a superannuation fund. The third relates to whether it was open to the Tribunal to determine that the appellants had intentionally disregarded the law where Vrondis' director was allegedly not cross-examined with respect to his beliefs as to Vrondis' tax obligations. THE MEANING OF "EMPLOYEES" 5 This issue relates to the disallowance, by the Commissioner, of a number of deductions claimed by Vrondis. The claims were made in the 2001-2003 financial years. They concerned superannuation payments which were claimed to have been made to employees. The Tribunal found that the Commissioner was correct to disallow these deductions. It so held because "the so called employees, who were all family members, were not employees for the purposes of s 82AAC of [the Act]." In coming to this view the Tribunal applied the common law understanding of the term "employee". 6 The director of Vrondis at the time at which the claims were made was Mr Arthur Corcoris. The family members in respect of whom superannuation contributions were made were his brother, Mr Nicholas Corcoris, his brother's son, Mr Michael Corcoris and his sister Ms Eva Vrondis. 7 Section 82AAC(1) of the Act provided that: "82AAC(1) [Allowable deduction] Where: (a) a taxpayer makes a contribution to a fund for the purpose of making provision for superannuation benefits payable for an eligible employee (whether or not the benefits are payable to a dependant of the eligible employee if the eligible employee dies before or after becoming entitled to receive the benefits); and (b) the fund is a complying superannuation fund, within the meaning of Part IX, in relation to the year of income of the fund in which the contribution is made; the amount of the contribution is an allowable deduction in respect of the year of income of the taxpayer in which the contribution is made." 8 Section 82AAA of the Act contains definitions of "eligible employee" and "employee" for the purposes of the sub-division in which s 82AAC appears. Those definitions are: "eligible employee, in relation to a taxpayer, means a person other than the taxpayer who is: (a) in the case of a taxpayer whether a company or a person other than a company; (i) an employee of the taxpayer; (ii) an employee of a company in which the taxpayer has a controlling interest; or (iii) an employee of a company in which the taxpayer is the beneficial owner of shares but in which the taxpayer does not have a controlling interest (not being an employee who is associated with the taxpayer or who, or a relative of whom, has set apart or paid, or entered into a contract, agreement or arrangement under which he is, or will or may be, required to set apart or pay, amounts as or to a fund for the purpose of providing superannuation benefits for, or for a relative of, the taxpayer); and … employee means a person who is employed by a taxpayer and: (a) is engaged in producing assessable income of the taxpayer; or (b) is a resident of Australia and is engaged in the business of the taxpayer." 9 Section 82AAA(2) of the Act provided that "a director of a company shall be taken to be employed by the company." 10 The issue in dispute between the parties in the Tribunal and before this Court related to the proper construction of the phrase "eligible employee" in s 82AAC(1)(a). The Commissioner submitted that the word "employee" was used in the common law sense of a person who is party to a contract of service. Vrondis, on the other hand, submitted that the word was used in s 82AAC in a wider sense suggested by the definition of "employee" in s 82AAA. That definition referred to a person who is "employed" by a taxpayer. Relying on dictionary definitions, it contended that a person who is "employed" is one who had a job or is working. A person could have a job or work without having to be a party to a contract of service. 11 The legislative history of s 82AAA and the sub-division of the Act in which it appears was examined in great detail by the Full Court in Harris v Commissioner of Taxation (2002) 125 FCR 46 at 54-65. The Court noted (at 57-8) that the genesis of s 82AAA was to be found in the report of the Commonwealth Committee on Taxation (the Ligertwood Committee) in 1961. The Committee had noted that, under ss 66 and 79 of the Act as it then stood, employers and third parties could obtain a deduction for contributions paid to superannuation funds for the benefit of employees. Section 66 permitted a deduction by an employer for contributions made on behalf of its own employees. Section 79 permitted a deduction in respect of "employees of persons other than the taxpayer." These provisions had led to some abuse. A number of examples were cited including that of a taxpayer making a deductible contribution on behalf of his spouse or another relative who was an employee of another person or company which was in no way connected with the taxpayer. As a result the Committee recommended that s 79 be omitted and that a new section 66 should be inserted, "along the lines of" the existing s 66 but also making provision, relevantly, "for a deduction from assessable income of contributions to a superannuation fund or funds made for or on behalf of an employee by his employer, or by a person other than his employer who has a proprietary interest in the business of the employer." 12 The Court then observed (at 59) that: "The report of the Ligertwood Committee and the explanatory memorandum to the 1964 Bill made plain the purposes of the new provisions (contained in the new Subdiv AA) that were to replace ss 66 and 79. They were, first, to simplify the employer contribution provisions and, secondly, to prevent proprietors of private companies and their relatives from taking undue advantage of excessive deductions. Section 82AAD (as well as s 82AAB and par (a)(iii) of the definition of 'eligible employee' in s 82AAA(1)) concerned this latter matter. A further purpose of the definition of 'eligible employee' in s 82AAA was, however, to ensure, as a condition of deductibility, that there was a relationship of a certain kind between the contributor (whether an employer, or a shareholder having a controlling, or less than controlling interest, in the employer) and the employee: see explanatory memorandum, at p 44. As par (a)(iii) of the definition demonstrates, the legislature contemplated that an employee might qualify as an 'eligible employee' if the contributor were a shareholder with less than a controlling interest only if the employee and the contributor were at arm's length." 13 It is clear enough from this summary that the Ligertwood Committee was concerned about the deductibility of payments made to persons who were "employees" in the sense recognised by the common law. The legislative amendments which saw the introduction of ss 82AAA and 82AAC of the Act were, in part, directed at preventing deductions being claimed in respect of persons such as family members who might have been employees of other persons who had no proprietary interest in the business of the claimant. This objective could not have been achieved if the broad interpretation of the word "employment", contended for by Vrondis, were to be adopted. 14 The statutory context is also strongly suggestive of a technical use of the words "employee" and "employment". An employee is defined to mean one who is "employed by a taxpayer". The taxpayer is the actor: it is the taxpayer who employs the employee. The context of the prefatory words of the definition does not admit the reading of the word "employed" as meaning having a job or working. That is what an employee may be expected to do. 15 Paragraphs (a) and (b) of the definition go on to ensure that the taxpayer cannot claim a deduction for superannuation contributions unless the person in respect of whom the payments are made is producing assessable income for the taxpayer or is engaged in the taxpayer's business. 16 Despite submissions to the contrary from Vrondis, the adoption of the common law understanding of "employee" sits comfortably with the definition of "eligible employee". An eligible employee is one who either is a direct employee of the taxpayer or is an employee of a company which is controlled by the taxpayer or in which the taxpayer has a beneficial proprietary interest. 17 Another indication that a non-technical construction of the word "employed" is not intended is that such a construction would render s 82AAA(2) otiose. A director of a company could always be said to have a job in or be working for the company. 18 The Tribunal applied the common law test to each of the family members in respect of whom payments had been made and deductions claimed. It had regard, in each case, to the indicia of the existence of a contract of service recognised in the authorities. It concluded that none of the beneficiaries was a common law employee. These findings were not challenged. 19 The Tribunal also had regard to a "presumption that any work done in the … business by [the beneficiary] was done for family reasons". Later authority has suggested that regard to such a presumption may be questionable: see Ermogenous v Greek Orthodox Community (2002) 209 CLR 95 at 106 [26], where the High Court observed that reference to 'presumptions' in the context of the intention to create legal relations is of limited utility and "[a]t best … does no more than invite attention to identifying the party who bears the onus of proof". The High Court further noted in that case that "[r]eference to presumptions may serve only to distract attention" from the more basic and important issue of whether there is a legally binding contract between the parties. See also Tadrous v Tadrous [2010] NSWSC 1388 at [5] where Pembroke J observed that "[i]t used to be said that in family and social situations there is a presumption of fact that the parties do not intend to contract … However [this] probably no longer represents a correct analysis. Presumptions in this area may sometimes be unhelpful." 20 The parties were, however, agreed that the Tribunal's findings could be supported independently of its reasons relating to the presumption if it had correctly applied the common law meaning of "employee" and "employment". CONTRIBUTIONS TO SUPERANNUATION FUND 21 The second issue is related to the first. For a short period in 2003 Mr Nicholas Corcoris was a director of Vrondis. He held the directorship between 31 January 2003 and 23 June 2003. It was common ground that, during this period, he was deemed, by s 82AAA(2), to be employed by Vrondis. 22 There was, however, no evidence before the Tribunal to establish that Vrondis had made any superannuation contribution on behalf of Mr Corcoris in the financial year during which he was a director or, indeed, at any other time. 23 Vrondis accepted that this was so but fastened on a statement by the Tribunal that "there [was] no objective evidence about the date on which the superannuation payment was made for [Mr Corcoris] in 2003" (Emphasis added). Vrondis sought to argue that this statement bespoke error on the part of the Tribunal because s 82AAC of the Act allowed it a deduction in a financial year in which it had made a superannuation "contribution" in respect of an employee. Vrondis relied on a dictionary definition of "contribution" which, according to the Macquarie Dictionary (3rd ed.) includes "impost or levy" and, in the context of, for example, contribution by joint tortfeasors, it also has the meaning of an entitlement to payment of an amount. It argued that it was sufficient for the purposes of s 82AAC that an entitlement was granted even if no payment was actually made in the particular financial year. It was sufficient that there was an acknowledgement of a liability to make such a payment and that that liability was reflected as a book entry in the accounts of the taxpayer. Such entries had been made in respect of the 2003 financial year in relation to Mr Corcoris. 24 It may be doubted that a relevant question of law has been pleaded. Nonetheless I propose to deal with the argument because I have come to the firm view that it lacks substance. 25 An ordinary meaning of "contribution" renders it synonymous with "payment". In the context of s 82AAC it bears such a meaning. In order to attract a deduction the taxpayer must make a contribution. The amount of the contribution is an allowable deduction in the financial year "in which the contribution is made." A deduction is not, however, allowable, even if some form of entitlement exists, unless the payment is actually made. Section 82AAR(2) provides that a deduction is not allowable "in respect of amounts set apart by a taxpayer as a fund for the purpose of making provision for superannuation benefits" for an employee. The contribution must be paid into a complying superannuation fund as required by s 82AAC(1)(b). 26 The authorities support the proposition that book entries which indicate a contribution to a fund are not sufficient to show that a contribution has in fact been made. In Commissioner of Taxation v P Iori & Sons Pty Ltd (1987) 15 FCR 363, Fox J, with whom Lockhart J agreed, found that there must be an underlying liability or a mutuality of liabilities which the book entries are treated by the parties as settling: the acceptance of a decision to make a contribution is "not an agreement in the relevant sense". Beaumont J, with whom Lockhart J also agreed, stated in the same case (at 379) that "a payment could be established only if the journal entries relied upon were underpinned by a valid agreement to the effect that payment of [the taxpayer's] contributions be accepted … in a form other than by actual cash or cheque". See also Lend Lease Corporation Ltd v Federal Commissioner of Taxation (1990) 95 ALR 427 at 433-5. 27 Vrondis made no superannuation payment to Mr Nicholas Corcoris in the 2002/3 financial year. It was not, therefore, entitled to claim a deduction for any such "payment". 28 This ground must fail. TRIBUNAL'S FINDINGS OF INTENTIONAL DISREGARD OF TAXATION LAWS 29 The final issue relates to the imposition, by the Commissioner, of tax penalties at the rate of 75% on Vrondis under s 226J of the Act. 30 This section provides that: "Subject to this Part if: (a) a taxpayer has a tax shortfall for a year; and (b) the shortfall or part of it was caused by the intentional disregard by the taxpayer or by a registered tax agent of this Act or the regulations; the taxpayer is liable to pay, by way of penalty, additional tax equal to 75% of the amount of the shortfall or part." 31 The Commissioner determined that Vrondis had understated its income in the years 1993-2000. This had led to a tax shortfall during those years and the shortfall had been caused by the trustees' intentional disregard of its obligations under the Act. The Commissioner reassessed the trustees taxable income for those years and, in respect of each year, imposed a penalty under s 226J. 32 The trustee contended, in the Tribunal, that it was not liable for any of the administrative penalties which the Commissioner had imposed. 33 By s 14ZZK of the Taxation Administration Act 1953 (Cth), it is provided that the onus of proving that an assessment was excessive is borne by the taxpayer. In a case such as the present, the burden of proving that a penalty under s 226J should not have been imposed falls on the taxpayer. It was for Vrondis to prove that it had not intentionally disregarded the requirements of the Act: see Nozzi Pty Ltd v Federal Commissioner of Taxation (2003) 52 ATR 521 at 525 (per Stone J). 34 Mr Arthur Corcoris sought to satisfy this onus. His witness statement included the following paragraphs: "130. Finally, at all times Vrondis and I, as its director, were conscious of the need to comply with income tax obligations. Corcoris and Co, the accountants always advised that we should keep: (a) records in accordance with the ATO requirements and all other authority requirements; (b) during the audits tell the truth and co-operate with all the authorities (including the ATO); (c) ensure that tax returns and other documents were prepared correctly to the best of our ability and that copies of documents should be kept; (d) lodge all tax returns and other documentation required by the due dates and pay all taxes by the due dates. 131. I believe that all the information provided by Vrondis to the ATO in Vrondis tax returns was accurate, subject to the comments above about certain clerical errors. I reject any suggestion that Vrondis has intentionally disregarded any of its obligations arising under the income tax legislation." 35 When he was cross-examined he was not taken directly to these paragraphs; nor were the assertions contained in them directly raised or challenged. The Tribunal's reasons 36 Vrondis argued, in the Tribunal, that, in the absence of any such cross-examination, the Tribunal was bound to accept this evidence and to find that Vrondis had satisfied the onus which fell on it under s 226J of the Act. In making this submission Vrondis relied on the rule in Browne v Dunn (1893) 6 R 67. The Tribunal did not accept this submission. It explained its reasons as follows: "206. It should be reasonably clear that the circumstances in a proceeding before this Tribunal bear no resemblance at all to a trial before a jury. Furthermore, while I accept, unhesitatingly, the proposition that the so called rule in Browne and Dunn is, in effect, a principle regarding procedural fairness, I do not accept that the so called rule can be applied in the circumstances of this case. That is, because, for the income years 1993 – 1997, in the objection decisions relating to the assessments for those years, the Commissioner expressly stated that an administrative penalty at the rate 75 per cent under s 226J of ITAA 1936 would be applied for intentional disregard of taxation law. In the income years 1998 – 2002 the Commissioner, writing to [Mr Arthur Corcoris] said that: In this circumstance, you, in the capacity of the corporate trustee, knew the obligations under the ITAA but chose to intentionally disregard them. You also prepared two sets of income tax returns. The culpability penalty of 75% was a correct reflection of your behaviour as trustee in this matter. 207. Section 14ZZK of the Administration Act provides that the onus of proving that the assessment was excessive must be borne by the taxpayer. Therefore, having been made aware of precisely the grounds upon which the penalty assessments had been made, on review before this Tribunal, the applicant bears the onus of proving that it did not intentionally disregard any taxation law. The matters set out in paragraphs 130 and 131 of [Mr Arthur Corcoris's] statement simply state that the applicant was told what it should do in order to comply with taxation laws and that [Mr Corcoris] believed that it did so. The problem is that even if the statements made by [Mr Corcoris] were true, by themselves, they are insufficient to satisfy the requirements of discharging the onus of proving that the assessments were excessive. The statement by the taxpayer is simply an opinion and, furthermore, no basis is stated or provided for the opinion said to be held. As Deputy President S A Forgie said in Re Kumar v Minister for Immigration and Citizenship (2009) 107 ALD 178, at 202: Relevance and probity limit the scope of evidentiary material. The rules of procedural fairness do not. They limit only the process that must be followed before relevant and probative material may be relied upon. 208. … 209. I have already indicated that paragraphs 130 and 131 simply contain statements about what [Mr Corcoris] was told by the accountants and his belief that the tax returns prepared by the applicant were correct, and that he rejected the allegation that the applicant had intentionally disregarded its obligations arising under the income tax legislation. No doubt the reason for making the statements in paragraph 131 was that [Mr Corcoris] wished to refute the allegation of intentional disregard. Therefore, given the added overlay of an onus to prove that the assessment was excessive, the fact that the Commissioner disbelieved the statements [Mr Corcoris] had made, in my opinion, makes it clear that it was unnecessary to cross-examine [Mr Corcoris] specifically about the veracity of any statements which may have been relevant in paragraph 130 and 131 of his witness statement. Rather, [Mr Corcoris] needed to discharge the onus in s 14ZZK of the Administration Act by providing objective evidence to support the opinions and belief set out in his witness statement. He was well and truly aware of the need to do so in order to discharge the onus of proof and yet, despite that, neither [Mr Arthur Corcoris], [Mr Nicholas Cororis] nor the employee accountant brought forward any fresh evidence which would cast a different light on the claims by the applicant that the tax returns prepared but not lodged with the Commissioner and not provided to the CBA, should simply be accepted as being true and correct. In this case, all of the documents ultimately relied on by the Commissioner were available to the applicant prior to commencement of the hearing. Therefore, the applicant has had ample opportunity to address any material which would support its claim that there was no intentional disregard of any taxation legislation. As Hunt J said in Allied Pastoral Holdings at 630: But at some stage during the course of the evidence, the witness must be given a proper opportunity to deal with the material to be relied upon for the challenge." 37 The Tribunal found that Vrondis had not established, on the balance of probabilities, that there was no intentional disregard by it of the Act "either in its capacity as trustee of the family trust or in its own right, or by its registered tax agent." It found, affirmatively, that, on the contrary, Vrondis was liable for the penalties "because there was an intentional disregard of the taxation laws." It did so on the basis of a series of adverse inferences drawn from findings which it had earlier made. 38 The Tribunal had found that Mr Arthur Corcoris, his wife and his sister managed and ran the supermarket business and were beneficiaries of the trust. They were aware of the business' financial position and would, the Tribunal inferred, have been aware that the trust had understated its income in its taxation returns. 39 One element of the understatement of trust income was the failure by Vrondis to return trust distributions. Mr Arthur Corcoris was both a director and shareholder of Vrondis. It was he who signed the minutes of meetings in which trust distributions for the 1998 to 2003 income years had been recorded. He would, it was to be inferred, have been aware of the relevant understatements in the taxation returns for those years. 40 The trust had understated the net profit from the trading in the supermarket business in each of the income years between 1993 and 2000. During this period Vrondis had advised its bankers, the Commonwealth Bank of Australia, that it was trading at a higher level of profit than was disclosed in the taxation returns. In the course of his enquiries the Commissioner had found financial statements and income tax returns for the 1994, 1995 and 1996 income years which related to the affairs of Vrondis and which were discretely labelled "bank", "tax copy" or "return." The financial statements and "copy" tax returns provided to the bank disclosed higher profit figures than those appearing in the tax returns. 41 The credibility of some of Vrondis' principal witnesses was of concern to the Tribunal. Vrondis's accountant was Mr Nicholas Corcoris. He was also a registered taxation agent. Returns which he had prepared had, as has already been noted, wrongly claimed deductions for superannuation contributions in respect of relatives whom he knew were not employees of Vrondis. 42 In a number of years Vrondis had failed to lodge tax returns but its agents had falsely stated to the Commissioner that the returns had been lodged. They had sought to maintain their position when giving evidence to the Tribunal. The Tribunal did not accept this evidence. 43 The Tribunal did not accept the evidence of Vrondis's witnesses relating to the accuracy of the financial statements and tax returns which had been discovered during the investigation. It noted that their evidence had "altered significantly during cross-examination." The Tribunal continued (at [213]): "It should come as no surprise to the applicant that I find its evidence in relation to all of its financial statements and tax returns which were in evidence, whether lodged with the Commissioner or otherwise, simply cannot be relied upon to be accurate. There was no further objective evidence to support either the altered statements made by the witnesses in the course of the hearing or which would lead me to the conclusion that tax returns prepared for the purposes of lodging with the ATO were correct. The applicant has not discharged its onus of proof in that regard." Grounds of appeal 44 Vrondis advanced three related grounds of appeal: that the Tribunal had failed to ensure that the rule in Browne v Dunn was complied with, had denied Vrondis procedural fairness and that this aspect of its determination was unreasonable. 45 Again, it may be doubted that all of these grounds are raised by the pleaded questions of law. I will, nonetheless, deal with them. 46 In this Court (as it had done in the Tribunal) Vrondis contended that, because there had been no direct challenge to the evidence contained in paragraphs 130 and 131 of Mr Arthur Corcoris' witness statement, the Tribunal was bound to conclude that Vrondis had satisfied the onus which fell on it to prove that it had not engaged in any intentional disregard of the law. Mr Arthur Corcoris had given unchallenged evidence about what he believed were the relevant obligations to lodge income tax returns and that he believed that the tax returns had been lodged. In these circumstances, so it was submitted, the Tribunal could not conclude that Mr Corcoris had been untruthful in stating his beliefs without this allegation being put to him in cross-examination so that he had the opportunity to respond to it. In so doing the Tribunal had denied him procedural fairness. Vrondis further submitted that, in the absence of such cross-examination, it was unreasonable, in the Wednesbury sense, for the Tribunal to make findings inconsistent with Mr Arthur Corcoris's evidence. Consideration 47 These submissions cannot be accepted. 48 The rule in Browne v Dunn was explained by Hunt J in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 70 FLR 447 at 462 in the following terms: "It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely on in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn." See also: MWJ v The Queen (2006) 222 ALR 436 at 448. 49 The rule is essentially one of fairness: Reid v Kerr (1974) 9 SASR 367 at 373-4. One of the purposes which it serves is to prevent one party from inviting a tribunal of fact to make findings which are prejudicial to the other party without that other party being provided with the opportunity of dealing with the allegations. 50 The requirements of the rule may be satisfied prior to a hearing if one party provides to the other notice of the case which it proposes to make in reliance on documents to which the other party has access and of the inferences proposed to be drawn from them: see White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 at 220 (Goldberg J). Moreover: "a failure to observe the rule in Browne v Dunn does not mean that where evidence of a witness is not the subject of cross-examination and where evidence is led in contradiction of that evidence, the court is required to accept the former evidence: Bulstrode v Trimble [1970] VR 840 at 849. It is a matter of weight for the court to take into account: R v McDowell [1997] 1 VR 473 at 482": White Industries at 221. The consequences of a failure to observe the rule will depend on the nature and course of the proceedings and the evidence as a whole: see MWJ at 441; Allied Pastoral at 472-3. 51 Procedural fairness required that the Tribunal give Vrondis, its directors and agents the opportunity to deal with adverse information that was "credible, relevant and significant to the decision" which the Tribunal was required to make: see Kioa v West (1985) 159 CLR 550 at 629 (Brennan J). 52 The application of the rule in Browne v Dunn to the circumstances of the present case requires an understanding of the statutory context, the evidentiary onus which fell on Vrondis and whether prior to and at the hearing before the Tribunal Vrondis was properly seized of the allegations, which had been made against it and those acting on its behalf, and which were said to justify the imposition of the pecuniary penalty. 53 The Commissioner made his decision to impose a penalty on Vrondis pursuant to s 226J of the Act. Vrondis was notified of this decision in a notice of assessment of penalty. Vrondis then filed notices of objection. The Commissioner responded with a notice of decision on the objections. He provided reasons for rejecting the objections. Vrondis then lodged its appeals in the Tribunal. 54 Almost a year before the Tribunal hearing, the Commissioner filed an amended statement of facts and contentions in which he explained the evidentiary basis and reasons for his decision to impose the penalties. The Commissioner relied on the same evidence and arguments at the hearing before the Tribunal. 55 At the hearing Vrondis bore the onus of persuading the Tribunal that the Commissioner's assessments were relevantly excessive. As already noted Vrondis sought to satisfy the onus which fell on it by leading the evidence of Mr Arthur Corcoris, including the evidence appearing in his witness statement at paragraphs 130 and 131. 56 The relevant taxation laws required that Vrondis, acting through its directors and agents, file timely returns which contained accurate financial information on which the Commissioner could rely to make an assessment of tax liability. The evidence established that, in some years, no returns were lodged. In others the returns which were lodged significantly understated the income received by the trust. These were matters which were directly raised with Mr Arthur Corcoris, Mr Nicholas Corcoris and Mr Frank Nelson, an employee of Mr Nicholas Corcoris's firm, when they gave evidence. 57 Although Mr Arthur Corcoris said that he thought that timely returns had been lodged, he accepted that he personally did not lodge them and was, as a result, not able to say that they had been lodged. Mr Corcoris initially asserted that he had signed each of the returns which had been lodged. He was, however, confronted with copies of the returns and accepted that they had not been signed by him or anyone else on behalf of Vrondis. 58 In the course of cross-examination it was also put to Mr Arthur Corcoris that the income figures appearing in those returns which had been lodged were false, that he had asked his accountant to "dress up" the figures and that, in causing the allegedly false returns to be lodged, he had lied to the Commissioner. Similar allegations were put to Mr Nicholas Corcoris and Mr Nelson. 59 Mr Arthur Corcoris was cross-examined at length about the accuracy of the returns which were filed. He was confronted with a series of profit and loss statements and what purported to be copy tax returns which had been sent to the Commonwealth Bank. He was asked to compare the contents of these documents with the tax returns which had been filed for the relevant financial years. The returns which had been filed all disclosed either losses or lower profits than appeared in the other documents. He admitted that some of the copy returns provided to the bank were false. He sought to explain away the discrepancies between the profit and loss statements and the filed returns by saying that the profit and loss statements were not in final form. He denied a series of allegations that the filed returns were false. Mr Corcoris admitted that he had asked Mr Nelson to "dress up the figures" which were to be sent to the bank but denied an allegation that he had done the same thing in respect of the filed tax returns. 60 Mr Arthur Corcoris was a director and shareholder of Vrondis. He was well aware, both at the time at which he prepared his witness statement and, later, when he gave evidence to the Tribunal that the Commissioner had imposed the impugned penalties because he considered that a series of tax returns, filed on behalf of Vrondis, had understated its income and that this had occurred because of the intentional disregard, by those acting on Vrondis's behalf, of the requirements of the Act. The tenor of Mr Corcoris's evidence-in-chief was that, although profit and loss statements and "returns" prepared for Vrondis's bankers suggested that Vrondis had received considerably more income than was disclosed in tax returns which had been filed, the figures in the returns were correct. 61 This evidence was directly challenged in the course of cross-examination of Mr Corcoris. He maintained that the figures in the filed returns were correct and that those in the other documents were false. He was taken to the detail of the documentary discrepancies which the Commissioner had identified and it was put to him that the filed returns had deliberately been prepared so as to understate the income received by Vrondis in a series of financial years. It was squarely put to him on a number of occasions that he knew the figures in the returns were false. His denials were not believed. The Tribunal found Mr Corcoris to be an unsatisfactory witness and rejected his evidence holding, in substance, that the profit and loss statements and the figures provided to the bank were correct. The Tribunal inferred that Mr Corcoris was aware of the true position: he was a director and shareholder of Vrondis; he conducted the grocery business which generated most of the company's income; and he was aware of the discrepancy between the figures appearing in the profit and loss statements and the "returns" given to the bank on the one hand and those appearing in the filed returns on the other. 62 Once seized of the Commissioner's views Mr Corcoris was peculiarly well placed to point to any material which supported his claims that the figures appearing in the filed returns were correct and those appearing in the other documents were false. He did not do so. In these circumstances the Tribunal was, in my view, entitled to conclude that Vrondis had intentionally disregarded its obligations to provide true and correct information in its filed returns. 63 Mr Corcoris's evidence-in-chief in paragraphs 130 and 131 of his witness statement did not provide any antidote. It contained the assertions that he was conscious of the need to comply with income tax obligations and that he rejected any suggestion that Vrondis had intentionally disregarded any such obligations. He said that Vrondis' accountants had provided certain advice but did not aver that Vrondis had complied with that advice in respect of the filing of relevant returns. It was not necessary for counsel for the Commissioner to put to Mr Corcoris that the contents of these paragraphs were untrue. The fact that advice had been given to the effect stated was of no moment. It was not necessary for the conclusionary statements to be challenged once the factual edifice which underpinned them had been either demolished or successfully undermined. 64 Vrondis sought to support its argument by reference to the decision of Jessup J in Howard v Commissioner of Taxation (No 2) [2011] FCA 1421. This case also involved the understatement of assessable income and whether that had occurred with the knowledge or reckless disregard of the taxpayer. His Honour was not prepared to uphold the Commissioner's contention that the shortfall resulted from the taxpayer's intentional disregard of the law because it had not been put to the taxpayer that he was conscious that a distribution might form part of his assessable income and that, notwithstanding this knowledge, he deliberately refrained from obtaining further advice from counsel about whether the distribution was properly to be treated as being of a capital nature before submitting his return. 65 This decision is, in my opinion, distinguishable. It does not appear that Jessup J was referred to the authorities which support the proposition that fairness does not require matters to be put in cross-examination where a witness is aware, from pre-trial disclosure of an opponent's case, of the material on which the opponent proposes to rely at trial and the inferences which the trier of fact will be invited to draw. In any event Mr Corcoris and other witnesses called by Vrondis were questioned about their knowledge of the critical matters such as if, when and by what means returns had been lodged and the accuracy of those returns and other financial information which Vrondis had supplied to its bankers. The Tribunal concluded that those acting for Vrondis were well aware that the relevant information, appearing in the returns which were filed, understated the trust's income. 66 For these reasons I conclude that Vrondis was not denied procedural fairness and that the rule in Browne v Dunn (assuming in Vrondis's favour that it had application) was complied with. 67 The unreasonableness ground was closely related to the other two grounds. The appellants' argument, as expounded in their written submissions, was that: "… any reasonable decision-maker in the position of the Tribunal deciding that [Mr Arthur Corcoris] was untruthful in stating his beliefs, would have first required that that allegation be put directly to [him] in cross-examination to give him the opportunity to answer it. In the absence that [sic] cross-examination, it was unreasonable – in the sense of that word used in Associated Provincial Picture Houses. Ltd. v Wednesbury Corporation – for the Tribunal to find otherwise than in accordance with the director's evidence; viz. that he was conscious of his obligations to comply with the taxation law, and that he believed that he had relevantly so complied." 68 These arguments confront a number of difficulties. In the first place Wednesbury unreasonableness is a ground for challenging a tribunal's ultimate decision and an attack on this ground will not succeed unless it is demonstrated that the decision is one which either constitutes an abuse of power or is so devoid of plausible justification that no reasonable person could have made it: see Attorney General (NSW) v Quin (1990) 170 CLR 1 at 36-7. In the present case the appellant's submissions focus on what are said to be procedural deficiencies in the Tribunal's decision-making process which it is said required the Tribunal to reach a particular and different conclusion. As I have already held the Tribunal's decision was not tainted by the alleged procedural error. The Tribunal's decision was open to it and was not manifestly unreasonable. 69 A second difficulty is that there is strong authority for the proposition that Wednesbury unreasonableness is only available as a ground of challenge to discretionary decisions: see Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at 626 (Gleeson CJ) and 649 (Gummow J); Ex parte Applicant S20/2002 (2003) 198 ALR 59 at 75-6 (McHugh and Gummow JJ), 90-91 (Kirby J); compare the observations of Crennan and Bell JJ in Minister for Immigration and Citizenship v SZMDS (2010) 240 CLR 611 at 647. 70 To the extent that the appellant's argument may be understood as an attack on the Tribunal's fact finding process their argument cannot succeed. The Tribunal's fact finding process was not susceptible to review on the ground that it was unreasonable in the Wednesbury sense; the ground is "extremely confined" and is limited in its application to discretionary decisions: see Attorney-General (NSW) v Quin (1990) 170 CLR 1 at 36-7, Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant s 20/2002 (2003) 198 ALR 59, 90 [142]. 71 This ground must fail. DISPOSITION 72 The appeal must be dismissed with costs. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey. Associate: Dated: 27 March 2013