FEDERAL COURT OF AUSTRALIA Rowntree v Commissioner of Taxation [2018] FCA 182 Appeal from: Rowntree v Commissioner of Taxation [2016] AATA 420 File number: NSD 1187 of 2016 Judge: RARES J Date of judgment: 1 March 2018 Catchwords: INCOME TAX – assessment of receipts of income said to be loans – appeal from Administrative Appeals Tribunal decision that assessment based on finding receipts were income not excessive under s 14ZZK of Taxation Administration Act 1953 – whether Tribunal erred by finding that objectively receipts by taxpayer from companies he controlled were income despite finding that taxpayer believed transactions were loans to him EVIDENCE – consideration of proof of contract where same person controlling mind of both companies or parties to a payment by one to the other without contemporaneous documents evidencing purpose or agreement – whether belief of person being controlling mind of both parties as to legal effect of payments sufficient evidence of that effect Legislation: Administrative Appeals Tribunal Act 1975 (Cth) s 44 Corporations Act 2001 (Cth) ss 198E, 248B, 286 Income Tax Assessment Act 1936 (Cth) Div 7A, ss 109D, 109N Taxation Administration Act 1953 (Cth) s 14ZZK Cases cited: ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 Crowe-Maxwell v Frost (2016) 91 NSWLR 414 Endresz v Whitehouse [1998] 3 VR 461 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Factory 5 Pty Ltd (In Liq) v State of Victoria (No 2) [2012] FCAFC 150 Federal Commissioner of Taxation v Rawson Finances Pty Ltd (2012) 89 ATR 357 Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512 Geebung Investments Pty Ltd v Varga Group Investments Pty Ltd (No 8) (1995) 7 BPR 14,551 Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 Inland Revenue Commissioners v Sansom [1921] 2 KB 492 Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151 Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 Lee v Lee's Air Farming Ltd [1961] AC 12 Masters v Cameron (1954) 91 CLR 353 Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2016) 329 ALR 1 Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (In Liq) (1999) 96 FCR 217 Nguyen and Commissioner of Taxation [2011] AATA 544 Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402 Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 Date of hearing: 2 December 2016 Date of last submissions: 9 December 2016 Registry: New South Wales Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 69 Counsel for the Applicant: Mr I. Young Solicitor for the Applicant: Rubicon Lawyers Pty Ltd Counsel for the Respondent: Mr M. O'Meara with Mr K. Josifoski Solicitor for the Respondent: Australian Government Solicitor ORDERS NSD 1187 of 2016 BETWEEN: BRUCE ELLIOTT ROWNTREE Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: RARES J DATE OF ORDER: 1 mARCH 2018 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. REASONS FOR JUDGMENT RARES J: 1 Bruce Rowntree was an experienced lawyer with extensive academic qualifications in law, finance and taxation. Despite having this impressive resumé, as found by the Administrative Appeals Tribunal, Mr Rowntree engaged, during four years of income, in numerous dealings with companies that he controlled from which he received over $4 million. He did not document any of those dealings as having any particular purpose or character at the time at which he received those large sums of money. 2 The Commissioner of Taxation assessed Mr Rowntree as having received income from each of those dealings. Mr Rowntree applied to the Tribunal to review the four assessments for the years of income ended 30 June 2010, 2011, 2012 and 2013, on the basis that his receipts of money were, in each case, a loan to him and not income in his hands. 3 The Tribunal accepted his evidence in respect of two receipts in the 2013 income year for $1,000,000 and $80,000 respectively. However, the Tribunal found that Mr Rowntree had not established that the balance of each of the four assessments was excessive. In deciding to reduce the base penalty of 75% that the Commissioner had imposed to 50% the Tribunal found that Mr Rowntree had acted with gross carelessness or gross indifference, amounting to recklessness, rather than with an intention to disregard the law. It found that Mr Rowntree: has not deliberately chosen to ignore the law. His evidence presented to the Tribunal suggests that he genuinely believed that there were arguments to support his view that a loan was in existence and while this may have been wildly optimistic in respect of all but two of the payments in question and not genuinely supportable on the basis of the evidence available, he appears to have been genuinely of that mistaken view. [Mr Rowntree's] testimony provided at the hearing provided a highly subjective view of whether a loan existed in respect of the monies which had been received by him. His language suggested that he genuinely believed in his own mind that the amounts in question were loans even though that view could not be sustained on an objective view of the facts other than in respect of the two amounts of $1,000,000 and $80,000 referred to previously. (emphasis added) 4 The Tribunal had approached its fact finding by noting three matters as relevant to Mr Rowntree satisfying his onus of proof that the assessments were excessive within the meaning of s 14ZZK of the Taxation Administration Act 1953 (Cth), namely that: (1) it would be more difficult for him to do so in the absence of contemporaneous, corroborating documents, citing Nguyen and Commissioner of Taxation [2011] AATA 544 at [6] and [8]; (2) since Mr Rowntree was asserting that the existence of loans and advances made to him under them, he might, and ought, give evidence as to that subject matter and that his own evidence, being clearly self-serving, would be approached critically and subject to careful scrutiny, citing Nguyen [2011] AATA 544 at [7]; (3) the existence of any loan agreement and the character of any advances made under it had to be assessed objectively, according to what a reasonable person would have understood the parties' words and conduct to convey, as held in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179 [40]. The Tribunal cited this case adding: "In this context the subjective intentions of the parties, while broadly speaking relevant, would in no way be determinative". 5 In essence, Mr Rowntree contended that, because he was the sole director of some, and the controlling mind of all, of the six companies involved in the transactions that led to him receiving the respective sums (which I will call the challenged receipts), the Tribunal's finding, quoted above, that he genuinely believed that those receipts were loans, was inconsistent with its substantive decision to affirm the Commissioner's characterisation of them as receipts of income. The issue 6 At the hearing before me, Mr Rowntree pressed only one question of law in his notice of appeal from the decision of the Tribunal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act), namely, whether: In forming its conclusion that the [challenged receipts] were not loan transactions, but income receipts to [Mr Rowntree], did the Tribunal err in the exercise of its fact-finding jurisdiction? The objection to competency – the Commissioner's submissions 7 The Commissioner filed a notice of objection to competency asserting that, relevantly, the notice of appeal did not identify any question of law within the meaning of s 44 of the AAT Act. 8 The Commissioner argued in written submissions that the question on which Mr Rowntree based his appeal was not a question of law and lacked precision. He contended that Mr Rowntree had not challenged, and indeed accepted, the test that the Tribunal had applied to determine whether his receipts were loans. The Commissioner did not develop his objection in oral argument, Mr Rowntree having confined his appeal from an original six questions simply to the one question that both parties argued on the merits. The objection to competency – consideration 9 In my opinion, the question raised, in a sufficient manner, a question of law that this Court has jurisdiction to hear and determine: Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 at 383-385 [192]-[202] per Allsop CJ, Kenny, Besanko, Robertson and Mortimer JJ. In essence, the question raised the issue of whether the Tribunal, in assessing Mr Rowntree's evidence, applied an incorrect onus of proof in its approach summarised at [4] above, having regard to its findings about Mr Rowntree's belief that each of the challenged receipts was, or was part of, a loan transaction. Background 10 The Tribunal found that there were three distinct purported loan arrangements and analysed the factual elements of each before arriving at its findings (the first, second and third dealings). I will set out the Tribunal's findings as to each of these below. The first dealing 11 On about 12 August 2009, Voluntary Credits Ltd, a Malaysian company, paid a dividend of $500,000 to its then sole shareholder, BR Redd Holdings Ltd, an Australian company limited by guarantee. Also on about 12 August 2009, Voluntary Credits caused Redd Holdings to transfer $500,000 to Mr Rowntree. Mr Rowntree was the main shareholder of Redd Holdings at all relevant times and he, his wife and father were its three directors until it was deregistered on 22 February 2011. Voluntary Credits carried on a business of developing carbon emissions trading schemes and forward selling what were called "REDD credits". 12 On about 5 January 2010, Voluntary Credits paid Redd Holdings another dividend of $140,000 and, on the same day, Mr Rowntree caused Redd Holdings to transfer that sum to him. 13 On about 14 February 2011, Redd Holdings entered an agreement to assign (that was an exhibit in the Tribunal) with Europium Ltd. Under the agreement to assign, Redd Holdings assigned to Europium "all indebtedness (present, future and contingent) of the Debtor to the Assignor under the Agreement". The agreement to assign defined the "Agreement" as "the Loan Agreement dated around 30 June 2010 between the Debtor and the Assignor". Mr Rowntree contended that the agreement to assign evidenced the existence of the loan agreement "dated around 30 June 2010" between Redd Holdings and him, and that the agreement to assign had assigned to Europium his debt due to Redd Holdings of $640,000. 14 On 15 February 2011, the Commissioner issued Taxpayer Alert 2011/1 entitled "Loans to members of companies limited by guarantee and the operation of Division 7A", being a reference to provisions of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act). 15 On 22 February 2011, Redd Holdings was deregistered. 16 On 8 August 2011, Mr Rowntree entered into an enforceable voluntary undertaking with the Commissioner that acknowledged that he had undertaken transactions that involved him establishing companies limited by guarantee for clients and on his own behalf. Mr Rowntree covenanted, in effect, not to pursue ventures using such companies. 17 Relevantly, s 109N(1)(a) which is in Div 7A of the 1936 Act provided that a private company that made a loan in one of its years of income would not be deemed by s 109D to have paid a dividend at the end of that year of income if three conditions had been satisfied before the lodgment day (defined in s 109D(6) as the earlier of the due or actual date for or of the private company's tax return for that year of income). The conditions were that "the agreement that the loan was made under is in writing", the rate of interest for subsequent years of income equalled or exceeded a rate identified in s 109N(2) and the maximum term of the loan did not exceed that fixed by s 109N(3). 18 Mr Rowntree contended that each of his receipts of $500,000 and $140,000 (the first dealing) had occurred under a loan agreement between him and Redd Holdings, namely the one described in the agreement to assign as having been "dated around 30 June 2010". But, the Tribunal found that "no written loan agreement has ever surfaced" and there was no documentary evidence of any resolution that Redd Holdings' three directors (Mr Rowntree, his wife and father) had ever made to enter into or make such a loan. It also found that there was no documentary evidence of the terms of such an agreement, the payment of any interest by Mr Rowntree or anyone else in respect of it, any term of the loan, or where it was repayable. 19 On 16 June 2014, Europuim assigned the $640,000 debt to Eugenius Holdings Pty Ltd, a company that Mr Rowntree incorporated on 21 July 2011 and of which he was sole director and, in his capacity as a trustee of the Rowntree Trust, its sole shareholder. Eugenius Holdings' unsigned and unaudited accounts for the 2014 income year recorded the $640,000 as a debt due to that company. 20 Mr Rowntree asserted that his receipts from Redd Holdings during the 2010 year of income, totalling $640,000, were "entirely the subject of a loan agreement which was in existence as at the date the funds were received namely on 12 August 2009 and 5 January 2010". The Tribunal rejected that assertion, finding that "the loans in question did not exist at the relevant time the advances were made to" Mr Rowntree under the first dealing. 21 The Tribunal reached this finding on the basis of what Edmonds J had said in Federal Commissioner of Taxation v Rawson Finances Pty Ltd (2012) 89 ATR 357 at 364 [20], namely: The essence of a loan of money from A to B is a corresponding contemporaneous obligation on the part of B to repay the money transferred from A to B: Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300 at 313 per Sackville and Lehane JJ; Commissioner of Taxation v Firth (2002) 120 FCR 450 at [73] per Sackville and Finn JJ. Absent that obligation, the transfer of the money from A to B is something else – a gift, a payment by direction, a payment or repayment of an anterior obligation – but it is not a loan. The obligation of repayment is not proved by subsequent payment of the same amount, let alone a different amount, from B to A; that may be explicable by reference to another obligation or circumstance having nothing to do with the original payment from A to B. Rather, the obligation of repayment is proved by the terms of the contract under which the money was transferred from A to B. (emphasis added) 22 Although the ultimate decision of Edmonds J in that case was overturned by the Full Court (Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307), neither the Full Court nor the parties before me suggested that his Honour's statement of principle in the above passage was incorrect. 23 The Tribunal applied that principle and found, in respect of the first dealing, that, first, there was no contract that reflected "any obligation to repay let alone a contemporaneous obligation" and, secondly, the mere fact that repayments had occurred did not, in and of themselves, prove that there was an obligation to repay. It found that "there was no documentary evidence whatsoever to suggest" the existence of any loan agreement between Redd Holdings and Mr Rowntree, its terms, any resolution by the directors of Redd Holdings (i.e. Mr Rowntree, his wife and father) to make any such loans, any advance or drawdown of an initial amount pursuant to any loan agreement, any interest to be paid by Mr Rowntree or anyone else on any such loan, Redd Holdings' receiving any payment of interest, or any requirement for repayment of any such loan or when repayment was due. 24 The Tribunal noted that while the agreement to assign had referred to "the Loan Agreement dated around 30 June 2010", Mr Rowntree had claimed that his receipts of $500,000 on 12 August 2009 and $140,000 on 5 January 2010 were made under a loan agreement that existed at a time earlier than "around 30 June 2010". It found that, even if one accepted (which it did not) the agreement to assign on its face as referring to an actual loan agreement "dated around 30 June 2010", that document would only evidence a loan that had come into existence on or around 30 June 2010, being well after the last of Mr Rowntree's receipts totalling $640,000. 25 Moreover, the Tribunal found, in respect of each of the first, second and third dealings, that there were no other documents of any of the parties (including assignors or assignees) such as directors resolutions, referring to or recording the assignments or any payments, including of interest in respect of the debt of $640,000 in evidence before the Tribunal other than repayments from 30 June 2014. The Tribunal found that these and repayments of other sums in respect of the second and third dealings occurred: only after [Mr Rowntree] became aware that the [Commissioner] was conducting a careful review of these financial arrangements and was likely to challenge the existence of the loans in question. The second dealing 26 On 8 June 2010, Eugenius Pty Ltd was incorporated and Mr Rowntree, in his capacity as trustee of the Trust, held its only issued share. 27 On 1 July 2010, Redd Holdings transferred its shares in Voluntary Credits to Eugenius, which then became its sole shareholder. Voluntary Holdings paid Eugenius four dividends as follows: Date Dividend Paid 10 August 2010 $ 500,000 16 November 2010 $ 150,000 25 April 2011 $ 150,000 4 July 2011 $ 800,000 Total: $1,600,000 28 On the same days as Eugenius received each of the four dividends, Mr Rowntree caused it to transfer the amount received to him (the second dealing), each of which transfers the Tribunal described as "purportedly as a loan under a loan facility agreement between [him] and Eugenius". 29 On 22 July 2011: (1) Mr Rowntree transferred the share in Eugenius, that he held as trustee, to Eugenius Holdings in consideration of Eugenius Holdings' allotment of 1.6 million shares to Mr Rowntree as trustee for the Trust; (2) Eugenius declared a dividend of $1.6 million payable to its new shareholder, Eugenius Holdings; (3) Eugenius Holdings lent Mr Rowntree $1.6 million which he applied to reduce what he owed to Eugenius that, in turn, offset what Eugenius owed, as the dividend, to Eugenius Holdings. Mr Rowntree contended that these transactions resulted in him owing the $1.6 million to Eugenius Holdings instead of to Eugenius; and (4) Mr Rowntree, as borrower, entered into a loan facility agreement (the Eugenius facility agreement) with Eugenius, as lender, that defined an "advance" as "any advance or loan made to the Borrower by the Lender after the date of this Agreement". Clause 3.1 provided that interest was payable on such advances. 30 The Tribunal found that Eugenius did not make any advance in relation to the transactions in the second dealing after 22 July 2011. It also found, as I noted in [25] above that, there were no other documents than the Eugenius facility agreement to evidence any loan or other transaction in the second dealing, including directors resolutions, bank records, or interest payments. The Tribunal found Eugenius' tax return for the 2011 year of income did not record receipt of any interest in respect of any loan made to Mr Rowntree. 31 The Tribunal did not accept Mr Rowntree's assertion that there was a mistake in the definition of "advance" in the Eugenius facility agreement. It rejected as unlikely that the definition, "any advance or loan made to the Borrower by the Lender after the date of this agreement", contained a mistake as to the date of the loans to which it applied. The Tribunal found that the only evidence before it to support Mr Rowntree's assertions that the challenged receipts under the second dealing, totalling $1.6 million, were loans by Eugenius to him was his own undocumented evidence that they were, together with the Eugenius facility agreement, made only after he had received all of the challenged receipts in the second dealing. 32 After weighing the evidence, the Tribunal, found "as a fact that the loans did not exist at the relevant time the advances were made to" Mr Rowntree under the second dealing. The third dealing 33 On 23 August 2010, Galerius Pty Ltd was incorporated. Mr Rowntree was its sole director at all relevant times and, as trustee of the Trust, its sole shareholder. The Tribunal found that Galerius appeared not to have conducted any business of its own but it received funds "from other entities within the group" and paid, out of those funds, amounts to either Mr Rowntree or entities that he owned or controlled. 34 Voluntary Credits paid five dividends to Galerius as follows: Date Dividend Paid 19 October 2011 $ 200,000 15 February 2012 $ 100,000 21 May 2012 $ 500,000 17 July 2012 $ 1,000,000 18 December 2012 $ 80,000 Total $ 1,880,000 35 On the same days as Galerius received each of the five dividends, Mr Rowntree caused it to transfer to him the amount it had received (the third dealing), each of which payments the Tribunal described as (as with the second transaction – see [28] above) "purportedly as a loan under a loan facility agreement between [Mr Rowntree] and Galerius". 36 On 18 July 2012 Galerius Holdings Pty Ltd was incorporated. Mr Rowntree was its sole director and, as trustee for the Trust, held its sole issued share. The Tribunal found that Galerius Holdings also appeared to have conducted no business of its own. 37 19 July 2012, was another busy day for Mr Rowntree. On that day: (1) Mr Rowntree transferred the share in Galerius that he held, as trustee, to Galerius Holdings in consideration for the allotment by Galerius Holdings of 1.7 million shares to him as trustee for the Trust. (2) Galerius Holdings lent Mr Rowntree $1.7 million which, the Tribunal found, "was used to reduce the amounts owing to Galerius and offsetting the amounts owed to Galerius Holdings". (I understood that finding as conveying that the Tribunal considered the effect of the above transactions to be a round robin in which Mr Rowntree used the $1.7 million to repay Galerius all but $100,000 of the debt ($1.8 million) he then owed it so that Galerius could use that money to pay its dividend to Galerius Holdings in the same amount.) (3) Mr Rowntree, as borrower, entered into a second loan facility agreement (the Galerius facility agreement) with Galerius as lender, that expressly provided (in identical language to the Eugenius facility agreement referred to in [29(4)] above) that it applied "to any advance or loan made to the Borrower by the lender after the date of this agreement". 38 The Tribunal noted that, first, the Galerius loan agreement, like the Eugenius loan agreement, expressly applied to any advance or loan that Galerius made to Mr Rowntree "after the date of this agreement", being 19 July 2012 and, secondly, Mr Rowntree again had asserted that this was a mistake. The Tribunal found that the circumstances of the third dealing were "somewhat different" in that, while Mr Rowntree's first three receipts occurred "well before" the 19 July 2012 date of the Galerius loan agreement, one (for $1,000,000) occurred on 17 July 2012 and a second (for $80,000) occurred on 18 December 2012. 39 Drawing on what Edmonds J had said in Rawson Finances 89 ATR at 364 [20], the Tribunal found that "it is difficult to see how the loan agreement that came into existence well after the three payments were made can be said to give rise to a "corresponding contemporaneous obligation" on the part of [Mr Rowntree] to repay Galerius". The Tribunal remarked that, as with the second dealing, there were important factors that suggested that no loan was in place at the times that the first three payments to Mr Rowntree occurred under the third dealing. Those factors were that the Galerius loan agreement post-dated each of those three payments, there was no evidence of documents, including resolutions of Galerius' director (being Mr Rowntree) to make any such loan to Mr Rowntree, bank records, or any payment of interest on the purported loan. The Tribunal also found that, although cl 3.1 [sic] of the Galerius loan agreement provided for the payment of interest, that provision "was essentially disregarded by the parties". It concluded that: [Mr Rowntree's] assertion that the loan to him from Galerius was repaid on or around 19 July 2012 by Galerius declaring a dividend of $1.7 million in favour of Galerius Holdings … and a loan made by Galerius Holdings to [him] of the same amount on the same date is in my view untenable having regard to the fact that: (a) Galerius Holdings at that date had no bank account; (b) no amounts were advanced pursuant to the purported loan; and (c) no amounts were paid pursuant to the purported loan. 40 It found that there was little, other than Mr Rowntree's uncorroborated evidence, to support the existence of a loan at the times of each of the first three payments under the third dealing. In reaching this conclusion, it also relied on its findings in relation to the second dealing not being one of loan. 41 However, the Tribunal said that Mr Rowntree's receipt of $80,000 from Galerius on 18 December 2012 post-dated the Galerius loan agreement and gave support to a conclusion that this receipt was a loan under it. It noted that no interest had been paid pursuant to cl 3.3 [sic] of the Galerius loan agreement and there was no evidence that Galerius had filed a tax return disclosing that it had received any interest at all under the Galerius loan agreement. Even so, the Tribunal was satisfied that the $80,000 receipt was a loan and, although Mr Rowntree's failure to pay interest may have been a breach of the Galerius loan agreement, that did "not lead to the inevitable conclusion that the payment was not made as part of that agreement". 42 Next, the Tribunal found that Mr Rowntree's receipt of $1,000,000 on 17 July 2012 was "in such close temporal proximity that it is difficult to conclude that it was not made as part of the overall loan arrangement based simply on the timing". The Tribunal found that this receipt was an advance under the Galerius loan agreement, even though it had not occurred "after the date of this agreement" as required by its definition of "advance". The Tribunal concluded that, in the particular circumstances, the definition should not be given "such precise application where the dates are so close in time". 43 Accordingly, the Tribunal found that the last two receipts, totalling $1,080,000, under the third dealing were loans to Mr Rowntree and the Commissioner ought not to have included them in Mr Rowntree's assessable income in the 2013 year of income. Mr Rowntree's case in the Tribunal 44 The Tribunal summarised Mr Rowntree's case that the four challenged assessments were excessive, for the purposes of s 14ZZK of the Taxation Administration Act, as assertions that he had borrowed each of the challenged receipts under a loan agreement that was in existence at the time of each payment and that: (1) as at 19 July 2012, he owed Galerius Holdings $1,700,000 under the third dealing; (2) as at 16 June 2014, he owed Eugenius Holdings $2,240,000 comprised of two separate loans, namely: (a) $640,000, under the first dealing; (b) $1,600,000, under the second dealing. Mr Rowntree's submissions 45 Mr Rowntree argued that once the Tribunal found that he genuinely believed that each receipt by him the subject of the first, second and third dealings was a loan, it then had to find as a fact that each receipt was a loan, as it had in respect of the two loans under the third dealing. He contended that, as he was the sole director of all of the companies involved, other than Redd Holdings (which he also appeared to control), his state of mind, evidenced in his genuine belief, as found by the Tribunal was the state of mind of the respective company that paid the receipts that the Tribunal treated (wrongly he said) as income in his hands. He relied on Endresz v Whitehouse [1998] 3 VR 461 at 482. 46 He submitted that the Tribunal's search for indicia of loans in documents had distracted it from appreciating the decisiveness of his belief that each payment (by the relevant company) and the receipt (by him) was a loan. He argued that, in effect, the Tribunal, having found that he believed that what he had done involved him receiving a loan, also found that his state of mind was not sufficient to discharge his onus of proof under s 14ZZK of the Taxation Administration Act because he had failed to create documents contemporaneously (except for the last two Galerius payments) to evidence and further corroborate that belief. He contended that this was the same error in reasoning and application of the onus to prove that the assessment was excessive that Hunt J had identified in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 10G-11A. Mr Rowntree submitted that the Tribunal's finding of his genuine belief, that all his relevant receipts were loans, was sufficient to establish that they actually were loans and that the Tribunal had erred in expecting him to have provided it with more evidence, before it was prepared to find in his favour. He contended that no writing is required in law to evidence an ordinary loan, and relied on what the Commissioner had stated to that effect in Taxation Ruling TR 2010/3 at [48]. Consideration 47 During the course of oral argument there was some discussion as to how, other than by relying on later statements as to the director's state of mind, a sole director of two companies, such as Mr Rowntree, could establish the terms of a transaction between the companies or one of them and the director for which no contemporaneous written evidence existed except, perhaps as here, records of cash movements between their accounts. 48 In my opinion, this evidentiary situation is akin to one in which an individual taxpayer seeks to establish, by his or her own evidence, what the character of a transaction was that lacked contemporaneous supporting documentation for the purposes of s 14ZZK. 49 There is no inherent reason to accept or reject a party's evidence about a past event merely because that evidence tends to be self-serving. But, in cases involving the party-witness' state of mind about a historical event affecting his or her financial or legal interests, tribunals of fact (including courts) will often approach the assessment of that evidence with caution for the very reason that it is likely to portray a version that will advance the case of the party-witness who testifies about it: cf. Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402 at 403 per Fullagar J; Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151 at [72]-[74] per Dowsett, Rares and Logan JJ. Indeed, the Tribunal was mindful (in the approach it identified summarised at [4] above) that it should consider carefully what Mr Rowntree said about transactions between him and the companies he controlled for which he did not create or have a contemporaneous record. 50 The Corporations Act 2001 (Cth) provided that a director (such as Mr Rowntree) of a proprietary company (such as all of the companies involved in the three dealings, other than the Malaysian incorporated Voluntary Credits) who is its only director and only shareholder may exercise all of its powers except those required to be exercised in a general meeting (s 198E(1)). Ordinarily, those powers will include power to borrow and lend money. However, the Corporations Act is largely silent about how a sole director, acting under s 198E(1), should evidence what he or she causes the company to do. That Act provides that a sole director of such a company can pass a resolution or make a declaration by recording it and signing the record (s 248B). Moreover, a company must keep written financial records that correctly record and explain its transactions, financial position and performance that will enable true and fair financial statements to be prepared and audited (s 286(1)). 51 And s 109N(1) of the 1936 Act provided that a loan that a private company made in one year of income will not be deemed to be a dividend pursuant to s 109D at the end of that year of income if, before the lodgment day for that year (being after the end of that year), "the agreement that the loan was made under is in writing" as noted in [17]. 52 An individual, such as a sole director of a company, can have his or her knowledge of the true character or dealing of a transaction involving the individual (whether in his or her personal capacity or as a director of another company) attributed to the company: Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (In Liq) (1999) 96 FCR 217 at 229 [48] per Hill, Sackville and Finn JJ; Endresz [1998] 3 VR at 482 per Ormiston JA, with whom Tadgell and Charles JJA agreed. Both of those cases adopted the following passage in Ford's Principles of Corporations Law at [16.220]: A distinction has to be drawn between the case where the director is a controller of two companies and where the director is only one of several directors of two companies. In the former case each company will know what the other knows because they have the same directing mind and will: attribution of the director's knowledge to each company does not depend on the existence of duty but on the director being identified with each company as its directing mind and will. (emphasis added) 53 In Crowe-Maxwell v Frost (2016) 91 NSWLR 414 at 430-431 [81]-[84] Beazley P, with whom Macfarlan and F Gleeson JJA agreed discussed the circumstances in which the making of a contract by conduct can be inferred, including in cases of a sole director making a contract with the company of which he or she is a director. Her Honour said that the authorities, commencing with Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, established that when a party asserted that a contract had arisen from the conduct of the parties "the character and circumstances must indicate unambiguously that the parties intended to contract" (81 NSWLR at 430 [81] citing Macfarlan JA in Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 at [5]). Beazley P then referred to what Barrett J had said in Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512 at 5221 [50]-[51] including (at [50]): If a company is to enter into a service contract with its director, it must do so in some clearly observable manner. The fact that a particular person is the sole director and shareholder and therefore the only human instrumentality by which the company may act does not change this. Corporate decisions and acts can only be achieved in explicit ways: Sheahan v Londish (2010) 80 ACSR 337; [2010] NSWCA 270. Coincidence of the identity of the sole director, the sole shareholder and the person by whom services are provided does not mean that the corporate decision to enter into a service contract and the actual formation of the contract can take place wholly within the individual's head and be revealed, if at all, only when it suits him or her to reveal it. (emphasis added) 54 Beazley P went on to say (91 NSWLR at 430-431 [84]): Whilst Barrett J's opinion that entry into a contract must be apparent in some concrete way may be accepted, there can be no question that, as McHugh JA (Hope and Mahoney JJA agreeing) held in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR [97326] at 11,117: "… a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract." (citations omitted) (emphasis added) 55 The significance of the emphasised passage from McHugh JA's reasons is that the task for the fact finder (be it the Tribunal or a court), where there is no document recording an alleged contract, is to examine the acts and conduct relied on in the context in which they occurred to ascertain whether objectively they evince a contract. Importantly, Gaudron, McHugh, Hayne and Callinan JJ said in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105 [24]: "It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty." [Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 at 457, per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ] To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet "[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts" [South Australia v The Commonwealth (1962) 108 CLR 130 at 154, per Windeyer J]. (emphasis added) 56 In explaining its approach to assessing how Mr Rowntree could discharge his onus of proof, the Tribunal referred to Toll 219 CLR at 179 [40] for, among others, the proposition I have summarised quoted in [4] above, namely that the subjective intentions of the parties were relevant, but not determinative. That proposition (which may have led the Tribunal to take a more favourable approach to Mr Rowntree's evidence than was open) was not part of what Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ held. Indeed, they said (219 CLR at 179 [40]) that the principle of objectivity by which the rights and liabilities of the parties to a contract are determined, did not involve the parties' subjective beliefs or understandings about their rights and liabilities. And, the search for intention to create legal relations "requires an objective assessment of the state of affairs between the parties": Ermogenous 209 CLR at 105 [25]; citing Masters v Cameron (1954) 91 CLR 353 at 362 per Dixon CJ, McTiernan and Kitto JJ; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549 per Gleeson CJ. 57 Of course, despite the separate legal personalities of an individual sole director and the company which he or she controls, the director can enter into a contract with the company even though in doing so, he or she also acts as its agent: Lee v Lee's Air Farming Ltd [1961] AC 12 at 29 per Lord Morris of Borth-y-Gest for himself and Viscount Simonds, Lords Reid, Tucker and Denning. The Judicial Committee considered Inland Revenue Commissioners v Sansom [1921] 2 KB 492, in which the English Court of Appeal had upheld a finding by the special commissioners that the taxpayer had received payments from his company of which he was the only director as loans, not income (see Lee [1961] AC at 27-28). Lord Sterndale MR, Scrutton and Younger LJJ described as natural the suspicion with which the special commissioners would have approached the sole director's evidence that the very large sums he had received, representing the company's accumulated profits, were truly loans and not income in his hands. But their Lordships held that it was open to the special commissioners who saw and heard the director, to accept his evidence, as they had (Sansom [1921] 2 KB at 501-502, 517-518]). As Scrutton LJ said, "the whole thing looks extremely suspicious". But, he pointed out that it had been open to the special commissioners to believe the director that the receipts were loans to him, and there had been evidence that he had repaid such a loan in earlier years ([1921] 2 KB at 506). 58 Sansom [1921] 2 KB 492 shows that the present issue is not new. While a taxpayer's characterisation of the nature of a receipt from the company, as a loan to him or her resulting from his or her undocumented dealings, in exercise of his power as a company's controlling mind, is open to be accepted, nonetheless it can be expected to be examined carefully by the tribunal of fact. 59 Mr Rowntree submitted that the Commissioner and the Tribunal did not treat his receipts as deemed dividends under Div 7A of the 1936 Act. He argued that because s 109N envisaged that a loan agreement could be made after the end of a year of income that evidenced transactions during that year, the Tribunal could have accepted the post-dated agreements on which he relied. But that was not the issue. The question for the Tribunal was whether he could satisfy it that his challenged receipts were loans and not income. 60 In my opinion, the Tribunal did not apply an incorrect onus or test in evaluating whether Mr Rowntree had satisfied it that the challenged receipts were loans in accordance with the particular agreements that Mr Rowntree had postulated to it. In approaching this issue, it is important to bear in mind that the Tribunal qualified its finding that Mr Rowntree had a genuine belief that the challenged receipts were loans. It found that he had "a highly subjective view of whether a loan existed" in respect of those receipts "even though that view could not be sustained on an objective view of the facts", other than for the two exceptions that it found. And, the Tribunal linked the first of those exceptions to the fact that the Galerius loan agreement had been created two days after Mr Rowntree's receipt of $1,000,000 on 17 July 2012. 61 The Tribunal had to assess Mr Rowntree's evidence, by which he sought to exculpate himself from the significant financial consequences of the four challenged assessments, as given by a person who, it found, was an experienced lawyer with academic qualifications in law, finance and taxation. He had drafted, and caused the entry into of, each of the documents on which he relied only some time after he had received all but one of the payments that he chose to characterise as loans (the exception being the $80,000 paid to him on 18 December 2012). 62 First, he drafted the agreement to assign. That referred to a loan agreement (that he did not put in evidence before the Tribunal) "dated around 30 June 2010" between him and Redd Holdings. Notably, he had received the second of the two receipts in the first dealing on 5 January 2010, almost six months before that unproduced loan agreement came into existence. Moreover, he did not assert to the Tribunal that his receipts in the first dealing were loans under the loan agreement "dated around 30 June 2010". Rather, he contended to the Tribunal (as I have quoted at [18] above) that the "loan" (which the Tribunal understood as an agreement to lend) under which the two payments were made existed before the first payment of $500,000 occurred on 12 August 2009. 63 Secondly, Mr Rowntree relied on each of the Europium and Galerius loan agreements as applying to his receipts of very large sums that antedated the existence of those documents, despite their express terms that they only applied to loans or advances that the respective company had made after the date of the agreement. If Mr Rowntree were seeking to create a document evidencing an antecedent loan, each of the Europium and Galerius loan agreements was singularly inept to achieve that purpose. Moreover, neither document referred to any amount already owing. The Tribunal found that nothing in the objective surrounding circumstances (leaving aside the $1,000,000 loan made on 17 July 2012) suggested that the Europium or Galerius loan agreements related to any antecedent payment or loan. The Tribunal was also conscious that there was no business record of any kind to suggest that a loan had occurred in respect of any of the challenged receipts. No interest was paid, nor was any entitlement to interest recorded in any of Mr Rowntree's companies' books or tax returns for any of the challenged receipts at any relevant time. 64 The Tribunal made all the findings that I have just discussed on the evidence, or perhaps more appositely, absence of evidence, before it. Thus, while Mr Rowntree may have believed that what he did had created loans, the Tribunal was not satisfied that that belief had any sufficient objective support from Mr Rowntree's conduct contemporaneous with the time of each of his challenged receipts sufficient to satisfy it that he had contracted with the relevant company to borrow and repay the money. Just as one or both parties to a dealing may have believed genuinely that they had made a contract, there are many decided cases where the courts have held that that belief was mistaken As Gleeson CJ explained in Geebung Investments Pty Ltd v Varga Group Investments Pty Ltd (No 8) (1995) 7 BPR 14,551 at 14,552: As the decision in the Australian Broadcasting Corp[oration v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540] case illustrates, the fact that parties to negotiations have agreed upon the major matter under discussion, confidently believing that the remaining matters to be decided will be sorted out later between them or their lawyers, without any difficulty, can sometimes create a misleading appearance of consensus. Such parties may well believe that they have a "deal" or a "bargain", and speak and act accordingly, whilst at the same time knowing and intending that further and more detailed agreement is necessary. For that reason, conduct such as shaking hands, or using the language of agreement, can be ambiguous. The resolution of the ambiguity may require more detailed factual and legal analysis. (emphasis added) See also: Factory 5 Pty Ltd (In Liq) v State of Victoria (No 2) [2012] FCAFC 150 at [59]-[60], [65] per Rares and Dodds-Streeton JJ, Foster J agreeing at [69], Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2016) 329 ALR 1 at 112 [713]-[714] per Edelman J. 65 Similarly, the Tribunal's finding that no contract had been made to lend him any of the challenged receipts, despite Mr Rowntree's genuine belief that what had occurred was, in each case, a loan, reflected his failure to attend to the detail of what, in fact, he had done to ensure that it accorded with his beliefs. When he later gave evidence about his acts, the Tribunal assessed those acts against the objective evidence and found, after the "detailed actual and legal analysis" to which Gleeson CJ referred, that, despite his beliefs, the way in which Mr Rowntree had gone about causing his companies to pay money to him, objectively, did not evince that the payments had occurred pursuant to a contract in which he was a borrower promising to repay a loan at any time or any rate of interest. He had failed to cause the lenders to create business records or tax returns reflecting any loan or interest accruing or paid on it. 66 The loan documentation that Mr Rowntree created subsequent to his various receipts reflected only the possibility of his borrowing in the future and did not acknowledge the occurrence of any past transaction which he much later told the Tribunal the documents supported. So, while the Tribunal accepted that Mr Rowntree believed that he had contracted for a loan, what he did, on its analysis, was too ambiguous or uncertain to be viewed, in fact or law, as a legally binding contract for loan. 67 In essence, the Tribunal concluded that Mr Rowntree had not satisfied it that, when he made (as director of the relevant company) and received each challenged receipt, the payment had occurred (as he alleged was the position), pursuant to a contract of loan that then existed and had identifiable, concluded terms: cf. Rawson Finances 89 ATR at 364 [20]. Conclusion 68 In my opinion, the Tribunal did not err in the exercise of its fact-finding discretion. For the reasons I have given, the Tribunal did not approach its consideration of whether Mr Rowntree had satisfied the onus of proving, under s 14ZZK, that the challenged assessments were excessive by imposing a requirement that he produce more evidence than his honest belief. Mr Rowntree simply failed to prove that he had made contracts for loans with his companies when he caused them to pay him the challenged receipts. It follows that the Tribunal's findings of fact were open to it on the evidence and it did not make any error of law in its decision. 69 The appeal must be dismissed with costs. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 1 March 2018