A Trip Down Memory Lane

(Why we have judges determining tax controversies)

An after dinner speech at the Taxation Institute of Australia 2010 Annual Tax Intensive, Surfers Paradise, Gold Coast

Ah, the Gold Coast!

For me, there is something rather nostalgic about coming down here for anything relating to taxation law and practice. For it is, quite literally, a trip down
memory lane, exciting memories of faces and cases old and new from my time
(at the Bar and now on the Bench.

This is why.

On my way south I passed Hope Island, where one of the residences of Mr Pattenden was located. He had others overseas, in Vanuatu and New Zealand. There were those in the Australian Taxation Office (ATO) who thought he should not enjoy visits to the latter, at least until he had settled his alleged Australian taxation liabilities. He challenged in the Federal Court the Departure Prohibition Order imposed on him. I was persuaded that not only was the order irregularly made but also that there were no reasonable grounds for making it.^[1]

A little further on, at Nerang, I passed near to where the late Brian Maher once had his mansion and related, extensive thoroughbred racing stables. He had another stable as well, a stable of worthless shelf companies with large taxation liabilities. Mr Maher was a former Parramatta Road used car dealer who, in the late 1970's and early 1980's, found a better product to sell, "bottom of the harbour" tax schemes. When employed within the Commonwealth Crown Solicitor's Office in 1983 I appeared for the Commonwealth when he was first arrested for the offence of conspiracy to defraud the Commonwealth, for which he was later imprisoned.^[2] I had no later involvement with the criminal case but the related taxation litigation engendered by him, by his associates and by related companies provided welcome, behind the scenes^[3] and appearance^[4] work for me when newly commenced in private practice at the Bar.

Closer to here, at Southport, I passed by where once the Meteora Building stood. There, in 1982, two able and dedicated members of the ATO's Investigation Branch, Messrs Anderson and Neilsen sought to access^[5] the premises of a Mr Swan who there was good reason to think had found attraction in some "cutting edge" tax minimisation schemes. Mr Swan denied them that access, saying that he wished to take legal advice. He was also served with a notice to attend and give evidence before an ATO officer.^[6] This he later failed to do.

Charges were laid against Mr Swan for obstructing the investigating officers and for failing to attend the examination. Those charges were heard together at the Southport Magistrates Court. I appeared as junior counsel in that hearing and in the later appeals. Mr Swan was, by leave, represented by the late Peter Clyne, an urbane, disbarred barrister^[7] and bon vivant with a talent for promoting self and "cutting edge" tax minimisation.^[8] I can still see the pink rose bud which he had worn at his lapel during the hearing and then discarded lying wilting on the bar table. Mr Swan's conviction for obstruction was overturned on intermediate appeal.^[9] That result, in turn, was the subject of an initially successful application by the Commissioner for special leave to appeal to the High Court, only to have special leave revoked during the course of the respondent's submissions on the hearing of the subsequent appeal. In the other appeal, the conviction in respect of the failure to attend charge was upheld.^[10]

Were I to have continued my journey a little further down the highway to Burleigh Heads I would have passed "Aspect on Burleigh" a boutique apartment tower developed by PM Developments Pty Ltd. As is not unprecedented amongst Gold Coast property developers, PM Developments became insolvent. In the course of its winding up a question arose as to whether its liquidator was personally liable for Goods and Services Tax (GST) in respect of the sale of new
apartments owned by the corporation pursuant to a contract for the sale of those premises entered into and completed after the making of the winding up order? I held he was not, having regard to the then wording of the legislation.^[11] That position has been changed by subsequent legislation.

I can think of other examples.

Is there anything apart from self indulgence about these disparate reminiscences?

There is. They each have a unifying theme. Each of these cases involved the exercise of the judicial power of the Commonwealth.

When, for example:

• Helman DCJ in his judgement on Mr Swan's successful appeal against his obstruction conviction asked rhetorically and memorably:
  
  Is every denial of taxation officers in circumstances like these necessarily an obstruction? There could be a thousand and one reasons-professional, commercial or personal-why someone could deny access for a short time. Must the surgeon lay down his scalpel, the farmer stop milking his cow, the shopkeeper turn away a customer in the middle of a transaction, the mother stop feeding her child lest he or she be found guilty of obstructing taxation officials? Must professional duty, commercial exigency, and any other reasonable excuse, bow down before the stern inflexibility of this interpretation of the Income Tax Assessment Act?
  
  or
• Connolly J in refusing to strike out as frivolous an objection by a company, based on an alleged invalidity of the legislation, to the Commissioner's claim in respect of a vendor recoupment tax liability, even though the High Court had then recently held the legislation to be valid stated:
  
  I rest my decision on the narrow ground that it is not for a judge of this Court to deny a litigant the right to seek to have the High Court reconsider a decision by way of answer to a cause of action founded on that decision.

each was standing between Crown and subject in what by then was a popular cause, the pursuit of those seen by the Executive Government as not having paid tax according to law and by many in the wider community as having thereby "sponged" off those Australian wage and salary earners who had.

It is not my purpose this evening to reflect on the correctness in law of the judgements from which I have just quoted, much less upon that of my own, for so to do would be inappropriate. It is what their mere existence evidences which is important.

Last week, in South Australia v Tofani,^[12] in what is already a landmark case in respect of the independence of the Australian judiciary, French CJ stated:

Courts and judges decide cases independently of the executive government. That is part of Australia's common law heritage, which is antecedent to the Constitution and supplies principles for its interpretation and operation. Judicial independence is an assumption which underlies Ch Ill of the Constitution, concerning the exercise of the judicial power of the Commonwealth. It is an assumption which long predates Federation. Sir Francis Forbes, the first Chief Justice of New South Wales, stated the principle in uncompromising terms in 1827 in a letter to the Under-Secretary of State for War and the Colonies:

"His Majesty may remove the judges here, and so may the two Houses of Parliament at home; but the judicial office itself stands uncontrolled and independent, and bowing to no power but the supremacy of the law."
It is a requirement of the Constitution that judicial independence be maintained in reality and appearance for the courts created by the Commonwealth and for the courts of the States and Territories.

The aim of the legislation under challenge in Totani was to reduce the incidence of organised crime by the proscription, under pain of penal sanction, of membership of particular motor cycle gangs. That, too, was a popular cause. The provision which came to be attended with invalidity was one which would have reduced the role of a South Australian court to nothing more than a cipher for the fiat of the Executive Government.

Two other judgements handed down that same day by the High Court offer other illustrations of the role of an independent judiciary in the prevention of arbitrary conduct by the Executive Government. In Plaintiff M61/2010E v Commonwealth of Australia^[13] a procedural fairness obligation was held to attend those undertaking, as part of an "off-shore" refugee claimant processing regime, steps which would inform a Commonwealth Minister's decision as to whether to consider such a visa claim.

In Commissioner of Taxation v Anstis^[14] tertiary education expenses incurred by a recipient of "youth allowance", which was assessable income, in order to gain and retain eligibility for that allowance, were held to be allowable deductions under s 8-1(a) of the Income Tax Assessment Act 1997 (Cth).

Anstis manifests a feature of our Federal taxation system which is relevant to a session of this conference devoted to considering the relative merits of the alternatives of court or tribunal challenge to assessments.

A right of recourse to the judicial power of the Commonwealth so as to contest whether the criteria giving rise to an alleged taxation liability are met is one feature which, at the Federal level, distinguishes a valid law with respect to taxation from an invalid arbitrary exaction.^[15]

Underpinning that distinction is a principle, deeply rooted in our constitutional heritage^[16], that taxation by the pretence or prerogative of the Crown, i.e. the Executive Government, as opposed to by law made by Parliament, is forbidden. It is a corollary of that principle that the Executive Government, in the person of its chief revenue officer, the Commissioner of Taxation, is unable conclusively to determine a person's liability to taxation.

At the State level, this same constitutional heritage informs construing rights of challenge to State taxes broadly.^[17] Indeed, a State law which sought to limit the jurisdiction of a Supreme Court to entertain a challenge to the lawfulness of an alleged taxation liability may well be invalid.^[18]

An ability to have recourse to the judicial power of the Commonwealth so as to challenge an alleged Commonwealth taxation liability would be a hollow one without the existence of a judiciary independent from the Executive Government. Especially in unpopular causes, it may be no less hollow if, as in some American States, the judiciary were subject to popular election.

Independence is first and foremost an incident of character, learning and experience but the tenure, now limited by age as opposed to the original life tenure and the protection from diminution in remuneration, conferred by s 72 within Chapter Ill of The Constitution upon judges exercising the judicial power of the Commonwealth, buttresses this independence. Section 72 grants to the Federal judiciary the like security of tenure to that first conferred by s 3 of the Act of Settlement 1701 (Eng) - removal by the Crown only upon an address from each House of Parliament seeking the same on the basis of proved misbehaviour or incapacity..

Over 80 years ago, an attempt by the Parliament to consign what was held to be an exercise of judicial power in respect of Commonwealth revenue law controversies to a body whose members did not enjoy such tenure was held to be invalid.^[19] The Parliament remained determined to offer an alternative, less formal method for challenging an assessment after an adverse objection decision to an exercise of judicial power. The revised method adopted was to create an admi_nistrative tribunal, a Board of Review, which formed part of the Executive Government but which stood apart from the Commissioner's office and which was able, in place of the Commissioner and when reviewing an assessment, to exercise the powers consigned to the Commissioner by a taxation law. That revised method survived constitutional challenge.^[20] It remains with us today in the form of the power exercised by the Administrative Appeals Tribunal (AAT)^[21] and other Commonwealth external merits review agencies.

It should not be thought that an attempt to consign Commonwealth judicial power to those who do not enjoy security of tenure is a creature of a bygone age. The recent demise of the Australian Military Court was attributable to just such an invalid attempt.^[22] The price of the liberties which we enjoy under our constitution truly is eternal vigilance.

Such vigilance is not just the responsibility of the judiciary or even of the legal profession. Bodies such as the Taxation Institute of Australia have a vital role to play in scrutinising initiatives of both the Legislative and Executive Branches of government and highlighting those which threaten our liberties. Especially that is so for the Institute, I suggest, in relation to any initiative which diminishes the ability of a taxpayer to challenge an alleged taxation liability.

Sometimes such initiatives can have much superficial attraction.

From the inception of Boards of Review and until their abolition in 1986 and the assumption by the AAT of the taxation review jurisdiction which they previously exercised their members .enjoyed a seven year appointment but were eligible for re-appointment. As originally enacted, the Administrative Appeals Tribunal Act 1975 (Cth) afforded presidential members of that tribunal, be they judges or not, tenure until age 70.^[23] Non-presidential members could be appointed for a term of up to 7 years but were eligible for re-appointment.^[24] Now the maximum term for which any member of the AAT can be appointed is 7 years, although eligibility for re-appointment has been retained.^[25] In practice, 5 years is the standard term of appointment.

An attraction of this limitation of tenure is that appointees who do not meet "performance criteria" or who disappoint in other ways may be removed by the expedient of allowing their commission to expire by effluction of time.

This subsequent limitation of tenure for any further presidential members reduced the institutional independence of the AAT. Though it remains the case that the tribunal's President must be a Federal Court judge and that other members of that court may hold additional commissions as presidential members, that tenure is enjoyed only in a judicial capacity, not as a member of the AAT. Further, it is no longer the case that the President's immediate, full time subordinates, the Deputy Presidents, all enjoy tenure limited, during the existence of the AAT, only by age, good behaviour and capacity. At present, it is not unknown for members, presidential and otherwise, not to be aware, even in the month in which their commission is due to expire, whether or not they will be re-appointed.

It has always been the case that, during their term of office, members of the AAT may only be removed by the Governor-General upon an address seeking the same by each house of Parliament passed in the same session on the basis of proved misbehaviour or incapacity. At first blush, that looks similar to the only method by which a judge may be removed, until it is remembered that, unlike a judge, a member may also lose office by the expedient of repealing the legislation constituting the AAT.

This may seem a remote possibility but it was a method availed of by the Commonwealth Parliament to remove a member of the Conciliation and Arbitration Commission who had in the eyes of some proved troublesome. Notwithstanding his title, which was a courtesy one only, the commission member concerned, Mr Justice Staples, was not a Chapter Ill judge but rather a member of a specialist industrial arbitration body established by statute. He lost his office on the repeal of the Conciliation and Arbitration Act 1904 (Cth) upon the commencement of the Industrial Relations (Consequential Provisions) Act 1988 (Cth). The Industrial Relations Act 1988 (Cth), which commenced the same day, established the Australian Industrial Relations Commission. Mr Justice Staples had been the author of some controversial decisions. He was not offered a position on the new body, unlike other presidential members of the former commission. The explanation given for this by the then Prime Minister in Parliament in response to a question directed to this included the following rationale:

Our principal concern must be to ensure that the country's industrial relations operate effectively with the confidence of all participants in that process, and we are confident that the decisions we have made will ensure that outcome.^[26]

Other parts of the Prime Minister's answer assert that there was longstanding dissatisfaction with Mr Justice Staples' performance to the extent that he had effectively been allocated no work for about a decade. If this were so, it was, with respect, surely incumbent on the part of Parliament to pass an address seeking his removal long before that decade had elapsed.

There are other modern examples of this type of subversion of the independence of those whose decisions may thwart the decisions taken by officers of the Executive Government.^[27]

It should not be supposed that the potential for interpersonal clashes is any less within courts and tribunals than elsewhere in the workplace. Again as in the wider community, the occasion for such clashes need not necessarily entail bad faith or behaviour on the part of either party, nothing more than differences in style, personality, priorities or work habits. Where a tribunal member does not enjoy security of tenure, the temptation to conform to the preferences of a head of jurisdiction on such matters may be a strong one. This type of temptation apart, it is wrong in principle, I suggest, for those whose task it is to decide government decisions afresh on external merits review, and perhaps in a way that will attract the ire of a Minister or Permanent Head, to have even a moment's pause for thought about whether this might. affect a chance of re-appointment.^[28]

None of this is to question the personal integrity, much less the competence, of those members of the AAT who presently review taxation or other decisions. I have, for example, the utmost faith in those local members of the AAT who review taxation decisions. The position remains though that their personal integrity is not buttressed by the same security of tenure as Chapter Ill judges or even anything approaching that.

Long ago, in the seventeenth century, during what one author has described^[29] with masterly understatement as a "period of creative tension", Sir Edward Coke, then Chief Justice of the King's Bench, who held office at royal pleasure, asserted the supremacy of the common law over the royal prerogative and the subjection of the Sovereign not only to God but also to the law. He was dismissed from office by King James I. When swearing in his successor, the Lord Chancellor referred to this dismissal, describing it, "to be a lesson to be learned of all, and to be remembered and feared of all that sit in judicial places".^[30] His son, King Charles I, dismissed from office two Chief Justices and suspended another senior judge, the Chief Baron of the Exchequer.^[31] It was the recollection of this and other tyranny and of the tumultuous civil war fought against it which informed the protection given to judges by the Act of Settlement.

The difference between the lesson which the Lord Chancellor saw in the summary dismissal of judges and the prospect that a tribunal might be abolished by statute or a commission not renewed is only a matter of degree.

An independent judiciary is a necessary given in our taxation system. That does not mean that every taxation controversy requires judicial determination, only that such an option truly exist. Any attempt by another branch of government to make such an option incapable of exercise in practice, e.g. by prescribing excessive filing or other court fees, would be invalid. In many cases, AAT review is a perfectly acceptable alternative. Time does not permit the exploration of the relative advantages and disadvantages of the choices of challenge offered by taxation legislation. That is a subject you will consider in depth in a conference session.

In practice, an appeal to the Federal court or an application for review to the AAT is a remedy of last resort. If there is merit in a challenge to an assessment then, desirably, that should be recognised by the Commissioner at objection stage. The importance of the Commissioner's fostering within his office a culture of healthy scepticism in relation to the correctness of an assessment when considering an objection cannot be over-emphasised.

Other administrative practices may also foster healthy scepticism. Not undertaking in-house legal representational work in all but minor AAT cases can also be conducive to this. The risk in not so doing can be a lack of objective detachment or challenge to idiosyncratic thinking^[32] in the provision of advice on prospects and the uncritical adoption of practices which are not procech.. to taxpayers.^[33]

Matters of general public administration within the ATO are, of course, for the Commissioner and, insofar as they entail litigation to which the Commonwealth (in the person of the Commissioner) is a party, for the Attorney-General as first Law Officer, not for the judiciary. The judicial role is engaged only where the virtues and vices of particular practices manifest themselves in particular cases. That is not to say that the role of the Taxation Institute is similarly limited. The Institute has a legitimate role to play in the conduct of informed debate about how best to foster taxation according to law in our society.

Conferences such as the present are an excellent way of doing that.

Thank-you for the opportunity of sharing with you these memories, both personal and constitutional.

^[1] Pattenden v Commissioner of Taxation (2008) 175 FCR 1
^[2] For the later curial history in respect of the criminal charges following his arrest, see R v Maher [1987] 1 Qd R 171 and, on appeal, Maher v The Queen (1987) 163 CLR 221
^[3] In relation to Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd [1985] 2 Qd R 88; Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd (1985) 158 CLR 678
^[4] Commissioner of Taxation v Ahern (1986) 17 ATR 535; Commissioner of Taxation v Ahern [No 2} [1988] 2 Qd R 158
^[5] Income Tax Assessment Act 1936 (Cth) s 263
^[6] Income Tax Assessment Act 1936 (Cth) s 264
^[7] Clyne v New South Wales Bar Association (1960) 104 CLR 186; see later also Ex parte Clyne (1962) 62 SR(NSW) 436
^[8] Clyne, Peter, Peter Clyne's new tax dodgers' dictionary, or, How to out-bhiff, out-hassle and out-litigate the fiscal fiend from A to Z I prepared by Peter Clyne International Pty Ltd, Cassell Australia 1981; How to Use Tax Havens Rydge 1973; How to Handle a Tax Dispute Information Australia C1987
^[9] Scanlan v Swan (1982) 61 FLR 468
^[10] Scanlan v Swan; ex parte Swan [1984] 1 Qd R 21
^[11] Deputy Commissioner of Taxation v PM Developments Pty Ltd (2008) 173 FCR 247. I found an absence of utility in the relevant Second Reading Speech. As to the rare utility of Second Reading Speeches, see recently Commissioner of Taxation v Anstis [2010) HCA 40 at [40] per Reydon J
^[12] [2010] HCA 39 at[l]
^[13] [2010] HCA 41
^[14] [2010] HCA 40
^[15] Deputy Commissioner of Taxation v Brown (1958) 100 CLR 32 at 40; Giris Pty Ltd v Commissioner of Taxation (1969) 119 CLR 365 at 378-379; MacCormick v Commissioner of Taxation (1984) 158 CLR 622; Commissioner of Taxation v
Futuris Cmporation Ltd (2008) 237 CLR 146 at [8]
^[16] Art. 4, Bill of Rights 1689 (Eng)
^[17] Commissioner of Stamps (SA) v Telegraph Investment Company Pty Ltd (1995) 184 CLR 453
^[18] Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531
^[19] British Imperial Oil Company v Commissioner of Taxation (1925) 35 CLR 422
^[20] Shell Company of Australia Ltd v Commissioner of Taxation (1930) 44 CLR 530
^[21] Administrative Appeals Tribunal Act 1975 (Cth) s 43(1)
^[22] Lane v Morrison (2009) 239 CLR 230. I do not intend by this reference to suggest that a Chapter III court should have any role in military discipline other than the hearing of appeals or in the supervision by constitutional writ of a disciplinary tribunal. Questions as to that role are a separate subject
^[23] Administrative Appeals Tribunal Act (as enacted) s 8(1)(a)
^[24] Administrative Appeals Tribunal Act (as enacted) s 8{l)(b)
^[25] Administrative Appeals Tribunal Acts 8(3)
^[26] Answer of The Hon R J L Hawke AC, Prime Minister to a Question without Notice, Commonwealth Parliamentary Debates, 1 March 1989: http://parlinfo.aph.gov.au/par1Info/search/display/display.w3p;query=(Dataset%3Aweblastweek,hansardr,noticer,we bthisweek,dailyp,votes,joumals,orderofbusiness,hansards,notices,websds)o/o20
SearchCategory_Phrase%3A%22house%20of°/4i20representatives%22%20ParliamentNumbe
r%3A%2235%22%20Electorate_Phrase%3A%22isaacs%22% 20Interjector_Phrase%3A%22mr%20tuckey%22%20Questioner_phrase%3A%22mr%20charles%22;rec=0
^[27] Such examples are collected in Sir Anthony Mason's paper, "The Appointment and Removal of Judges", an Education Monograph prepared for the Judicial Commission of New South Wales: http://www.judcom.nsw.gov.au/publications/education-monographs-l/monograph1/fbmason.htm#46
^[28] This was not a concern voiced by the Commonwealth Administrative Review Committee ("Kerr Committee") in their seminal report of August 1971 (Parliamentary Paper No 144 of 1971) which preceded the creation of the AAT. That committee made no recommendation as to tenure, although its members did consider that tribunal members should be appointed on a "long te1m basis", 7 years being mentioned: KeIT Committee Report at [322]. However, that committee also envisaged that each tribunal chairman, the equivalent of a presidential member, would be a Federal judge: KeIT Committee report at [292]. In his Second Reading Speech in the House of Representatives in respect of the Bill which became the Administrative Appeals Tribunal Act, the then Attorney-General, the Hon K Enderby QC, in explaining why it was that it was necessary for the AAT's presidential members to have the same status as judges, opined that nothing less would be satisfactory for a tribunal whose role included the reviewing of decisions of Ministers and other senior officials: Commonwealth Parliamentary Debates, 29th Parliament, 1st Session, at p 1187, 6 March 1975
^[29] The Right Honourable Lord Justice Brook, "Judicial Independence - Its History in England and Wales", an Education Monograph prepared for the Judicial Commission of New South Wales:
http://www.judcom.nsw.gov.au/publications/education-monographs-1/monographl/fbbrook.htm
^[30] Ibid
^[31] Ibid
^[32] Wateford v Commonwealth (1987) 163 CLR 54 at 72-73 per Brennan J
^[33] Pacific Exchange Corporation Pty Ltd v Commissioner of Taxation (2009) 180 FCR 300 at [54] to [59]