Supreme Court New South Wales Medium Neutral Citation: Kafataris v Joseph [2016] NSWSC 1556 Hearing dates: 4 – 7 October 2016 Date of orders: 11 October 2016 Decision date: 11 October 2016 Jurisdiction: Common Law Before: Fagan J Decision: 1. Judgment for the defendants. 2. The plaintiffs are to pay the defendants' costs of the proceedings. Catchwords: TORTS – negligence – breach of duty – false tax return lodged – Capital Gains Tax event not declared – penalties imposed by ATO on plaintiff – whether defendant provided erroneous financial advice concerning avoidance of Capital Gains Tax – causation – whether plaintiff relied on erroneous advice or instructed false returned to be lodged Legislation Cited: Income Tax Assessment Act 1997 (Cth) Category: Principal judgment Parties: Christos Kafataris (1st plaintiff) Theodora Kafataris (2nd plaintiff) Kirk Joseph (1st defendant) Graham Leslie Lennan (2nd defendant) Representation: Counsel: Mr James Emmett (1st and 2nd plaintiff) Mr Kirk Joseph (1st defendant) Solicitors: Alvin Ng (1st and 2nd plaintiff) File Number(s): 2014/109202 Judgment 1. The plaintiffs claim damages against the defendants for alleged negligence in the discharge of professional duties with respect to preparation and lodging of the plaintiffs' personal income tax returns and partnership income tax return for the financial year ended 30 June 2003. 2. In that year there occurred a Capital Gains Tax ("CGT") event in the plaintiffs' affairs. By ss 100-20(1), 104-5, 102-5(1) and 108-5(1) of the Income Tax Assessment Act 1997 (Cth) the plaintiffs were required to report this event in their respective personal returns and bring to account 50% of the gain as income. They allege that the first defendant erroneously and negligently advised them that they need not report the event and need not return the income, provided they elected not to claim an old age pension. 3. The plaintiffs assert that they acted upon this advice by instructing the first defendant to prepare returns which omitted these matters. Returns were lodged and did not declare the capital gain. The Commissioner of Taxation assessed the plaintiffs on the basis of the returns to an amount of tax which was significantly less than the tax which would have been payable if the capital gain had been declared. 4. After an audit by the Australian Tax Office ("ATO") during 2010 and 2011, amended assessments were issued in mid-October 2011. The first plaintiff was required under these amended assessments to pay the following additional amounts: 1. Shortfall in primary tax, including Medicare levies: $296,535. 2. Penalty at 75% of the shortfall in primary tax for intentional disregard of the tax laws: $215,474. In addition, the first plaintiff was required to pay a General Interest Charge ("GIC") on the shortfall in primary tax and on the penalty from about the dates when they ought to have been paid. 1. The amended assessment issued to the second plaintiff required her to pay these amounts: 1. Shortfall in primary tax, including Medicare levies: $133,325. 2. Penalty at 75% of the shortfall in primary tax for intentional disregard of the tax laws: $94,289. The second plaintiff also was required to pay GIC from the time when the shortfall tax ought to have been paid. 1. On 16 December 2011 objections to the amounts of penalty in the amended assessments were lodged on behalf of both plaintiffs by a solicitor, Mr Andrew Noolan. The objections were disallowed by the Commissioner in early 2013. The Commissioner refused to remit the penalties or the GIC. 2. Appeals to the Administrative Appeals Tribunal were instituted by the plaintiffs in early 2013. These appeals were settled in July of that year. The penalties were reduced to $86,189.63 for the first plaintiff and $37,715.81 for the second plaintiff. The plaintiffs had to pay these reduced penalties and GIC in respect of them. They incurred legal and accounting costs associated with the audit, the objections and the appeal. Their damages claimed in the present negligence action are quantified as the sum of the incurred penalties, GIC and legal and accounting costs. Of course the shortfall in primary tax which each plaintiff was required to make up to the Commissioner in respect of the 2003 financial year is not part of the damages claim. This is tax which would have to have been paid if the returns had correctly brought the capital gains to account in the first place. 3. The first defendant disputes that he advised the plaintiffs they need not disclose the CGT event or declare the amount of their capital gain in their 2003 tax returns. On the contrary, he says he was aware of the sales of the two parcels of real property on which the gain was realised and that he prepared and showed to the plaintiffs draft tax returns acknowledging the CGT event and declaring amounts of taxable capital gain. He said the plaintiffs rejected his advice, refused to allow their returns to be lodged in those terms and instead instructed that the returns be lodged with the capital gains information withheld. 4. The issue of liability in this case turns first upon whether the plaintiffs have discharged their burden of proving that advice was given in the terms to which they have deposed and that they acted on such advice. If the advice was given, it was clearly wrong. That is common ground. The lodging of the original inadequate returns certainly caused the losses to which the plaintiffs point. That also has not been contested. 5. A second factual question upon which liability turns is whether the first defendant received affirmative instructions from the plaintiffs to cause their returns to be lodged without CGT disclosure. Only if there were such instructions could the first defendant escape a finding of negligence for his admitted conduct of causing the returns to be lodged in the form in which they were. The lodgement took place through the second defendant, a tax agent. The course of dealings between the parties up to February 2004 1. By birth the first defendant is a Greek Cypriot. In his twenties he received some training in accounting in London. Since then he has worked in the United Kingdom, the United States and Australia in accounting, auditing, taxation compliance and bookkeeping without ever obtaining full professional qualifications as a certified practising accountant. He has never obtained registration as a tax agent. 2. From about 1985 until early 2002 he was employed in New South Wales by chartered accountants, Noel Zann & Co. His work for that firm included the preparation of clients' tax returns in draft. The principal of the firm reviewed his drafts and, subject to his own satisfaction with them, lodged the returns under his registered tax agent's authority. 3. Whilst employed by Mr Zann the first defendant commenced to perform bookkeeping, accounting and tax compliance work for the plaintiffs from about 1996. The plaintiffs were also born in Cyprus and are Greek speaking. They arrived in Australia in 1964. They conducted a general store at Punchbowl. They also owned property which they rented out. 4. The first defendant's work for the plaintiffs involved regular periodic attendances at their store to collect financial information. The plaintiffs conducted their shop and property rental business in partnership. The first defendant prepared annual partnership accounts, partnership income tax returns and personal income tax returns for each plaintiff. From when quarterly lodgement of Business Activity Statements commenced to be required by the ATO, the first defendant prepared those. 5. For two years from early 2002 the first defendant was employed by MPK Partners to work on the same basis as he had worked for Noel Zann & Co. He continued to do the plaintiffs' work whilst in this employment. In early 2004 he left MPK Partners but continued to do the plaintiffs' bookkeeping, accounting and tax compliance work as before but now in conjunction with the second defendant, Graham Lennan, as registered tax agent. That is, for the plaintiffs' annual partnership and personal income tax returns the first defendant prepared drafts and submitted them to the second defendant for lodgment with the ATO under his registered tax agent status. 6. Upon leaving MPK Partners in early 2004, the first defendant also continued to work in a similar way for a number of other clients with whom he had established relationships. The first defendant paid the second defendant 20% of the fees he charged to clients, including the plaintiffs. 7. I accept the first defendant's evidence that he usually communicated only with the first plaintiff about the business and tax affairs of both plaintiffs. That is consistent with the evidence of the second plaintiff, that she left such matters to her husband and concerned herself only with working as an assistant in their shop and with domestic and family duties. First plaintiff's understanding of English and demeanour in the witness box 1. The first defendant speaks and understands English clearly and accurately. He demonstrated this in the conduct of his own defence case, including when giving evidence. I accept the first defendant's evidence that when people who only spoke English were present with him and with the first plaintiff the latter was able to speak in English and was responsive to people who addressed him in English in a manner which appeared to indicate comprehension. 2. That is consistent with my observation of the first plaintiff in the witness box. He responded in English to English language questions to a sufficient extent to indicate a reasonably good level of understanding as would be expected of a person who has lived in Australia for 49 years and has run his own retail and property rental business here for 45 years. 3. I gained the impression that the first plaintiff's answers to my questions when he gave evidence on 4 October 2016 and again on 7 October 2016 were frequently unresponsive because he wished to emphasise some matter that was important to his perception of the case and/or because he wished to avoid a difficulty for his case which he perceived to arise from a question. His unresponsiveness, in my assessment, did not stem from a lack of understanding or of ability to express himself in English. His evasiveness as a witness was confirmed when he gave supplementary evidence under leave granted to reopen on 7 October 2016, almost solely through an interpreter. 4. The first defendant deposed that the first plaintiff spoke to him frequently by telephone about the plaintiffs' business and financial affairs. That is not disputed by the first plaintiff and I accept it. First conversation following sale of the properties 1. The first defendant acknowledges that he knew from when he commenced doing the first plaintiff's work in 1996 that the first plaintiff owned a property at 38 Restwell Street, Bankstown. From about 1998 he knew that the first plaintiff proposed to purchase number 36 Restwell Street because the first plaintiff told him of that intention. Number 36 was, in fact, purchased in about 1998 and the two plaintiffs became registered proprietors. These are the properties whose sale during the 2003 tax year constituted the CGT event which is at the heart of the allegation of professional negligence. 2. In about 2001 the first defendant was told by the first plaintiff that the plaintiffs proposed to obtain development approval for the two properties in order to increase their value. The first defendant provided the name of an architect who might be engaged to apply for the development approval. I accept this evidence. The first plaintiff's evidence is not inconsistent with it. Sale of the plaintiff's Restwell Street properties 1. The first defendant deposed that in October 2002 the first plaintiff told him over the telephone that he had sold 36 and 38 Restwell Street for $1.15 million and $1.6 million respectively. According to his affidavit, the first defendant told the first plaintiff during this telephone conversation that he would have to pay CGT on the profit realised. The first plaintiff asked if there was any way of avoiding the tax. The first defendant said there was not but that the plaintiffs should consider establishing a superannuation fund for themselves and putting between $850,000 and $1 million into it as a means of lessening their overall tax liability. The first defendant also warned that with such a large amount in a superannuation fund the plaintiffs would not be entitled to the aged pension. 2. Although the first plaintiff has denied this conversation took place, I accept the first defendant's evidence with respect to it. Given the first defendant's occupation and the professional nature of his relationship with the first plaintiff, it would have been a rational and probable immediate reaction to news of his clients' sale of valuable assets to speak to them of CGT implications. A tax and accounting adviser in the first defendant's position, if he had a working understanding of CGT, which I find the first defendant did have, would immediately think of these implications and advise his clients of the CGT liability for which they would have to make provision. It would be equally natural for the first plaintiff to want to know if he could avoid incurring the tax. 3. In giving his evidence and generally in presenting his own defence case the first defendant impressed me as being knowledgeable with respect to accounting and taxation matters and forthright in the expression and application of his knowledge. The direct frank advice that he says he immediately gave, that the CGT could not be avoided but that tax liability overall could be reduced through a superannuation fund, appears correct in law with respect to the plaintiffs' circumstances at the time. It expresses a straightforward and simple proposition and one that it is plausible the first defendant would have articulated. I have found no basis in the evidence for inferring that the first defendant's knowledge of tax law, in particular CGT law, has been more recently acquired and would not have been held by him in early 2004. CGT had been introduced fifteen years earlier, in September 1988. I accept the first defendant's evidence that he was familiar with it in 2004. 4. The first plaintiff was born in 1939 and would have been 63 years old in October 2002. The use of a superannuation fund for tax relief would have been a natural enough concept upon which the first defendant might advise in circumstances of the plaintiffs having realised a substantial capital sum. Conversations in relation to CGT and 2003 tax returns 1. The first plaintiff deposed in his first affidavit sworn 29 May 2015 that the CGT consequences of the sale of the Restwell Street properties were discussed with the first defendant in about June 2003 when the first defendant attended the plaintiffs' home to receive business records relative to the preparation of income tax returns for the 2003 tax year. The first defendant says that the meeting for this purpose did not take place until February 2004. In an affidavit in reply the first plaintiff conceded that that may have been the date. 2. In his affidavit the first plaintiff recounted the conversation on this occasion in terms which are only consistent with the first defendant having been told at some earlier date of the fact that the properties had been sold. The terms in which the first plaintiff deposes to this conversation are further only consistent with there having been no prior discussion between the two men of the incurrence of CGT. 3. I consider this highly improbable. As already mentioned, it would be natural for the first defendant to have responded whenever he was first told about the sale of these valuable assets by referring to CGT. It would be a reflex of a person carrying out the accounting and tax compliance work in which the first defendant was engaged. 4. The probability of these subjects having been discussed to the extent and in the manner that the first defendant describes is the first of a number of matters which causes me to prefer his evidence, on critical points, to that of the first plaintiff. It is the first of a number of considerations which leave me not satisfied on the balance of probabilities that the conversation in February 2004 concerning the 2003 tax returns was to the effect deposed by the first plaintiff. These matters cause me to prefer the evidence of the first defendant about the February 2004 conversation. 5. The first plaintiff's version of the conversation in February 2004 is as follows, from his affidavit of 29 May 2015 at par 42: "[First defendant]: Chris, because you made a profit on the sale of 36 and 38 Restwell Street, you will have to pay Capital Gains Tax." [First plaintiff]: How much will that be? [First defendant]: It will be quite a lot, but there is a way to avoid it. You can get out of declaring the capital gain if you say you are never going to get the aged pension. [First plaintiff]: I have never heard anything like this. Is that right? [First defendant]: Don't worry about it. I know these things. Leave it to me. [First plaintiff]: Well, I don't know, so okay, whatever you think. I will leave it to you. [First defendant]: Yes, leave it to me." 1. This passage of the affidavit is notable for his repetitive imputation to the first defendant of statements to the effect that the first plaintiff might rely upon him. One matter that I find discrediting of the first plaintiff is that he has claimed reliance upon the first defendant in an improbable and unconvincing manner. In his affidavit he claimed to have relied upon the first defendant for advice on the decision to purchase 36 Restwell Street. He also claimed to have relied upon him for advice to sell it, together with number 38. I infer that at some stage in the course of these proceedings the first plaintiff has come to understand that the concept of reliance upon the professional man, who is said to have acted negligently, is an important part of his case. I do not accept that he relied upon the first defendant in matters of acquisition and the sale of real property. There is nothing in the relationship which would suggest that the first plaintiff would have perceived the first defendant to have any expertise in real estate dealing as opposed to expertise in accounting for and tax compliance with respect to such transactions. This is one aspect of the first plaintiff having endeavoured to gild his case, in a discrediting way. 2. The first defendant deposed, at par 35 of his first affidavit, to the conversation in February 2004 in quite different terms, as follows. This conversation, it will be noted, proceeds in the first defendant's recollection from the starting point that he was already aware of the sale of the properties and had previously suggested that the proceeds be put into a superannuation fund, at least to the extent of up to $1 million, in order to minimise tax liability overall: "[First defendant]: Have you put that money from the Restwell properties into a superannuation fund? [First plaintiff]: No. I have sent the money to Cyprus. [First defendant]: You will have to include the capital gain in your tax returns and pay capital gain tax of approximately $350,000 on the sale of the properties. [First plaintiff]: No way am I going to pay that. What are the chances of me being caught if I do not declare this? [First defendant]: I do not know, it depends on the ATO and whether or not they audit your accounts or if someone dobs you in. I advise that you should include the capital gains in your taxation returns and pay the tax. [First plaintiff]: I will take the chance. I do not want you to declare it." 1. The first plaintiff transferred $2 million to an account at a bank in Nicosia, Cyprus on 17 February 2004. One reason for not accepting the first plaintiff's version of this conversation is that it appears to me quite out of character for the first defendant. Advice that capital gains tax could be avoided "if you say you are never going to get the aged pension" would, as a matter of law and taxation compliance practice, be plainly wrong. It is not suggested by the first plaintiff that the first defendant acted in a conspiratorial manner, suggesting that this basis for failing to declare the gain should be adopted disingenuously as a pretext. The first plaintiff has deposed to this conversation as one in which the first defendant gave erroneous advice quite sincerely and earnestly, apparently believing it to be right. I do not accept that the first defendant, who impressed me as careful, thorough and knowledgeable in tax matters, would have inadvertently, mistakenly, given such clearly wrong and baseless advice. There has not been demonstrated in argument the existence of any rule which might have excused the non-declaration of the capital gain in slightly different circumstances and about which the first defendant might have been innocently mistaken as to its application. 2. The prerequisite which the first defendant is said to have stipulated, namely "if you say you are never going to get the aged pension", is vague. It begs the question by what means is this to be said and to whom. I do not accept that the first defendant would, inadvertently, mistakenly, have given such question-begging advice. On my assessment of his focused and clear approach to tax accounting issues such advice would have led him immediately to consider how he should record the election not to claim an aged pension and/or whether (and if so how) he should communicate this election to the ATO and/or to the Commonwealth department or agency which in 2004 administered aged pensions. There is no evidence that the first defendant made any such record or communication of an election. Had he turned his mind to these mechanical aspects of implementing the alleged advice, he would have very quickly realised that there was no legally recognised means of recording or communicating an election about receipt of the aged pension for purposes of avoiding CGT liability, because such an election for that purpose is simply not provided for in tax law. 3. In short, I find it inconceivable that erroneous advice as contended could have been given merely negligently as opposed to deliberately and knowingly without the error being discovered as soon as the adviser attempted to implement his client's purported election. The first plaintiff does not allege that the purported advice was deliberately or knowingly false. The terms in which he purports to recall the conversation would in my view not be consistent with such a construction if it were contended for. I see no possible motive for the first defendant to have given such advice conscious of it being incorrect, and I discount entirely the possibility. 4. The first plaintiff deposed that two weeks later (which would have been in late February or early March 2004) the first defendant attended the plaintiff's home with documents to sign. The first plaintiff has sworn that the following conversation took place, at par 45: "[First plaintiff]: Are your sure we don't have to pay capital gains tax if we agree not to get an aged pension? [First defendant]: Yes, it's a little window. Leave it to me. [First plaintiff]: Okay, we will take your advice. We will agree not apply for an aged pension. [First defendant]: Good, just sign the documents." 1. The first defendant denies that such a conversation took place, and I do not accept that there was a discussion in these terms. The reasons I have already given in relation to the alleged first conversation, deposed to at par 42 of the first plaintiff's affidavit, apply with equal force. There are further reasons for rejecting the contention that the first defendant advised CGT need not be paid. These emerge from the chronological history of subsequent events, in respect of which I will now record my findings. Draft returns and lodged returns for 2003 1. The first defendant had to prepare the plaintiff's personal and partnership returns for the financial year 2003. I accept his evidence that he did prepare them and that he provided drafts in electronic form to Mr Lennan. There are in evidence several sets of 2003 returns in hard copy. 2. First, there are drafts of individual returns, one for each of the plaintiffs, and a draft of their partnership return which the first defendant says he prepared in 2003 and saved to a desktop computer at the time. I will refer to these as "the later draft returns". He deposed that he recovered these drafts from the hard drive of that desktop computer in about April 2016. In each of these later draft returns for the individuals, the first and second plaintiffs, at label G the question, "Did you have a capital gains tax event during the year?", is answered with a "Y" for "Yes" in the adjacent box. At label H on the later draft individual return for the first plaintiff the "total current year capital gain" is shown as $798,000. At label A, the "net capital gain" is $399,000. At label H on the second plaintiff's return the total capital gain is shown as $399,250, and at label A the net gain is shown as $199,625. Each of these later draft returns for the individuals shows the lodging tax agent as Noel A Zann & Co with Mr Joseph and a Sydney landline number as the contact. 3. Next, there is another set of three returns to which I will refer as "the Lennon earlier drafts". For the first plaintiff, the Lennon earlier draft bears the answer "N" to the question whether there has been a CGT event at label G. Hence, no figures for total or net capital gain are shown. At label L an amount of $399,000 is shown as interest income from a bank identified only by the letters "Xx". This is the same as the amount shown as net capital gain in the later draft return to which I have referred at [41]. Consequently, the taxable income figure in the Lennon earlier draft for the first plaintiff is the same as the taxable income in the later draft. 4. Similarly, in respect of the second plaintiff, the Lennon earlier draft return contains the answer N to the question about a CGT event. It discloses no gains but an amount equivalent to the net capital gain, which appears at label A in the later draft as referred to at [41], has been recorded as interest income at label L. Namely, $199,625, attributed to a bank identified by the letters "Xxx". The Lennon earlier drafts all show the tax agent as "Graham Lennon" and give Mr Joseph and what appears to be a Newcastle area phone number as the contact. The first defendant lives a little way to the north of Newcastle at Swan Bay on Port Stevens and he lived in that area in 2003 – 2004. 5. Thirdly, there is a set of returns identified in the first defendant's affidavit of 15 July 2015 as drafts, which he says he submitted to Mr Lennan, containing all the same information as the Lennon earlier drafts but showing the tax agent as Noel Zann & Co. I refer to these as "the Zann earlier drafts". 6. There are also in evidence several copies, which appear identical as between themselves, of a set of three returns (one for each of the plaintiffs and one for their partnership), as lodged. For the plaintiffs individually, these lodged returns contain the answer "N" at label G. That is, no CGT event during the year. The lodged documents return neither capital gain nor interest in the amounts, respectively, shown on the earlier and later drafts. Consequently, the taxable income returned for each of the plaintiffs as shown on the lodged documents is less than that shown for each of them respectively on the drafts. The difference is equivalent to the amount of the net capital gain on the later drafts or the interest attributed to bank "Xx" or bank "Xxx" on the earlier drafts. This difference is reduced and offset by partnership business income of $24,578 distributed to each of the plaintiffs. There is another adjustment in the case of the first plaintiff, for revenue loss on a rental property. First defendant's varying explanations for draft 2003 returns 1. The first defendant deposed in his first affidavit of 15 July 2015 that he prepared draft tax returns after being told by the first plaintiff that the plaintiffs did not wish to declare their capital gain. He deposed that these draft returns did not show the capital gain, that they were submitted to Mr Lennan in about 2004 and that Mr Lennan noticed the partnership return disclosed the sale during the year of a rental property but that this was not reflected in any CGT disclosure in the individual returns. The affidavit continued with the first defendant's account of having explained to Mr Lennan that the clients refused to declare their capital gain. At Mr Lennan's request, the first defendant says, he went back to the first plaintiff and confirmed that the plaintiff refused to declare the gain. Then he passed this on to Mr Lennan. The latter lodged the returns accordingly. 2. In a second affidavit sworn 21 April 2016 the first defendant modified this account. He deposed that he prepared the later draft returns in 2003, presumably late in the calendar year. In oral evidence, he said he took these to the first plaintiff and explained the amounts of capital gain which each of the plaintiffs would have to include in their respective returns. These later drafts, he said, were produced and were under discussion during the conversation in February 2004, when the first plaintiff said he would not declare the gains or pay the tax thereof. 3. In his second affidavit, the first defendant deposed that he had provided the later drafts to Mr Lennan in electronic form on a transportable data storage device, being a disk of some kind. He deposed that he and Mr Lennan had a conversation to the following effect: "[First defendant]: I have included the capital gain for these clients, although they have told me they don't want to declare it. They are willing to take the risk. [Mr Lennan]: Are you sure that was their instructions? [First defendant]: Yes." 1. The first defendant deposed that after this conversation Mr Lennan revised the later draft returns for the two plaintiffs by deleting all reference to capital gain. He then lodged the amended documents. 2. In his second affidavit and in oral evidence the first defendant explained that this alteration to his evidence regarding the draft returns for 2003 and Mr Lennan's actions in respect of them arose from his discovery in early 2016 of the later draft returns stored electronically on the hard drive of an old desk top computer. This computer had been disused for several years. He said that he had sent it to a computer technician to find and extract the documents. The technician had done so and had copied the documents onto a USB stick portable storage device and had delivered this to the first defendant in about April 2016. The first defendant had printed the hard copies of the later draft returns, and these were then exhibited to his second affidavit. 3. From other evidence referred to at the end of these reasons, it appears that the revised sequence of events referred to at [50] may not be correct. It may be that the first defendant sent to Mr Lennan draft returns with the CGT figures already taken out. For reasons which I will give later, I do not think that this throws any light on the critical facts which I have to find. 4. The plaintiffs obtained from the first defendant, by email, on 19 May 2016, electronic copies of the later draft returns in portable document format ("pdf"). They also obtained from him, on a USB stick on 28 September 2016, electronic copies of the Lennon earlier draft returns. These electronic documents were also in pdf. In cross-examination, there were pointed out to the first defendant the differences between the Lennon earlier drafts and the later draft returns. His explanation for these differences was that the Lennon earlier drafts were prepared first, to give the plaintiffs an idea of the impact of declaring their capital gains, without going to the trouble of entering data in all of the CGT relevant fields on the return or making precise calculations. 5. I do not accept this explanation. A physical comparison of the Lennon earlier drafts and the later drafts shows that there was no saving of effort or calculation in the presentation of figures in the Lennon earlier drafts. Besides, the bottom line of additional declared income in the Lennon earlier drafts and in the later drafts is the same. The CGT calculation must have been done to derive the figures inserted in the later drafts. As the additional income is the same in each, the CGT calculation must have already been done when the Lennon earlier draft returns were prepared. So the question remains, why not put these figures in the CGT fields on the Lennon earlier drafts instead of giving those figures an artificial characterisation as interest from bank "Xx" or bank "Xxx". 6. Although the first defendant's purported explanation of the form of the earlier drafts does not satisfy me, there is no sufficient basis in the evidence for finding that it is a deliberately false explanation, or, if it is, what inference I could draw from the first defendant having misrepresented this matter. Evidence about draft 2003 returns not significant to findings concerning advice 1. These proceedings were commenced in 2014. The first defendant's affidavits were made 11½ years and 12 years 2 months, respectively, after the events of February 2004. That is, after the generation of the tax returns, draft or final, for the plaintiffs for 2003. I have no sufficient basis for inferring that any of these draft returns has been fabricated during or for the purposes of the litigation. I consider that highly unlikely in view of the obscurity of any relationship between these draft documents and the central factual issues in the case, as I have identified them. That is, the factual issues relating to the disputed conversations between the first defendant and the first plaintiff in February 2004 on the topic of disclosure to the Commissioner of Taxation of CGT events. 2. The first defendant would have no reason to have fabricated these documents because they do not advance his case. It is far more likely that they were created in about February 2004 and that the first defendant has an uncertain recollection about the order in which they were created, the purpose for which different versions were created and the computer on which each was created. In his affidavit and in oral evidence the first defendant has attempted to give certainty to these matters. But I find that, whilst he has used his best endeavours in that regard, he cannot be accurate with respect to these details of document generation after the effluxion of so much time. He was born in 1935, was 68 in 2004 and is 81 at the present date. I accept that he is in poor health. His age and state of health at relevant times are at least part of the explanation for inaccuracy in his recall. 3. The final hearing of this matter was adjourned in late 2015. A trial date had been fixed for 1 February 2016. Medical and lay evidence concerning the plaintiff's serious symptoms, which were then under investigation, was the basis of the adjournment. The plaintiff had been diagnosed as suffering from generalised myaesthenia gravis, a neuro-muscular condition, which affects his breathing muscles. He required ventilatory support to sleep at night. The condition causes a generalised weakness and dizziness at times and frequent headaches. The medical evidence shows that the plaintiff is required to take steroid medication, which has some side-effects, including aggravating his headaches and muscle weakness. 4. I accept, and it would appear indisputable, that the first defendant is in quite serious ill-health. I find it unrealistic for the plaintiffs to seize upon contradictions in his account of the sequence and explanation for the production of the various forms of the 2003 tax returns more than 12 years ago, as indicating false testimony which might discredit the first defendant's account of critical conversations. The plaintiffs placed strong reliance upon this line of reasoning but I am unpersuaded. 5. The core question is whether the first defendant did or did not tell the first plaintiff that he and his wife need not declare their large capital gains in the 2003 financial year. The sequence of preparation of draft returns and of the first defendant's discussions with the first plaintiff and with Mr Lennan does not have a direct bearing upon resolution of that core question. Draft returns could have been prepared showing capital gains figures, then different returns without the gains could have been lodged, either with or without contemporaneous advice from the first defendant in the terms which the plaintiffs attribute to him. Fabrication of the various draft returns was suggested to the first defendant in cross-examination. He denied it. I reject that there has been such fabrication. There is no evidence of metadata for any of the draft documents which would substantiate the alleged recent fabrication of these documents. There is nothing in their contents, including by comparison of each of them with each other, which would support the suggestion. 6. Curiously, two of the different drafts of the return of the first plaintiff and the lodged return of the first plaintiff, in their electronic pdf forms, all have an identical icon label, CHR10006.pdf. Similarly, the pdf icons for the return of the second plaintiff, in all these forms, have the same icon label. However, there is no evidence to suggest that this state of the icon labels is a basis for inferring that any of the electronic documents has been fabricated recently or was not recovered from an old hard drive as the first defendant contends. The plaintiff's 2007 tax returns 1. During the financial year ended 30 June 2007, the plaintiffs sold a property at Old Plaza Bankstown for $2.6 million and thereby realised another capital gain. $2.6 million from the sale of the Old Plaza property was transferred by the plaintiff to Cyprus on 28 March 2007. The first defendant prepared tax returns for the plaintiffs and for their partnership in respect of this year. He has deposed that in about 2007 he was informed of the sale and thereupon told the first plaintiff that he would have to pay CGT on the profit. According to the first defendant's affidavit, the first plaintiff said he did not want to pay the tax and "I got away with it in 2003 and I'm prepared to take the risk on this sale." 2. By this time Mr Lennan was no longer submitting to the ATO tax returns prepared in draft by the first defendant. A new relationship had been formed by the first defendant with a registered tax agent named Janice Melville. According to the first defendant, she refused to lodge the plaintiffs' returns without the capital gains declared. The first plaintiff instructed the first defendant to find another agent who would cooperate. In oral evidence the first defendant said he was unsuccessful in an attempt to carry out these instructions and eventually the returns were lodged by Ms Melville showing the capital gain. 3. Copies of the returns for 2007 were provided by the first defendant to a Mr Dimitriou, the plaintiffs' new accountant, in December 2011. The evidence is that these copies provided to Mr Dimitriou are in the form as lodged except that they show Mr Lennan as the lodging agent. I infer from the first defendant's evidence that that would be because he sent Mr Dimitriou electronic copies from one of his own computers using a tax return programme in which Mr Lennan's name was embedded as the lodging agent. 4. The plaintiffs do not dispute that the returns for 2007 were lodged in the form as tendered in evidence. That is, as they had been provided by the first defendant to Mr Dimitriou in December 2011. The returns show for each plaintiff a total current year capital gain of $110,458 at label H. This is reduced by 50% to a net capital gain of $55,229 at label A. The label A amount is in turn added to the distribution of trading profits to each plaintiff from their partnership, $49,412 in each case. The combination yields total supplement income at label I on p 2. This combined with a small amount of interest gave a taxable income for the first plaintiff of $105,126. 5. I do not accept the first plaintiff's oral evidence that he failed to appreciate that $55,229 of capital gain was being brought to account in respect of each of himself and his wife for this financial year. I reject his oral evidence given on 7 September 2016 in which he denied having asked the first defendant what total amount of taxable income the first defendant had calculated, or how it was made up, or what part of it was distributed profit from the partnership with his wife through which their store was operated and through which rental income was derived. 6. I infer that the first plaintiff refused to admit in his evidence having made such inquiries and having obtained answers because he wanted to avoid having to acknowledge that he knew capital gains had been declared in his own and in his wife's returns for this year. Any small business man in his position would have looked at the returns to ascertain what income the accountant had calculated. At the very least, he would have had a close interest to see what profit the accountant had calculated as having been derived from the store and rental business which he carried on. It could not have escaped him that more than the amount of profit distribution from the partnership was attributed by the accountant as having come from capital gain. 7. If the first plaintiff had been given the advice which he says the first defendant gave him in early 2004 one would have expected him to remind the first defendant, when this 2007 return was be presented for approval, that he had elected not to claim the aged pension and that, in accordance with the first defendant's earlier advice, he did not have to declare capital gains. There is no evidence that the first plaintiff said anything like that at this time. There is a strong inference from this that there never had been such advice given in February 2004. To deflect that inference the first plaintiff most unconvincingly claimed that he had failed to appreciate what figures went into his tax return and that of his wife for the 2007 year. The ATO audit of the plaintiffs' tax affairs and July 2010 audit meeting 1. By letter of 12 March 2010 the ATO notified the plaintiffs of an intention to audit their affairs for the financial years 2005 to 2009 inclusive. A meeting took place between the tax auditors and the first plaintiff on 26 July 2010. According to exhibit N, an ATO auditor's note of the meeting, when asked about the sale of the Restwell Street properties in 2003 the first defendant said they had been bought before September 1988. If true, that would have meant that their sale would not have attracted CGT. 2. When cross-examined about this, the first defendant admitted that he had lied to the auditors to try to protect the plaintiffs. I accept that. It shows that in 2010 he knew the 2003 sale of the properties had given rise to a CGT liability. His attempt to deceive the auditors in this respect is inconsistent with him having had, in July 2010, a mistaken belief that any exemption to the payment of capital gains on the 2003 profits from sale was available to the first plaintiff. 3. The tax auditor's file note of the July 2010 audit meeting is neutral as to whether the first defendant may have had such a mistaken belief in early 2004. The file note shows that the first plaintiff volunteered to the auditors that the Restwell Street properties had been sold in calendar 2002 (during the 2003 tax year). I reject the argument that this shows the first plaintiff must have believed that gains were not taxable. It is equally consistent with the first plaintiff simply blurting out this information against his own interests, thinking the auditors were only inquiring into the years 2005 to 2009, as they had said in their letter of 10 March 2010 by which commencement of the audit was notified. ATO request for information, 19 August 2010 1. These disclosures on 26 July 2010 concerning the Restwell Street properties led to written questions being sent by the ATO to the first plaintiff on 19 August 2010 seeking information that he had not been able to supply during the meeting. The written questions included the following: "8. Please advise why the sale of these properties was not reported as capital gain events in the partnership or your individual income tax return for the 2003 financial year. … 15. [With respect to the property at Old Plaza, Bankstown.] Please provide details and evidence of your capital gains tax calculations, reported in your 2007 income tax return. For example, solicitor's settlement letter, real estate agent's invoice, detail of commission and cost of sale." 1. I accept the evidence of the first defendant that the document which was sent in reply to this was typed up by him in discussion with the first plaintiff as to its contents. In answer to question 8, the following was written: "The properties at Restwell Street, Bankstown we applied for a DA at a cost of $128,500 which was approved and sold with the DA. The reason capital gain was not reported, was that the proceeds would be used for our retirement and not receive the old age pension." 1. I accept the first defendant's evidence that this is what the first plaintiff asked him to write, although I find it is likely the first defendant contributed to the idea of this explanation. I do not accept that this was a continuation or repetition of erroneous advice which the first plaintiff alleges had been given to him by the first defendant 6½ years earlier in February 2004. It is not expressed as an understanding or interpretation or application of any rule, provision or exemption. It is in a form quite inconsistent with the expression or application of a professional opinion about the operation of the CGT provisions. Having observed the first defendant in the witness box and listened to his responses to questions on accounting and taxation subjects, I find it not credible that he would express in writing to ATO auditors an opinion or contention about the operation of a purported or perceived CGT exemption in these loose terms. 2. I infer that, confronted with question 8, the first plaintiff knew there was no justification for the gains not having been declared in 2003, and he invited the first defendant to help him formulate an excuse, perhaps even suggest the excuse. I infer the first defendant knew there was nothing sensible or plausible to be said to help his client and therefore he agreed to write whatever feeble statement the two of them could compose. 3. In answer to question 15 there were set out in the same reply document calculations showing a capital gain of $441,832 on the Old Plaza property. This was shown as reduced by 50% for "discount for small business". The resulting figure of $222,916 was apportioned equally between the two plaintiffs on this calculation sheet. $110,458 was what had gone into the plaintiffs' respective returns as total gain. As earlier mentioned, they had claimed a further 50% discount in their returns. 4. If the plaintiffs had not, at the time of approving their 2007 returns as prepared by the first defendant, realised that $55,229 was being declared by each of them as capital gain in that year, the first plaintiff certainly knew of it at the time when this response to the ATO was being prepared in about September 2010. If he had received in early 2004 the advice he claims to have received, one would have expected him to be saying to the first defendant in September 2010 something to the effect: Why did you ever have us declare that capital gain in 2007? Why am I having to face ATO questions about it? I have elected not to take the old age pension. You said that relieved me of having to pay tax on capital gains. 5. There is no evidence of the first plaintiff having challenged the first defendant along these lines at this time. That contributes to my conclusion that the asserted advice of February 2004 was never given. February 2011 audit meeting 1. The first plaintiff and the first defendant met with the auditors at the plaintiffs' store on 15 February 2011. What was discussed is referred to in three different versions of auditors' notes of the meeting, exhibits C, D and E. I do not find these documents sufficiently consistent with each other or clear in themselves to constitute a foundation for an affirmative finding on the balance of probabilities about what was said by either the first defendant or the first plaintiff to the tax auditors. The documents are in the nature of a set of pre-prepared printed questions on which the auditors wrote or typed the answers they received, as they understood them. The questions include probing as to why the capital gain on the sale of the Restwell Street properties in late 2002 was not declared in the 2003 return. 2. At most, the notes are significant for what is not recorded. If the first plaintiff had received in February 2004 the advice he claims to have received from the first defendant, one would have expected this probing from ATO auditors to have drawn a very clear response from the first plaintiff. He would likely have reminded the first defendant of his advice about an exemption if the aged pension were not to be claimed. He would have asked the first defendant to repeat to the auditors his opinion on this exemption and to show them the provision he relied upon. He would have reminded the first defendant that he had asked the first plaintiff to sign papers in the first half of 2004 which the latter understood included a declaration that he would not claim the pension. He would have invited the first defendant to produce the signed declaration. 3. Plainly, there was no such exchange between the first defendant and the first plaintiff at this time. If there had been, it would have been clear, perhaps dramatic, as a rift between the taxpayer and his adviser. It would have put the auditors on inquiry of the first defendant as to what exemption he had been referring to or had misunderstood and it would have found clear expression in the auditors' notes. No such thing is to be found in the notes. 4. On the contrary, the auditors' general understanding of what the first plaintiff and the first defendant respectively said at this meeting is recorded in the ATO's position paper, issued on 29 June 2011, in the following terms. (This is addressed to the first plaintiff as "you"): "You stated during our meeting of 15/02/2011 that you were aware that the sale of the Restwell Street properties should have been reported on your income tax return and that, if reported, sale of the properties would attract Capital Gains Tax. You further stated that you discussed the Capital Gains Tax implication with your adviser – Mr Kirk Joseph, and decided not to report the sale of the properties as you and Mrs Kafataris will be supporting yourselves in retirement rather than relying on the Old Age pension. Mr Kirk Joseph also confirmed at the meeting on 15/02/2011 that he did discuss with you the full implications of Capital Gains Tax, including your obligation to report the sales of the Restwell Street properties on your income tax return and your associated liability to Capital Gains Tax. Mr Joseph stated that it was your decision not to report the sales of 36 and 38 Restwell Street properties on your income tax return. … You have stated in your reply to questions included with my letter dated 28/09/2010, that 'The reason capital gain was not reported was that the proceeds would be used for our retirement and not receive the old aged pension'. During our meeting on 15 February 2011 you stated that you were aware of the requirement to report the sale of the Restwell Street properties on your income tax return but made the decision not to report the sale as you wanted to use all of the proceeds for your retirement. Your justification for this was that you were not going to be eligible for the old aged pension. Your tax adviser, Mr Kirk Joseph, also confirmed that he discussed the implications of capital gains tax with you and your obligation to report the sale of the properties on your income tax return. He stated that it was your decision not to report the sale of the Restwell Street properties." 1. As a result of this information obtained in February 2011, in October of that year the Commissioner assessed the plaintiffs to the shortfall in primary tax and to penalties and he levied GIC, as referred to at [4] and [5]. November 2011 meeting of first defendant with Mr Dimitriou 1. The first plaintiff's new accountant, Mr Dimitriou, has deposed that he met with the first defendant and with a Mr Jim Ronis at the latter's office on 18 November 2011. Mr Dimitriou has deposed to the following conversation: "[Jim Ronis]: Kirk had been doing Christos' and Theodora's tax for a long time. They sold two investments properties in 2002. Kirk said they didn't have to include the money from the sale if they agreed not to receive the aged pension. They agreed to that. Now the ATO says that they need to pay all this tax and penalties. "[First defendant]: Yes, but I haven't done anything wrong. This never should have been a problem." 1. Having heard Mr Dimitriou's oral evidence, answering questions from the first defendant, and from myself, I do not consider him reliable on the subject of what was said by the first defendant or when it was said. There is significant conflict between his affidavit and his oral evidence as to the occasions of conversations between himself and the first defendant. He has not produced contemporaneous file notes of the conversations he has deposed to. 2. I do not consider the words quoted at [83] constitute a clear admission by the first defendant that he had given the alleged advice in February 2004. In any event, for the reasons I have just mentioned, I am not satisfied on the balance of probabilities that this is precisely what was said. Mr Ronis has not been called. 3. Subsequently to this meeting Mr Dimitriou engaged Schurgott & Noolan, solicitors, to lodge objections to the penalties, which they did on 16 December 2011. November 2012, first defendant's statutory declarations for the ATO 1. Nearly a year later Mr Noolan sought through Mr Dimitriou information which could be put to the Commissioner of Taxation to soften his view that the capital gains had been omitted from the 2003 returns by "intentional disregard". It was this characterisation that had led to the imposition of penalties at 75% of the shortfall tax. Mr Dimitriou has deposed that in November 2012 he had the following conversation with the first defendant by phone: "[Mr Dimitriou]: [T]he Tax Office needs more information about the returns for Christos and Theodora. At the meeting we had last year Jim said that you told Christos that he didn't need to declare income from the sale of investment properties if he agreed not to claim the aged pension in the future. [First defendant]: Yes. [Mr Dimitriou]: It sounds to me like you may have misunderstood the rollover relief that can be available if you sell a property that is being used to run a business. Anyway, you need to help Christos and Theodora with the Tax Office, they are facing big fines. The penalties could be reduced if you explain what happened. They would like you to sign a statutory declaration that explains the advice you gave them. I can prepare a draft and send it to you. [First defendant]: Okay, I will help." 1. Mr Dimitriou's affidavit continues to the effect that soon after this he drafted a statutory declaration and sent it to the first defendant in a typed form. The first defendant responded by sending back a sworn declaration in different wording but substantially to the same effect. The revised declaration was sworn on 19 November 2012. It acknowledged that the first defendant had told the plaintiffs "that if in the future they did not apply for any aged pension, that there may exist a window of opportunity to not declare the capital gain that they incurred on the sale of their property at 36 and 38 Restwell Street, Bankstown." 2. Mr Dimitriou's oral evidence about this statutory declaration was inconsistent with the account in his affidavit in material respects. He said in oral evidence that the statutory declaration originated in a completely different way. Namely, he met with the first defendant in his own office and hand wrote a draft of the declaration taking instructions for its contents from the first defendant. There is in existence a handwritten draft in Mr Dimitriou's writing. The first defendant deposed that this handwritten draft was simply presented to him, already composed, when he met with Mr Dimitriou in the latter's office in 2012. The first defendant said he was asked to take the draft away and have it typed and sworn. He did this with some modifications to the drafting which resulted in the sworn declaration from which I have quoted at [88]. I accept the first defendant's version of these events, in relation to which he has been consistent in his affidavit and oral evidence. He would be likely to have a clear recollection of how the statutory declaration came into existence as he was the one who modified the draft, had it typed and swore it. 3. I do not find Mr Dimitriou at all reliable, having regard to the significant changes of recollection between his affidavit and his oral evidence and within his oral evidence. Because of his unreliable recollection, I am not satisfied on the balance of probabilities, that he had a conversation with the first defendant in the terms he deposed to in his affidavit as quoted at [87]. His purported recollection of this conversation is, in my view, so unreliable that I could not use it as a basis for finding that the first defendant actively admitted that he had given erroneous advice in 2004. Even if the conversation, as Mr Dimitriou has deposed to it, has been only slightly misremembered by the witness, there may have been nothing said which could be construed as such an admission. 4. The first defendant has deposed that the statutory declaration of 19 November 2012 was untruthful so far as it stated he had given advice "that if in the future they did not apply for an aged pension, that there may exist a window of opportunity to not declare the capital gain". The first defendant has deposed that he made this statutory declaration (and another on 28 November 2012 and a signed statement on 3 December 2012, to which I will refer shortly), "out of my misguided sense of loyalty to my longstanding clients, Mr and Mrs Kafataris, for whom I felt sympathy because they were trying to have the significant penalties imposed on them reduced." 5. I accept that evidence. The first defendant's oral evidence under cross-examination was consistent with his affidavit in this respect. He said he tried to help his clients by making the statutory declaration of 19 November 2012 (and the subsequent declaration and signed statement), despite their untruths, and in effect that he tried to craft the words of these documents to minimise his own fault in the matter to which he was falsely admitting. I find this an entirely plausible scenario as between two men of similar age from the same ethnic background with a long professional association in circumstances where one of them, the client, was facing a severe financial set back by reason of the significant penalties imposed by the ATO. 6. My conclusion that the first defendant falsely swore these documents where in fact he had never advised the first defendant that he could refrain from declaring capital gains is supported by the absence of any evidence that the first plaintiff himself swore any statutory declaration at the time or set out in any other document for submission to the ATO his personal recollection of the alleged erroneous advice he now claims he had received. One would have expected the first plaintiff to have prepared such a document for submission to the ATO if he had a recollection of receiving the advice which he asserts. One way of going about it would have been for the first defendant to swear a declaration as to the advice he had received and then request the first defendant to swear a confirmation that advice in those terms had been given. 7. So far as the evidence goes, none of that was done. Instead Mr Dimitriou on behalf of the first plaintiff orchestrated a series of revisions to the statutory declaration of 19 November 2012, seeking to have the first defendant admit to the ATO the terms of advice he had supposedly given in 2004 in increasing detail. 8. The first defendant caused to be typed up a second statutory declaration which he swore on 29 November 2012. This included the following: "I discussed the issue of capital gains with an associate Accountant of mine regarding the relief of capital gains tax on the sale of their properties. He said to me words to the effect 'there is currently a window of opportunity to taxpayers that if they do not apply for any aged pension then they may not be required to declare the capital gain.' As a result of this conversation, I passed this information on to Mr and Mrs Kafataris confirming with them that it was my understanding that there may be a window of opportunity for them not to pay capital gains tax because of the information I had received." 1. The first defendant now says this was untrue and that his reason for falsely swearing it was the same as for the first declaration. I accept that. He denies that there was any "associate Accountant" with whom he had discussed the matter in 2004. There is no evidence of discussions having taken place between the first defendant and an associate, in 2004, about the plaintiffs' apparent CGT liability. The terms of this second statutory declaration are consistent with the first defendant's evidence that he framed his falsehoods in the declaration to try to persuade the ATO to lower penalties for the plaintiffs whilst at the same time trying to reduce his own culpability. Reference to an associate who might have given him advice to the effect allegedly communicated to the plaintiff would be consistent with that. 2. On 30 November 2012, Mr Dimitriou sent to the first defendant an email which contained the text of a one page statement which he required the first defendant to sign. This contains further purported, but false on the first defendant's evidence, detail of the circumstances in which the first defendant had supposedly given erroneous advice on CGT in February 2004. I consider that this email clearly records the process of Mr Dimitriou on behalf of the plaintiffs inducing the first defendant to make signed representations which could be sent to the ATO, without there being any foundation for such representations in anything the first defendant had said to Mr Dimitriou. I do not question the honesty of Mr Dimitriou. He might have been given false information to put into these documents by someone associated with the plaintiffs or by the first plaintiff himself. Mr Dimitriou may have believed what he was told regarding matters which the first defendant could adopt and declare or sign. The evidence does not permit me to say which of these alternatives is the case. 3. The first defendant signed on 3 December 2012 the statement which Mr Dimitriou had drafted for him but he has deposed that it is false. I accept that evidence. 4. The first defendant deposed that the plaintiff's son threatened him that if he did not sign documents of the nature to which I have referred the plaintiffs would inform the ATO that the first defendant had been paid his accounting fees in cash. I make no finding whether this was said or not. It is irrelevant. The first defendant has not said that he was affected by the threat which he recalls having been issued to him. He says he was unaffected because he had declared any income which he had received in cash. I consider it a point in his favour on credit that he did not attempt to make a case that the statutory declarations were extorted from him by this means. The basis on which he has explained his falsely sworn declarations was different and was inherently plausible. In discounting the statutory declaration, he has not reached for every excuse. I treat the evidence about the alleged threat as immaterial for the additional reason that there is no evidence that the plaintiffs knew of it or authorised it. 5. In summary of these reasons, the principal matters that cause me to reject the plaintiff's account of the advice he claims to have received in February 2004 about not declaring capital gains are as follows: 1. The first plaintiff's account of the conversation, on the basis that the first defendant had known of the sale of the properties for some time before but in February 2004 for the first time referred to the capital gains tax consequence, is inherently unlikely. News of the sale would likely have prompted the first defendant to speak of CGT consequences from the first. 2. The inherent improbability of the first defendant making the alleged gross mistake about an exemption for CGT liability and, even if he did make it, not discovering the error when he tried to implement an election to forego the aged pension. 3. The first plaintiff's acceptance of the tax returns for 2007 prepared by the first defendant, declaring capital gains on the sale of the Old Plaza property as part of the plaintiffs' taxable income, without reference to the alleged advice of February 2004. This consideration is coupled with the incredible evidence of the first plaintiff denying that he knew capital gains had been declared in the 2007 returns. 4. The absence of clear assertion from the first plaintiff that he had received and acted upon such advice as he now alleges, in any of the letters to the ATO which were drafted in answer to the auditor's information request of 19 August 2010, the meeting with the auditors on 15 February 2011 or any statutory declaration or statement of recollection provided by the first plaintiff to the ATO in the course of representations made after objections had been lodged. 1. Having rejected the first plaintiff's evidence of the advice alleged to have been received in February 2004 and having accepted the first defendant's evidence that he did not give such advice, I am further satisfied on the balance of probabilities the only reason the first defendant allowed the 2003 returns to be lodged by Mr Lennan with no CGT declared is that he was so instructed by the first plaintiff. I accept the first defendant's evidence that the first plaintiff gave that instruction. 2. The first plaintiff points to the copies of the 2003 returns sent by the first defendant to Mr Dimitriou by email of 8 December 2012 which show that they were lodged with no CGT information. The covering email to Mr Dimitriou, being part of Exhibit J, says that these are "from an old computer". This is consistent with the first defendant's evidence in his first affidavit, as summarised at [46], that he sent to Mr Lennan draft returns which did not show CGT information. However it is inconsistent with his second affidavit, summarised at [47] – [49], according to which he prepared on his own computer returns which included CGT data and sent these to Mr Lennan and that the CGT information was only taken out on Mr Lennan's computer. 3. This contradiction seems to me to be a very small point. If in fact the returns in final form were prepared on the first defendant's computer, as per his original affidavit and contrary to his second, I would not infer that the first defendant deliberately misrepresented this in either affidavit. Nor would I conclude, as the plaintiff submitted, that the first defendant has given false evidence in an endeavour to involve Mr Lennan in a greater share of responsibility for the false lodgement. The first defendant has consistently always maintained in these proceedings that the first plaintiff approved lodgement with no CGT disclosure and that the first defendant so informed Mr Lennan. He has never embarked upon trying to blame Mr Lennan, for the purpose of which statements regarding who removed the CGT figures might have been directed. The contradiction in this aspect of the first defendant's evidence is readily explained as a mistake of an 81-year old man about the computer on which (and the professional by whom) CGT figures were taken out of a draft return 12½ years ago when he was about 68 years old. 4. For these reasons, I find that no negligent advice was given and no negligent action was taken by either defendant, as alleged. I find the plaintiffs have suffered the damage of which they complain of by reason of their own decision to have false returns lodged on their behalf for the 2003 year. No damage has been done to them by any operative cause attributable to negligent advice or conduct of either defendant. 5. The orders of this Court are: 1. Judgment for the defendants. 2. The plaintiffs are to pay the defendants' costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 November 2016