• Legal database
Legal database

CROWN ESTATES (SALES) PTY LTD & ANOR V FC of T

Judges:
Logan J

Court:
Federal Court, Brisbane

MEDIA NEUTRAL CITATION: [2016] FCA 335

Judgment date: 8 April 2016

Logan J

REASONS FOR JUDGMENT

1. In the course of giving its reasons upon a review, pursuant to s 14ZZ(1)(a)(i) of the Taxation Administration Act 1953 (Cth) (TAA), of the decisions made by the respondent Commissioner of Taxation in respect of the applicants' objections to goods and services tax (GST), penalty assessments and penalty remission decisions, the Administrative Appeals Tribunal (Senior Member McCabe) made the following introductory findings of fact (see
Crown Estates (Sales) Pty Ltd v Federal Commissioner of Taxation [2015] AATA 949 at [2]; (2015)
2015 ATC 10-411):

  • (a) During the periods in dispute, the applicants conducted a property management business called 'Total Property Management'. As did the Tribunal, it is convenient to refer to those entities collectively as 'TPM'. TPM let and managed properties on behalf of property owners.
  • (b) In the course of that work, TPM often engaged with contractors and government entities and arranged for the provision of goods and services on behalf of its owner-clients.

2. The Administrative Appeals Tribunal (Tribunal) identified the principal issue in the case as whether TPM was entitled to claim input tax credits in respect of those dealings. It concluded that TPM was not entitled to claim such credits. That conclusion made it necessary for the Tribunal to consider a further issue which was, as the Tribunal put it, "whether administrative penalties have been appropriately assessed". The Tribunal's further conclusion was that the penalties which had been imposed ought not to be disturbed. That meant that the Tribunal affirmed the objection decisions which were under review.

3. From this decision TPM has at least purported to appeal to this Court pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). It is necessary to add the qualification "purported" because such an appeal lies only on a question of law. The Commissioner asserts that, even as amended, the notice of appeal does not specify any question of law. On that basis, he has objected to the competency of the appeal.

4. The amended notice of appeal identifies the following as questions of law:

  • (1) Whether the Tribunal erred in properly construing and applying s 11.5 of the A New

    ATC 18486

    Tax System (Goods and Services Tax) Act 1999     (Cth) in concluding that the Applicants did not make creditable acquisitions in the course of their dealings with suppliers of goods and services to properties owned by the clients of the Applicants.
  • (2) Whether the Tribunal erred in construing and applying the law of agency in determining that the Applicants acted as agents in the course of all their dealings with suppliers of goods and services to properties owned by the clients of the Applicants.
  • (3) Whether the Tribunal erred in construing and applying s 284-15(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) in determining that the First Applicant's contentions were not reasonably arguable.

5. The grounds of appeal expressed in the amended notice of appeal are:

  • (1) The Tribunal erred in law in determining that the Applicants were not entitled to claim input tax credits, and should have found that they were so entitled.
  • (2) The Tribunal erred in law in determining that the Applicants did not make creditable acquisitions in the course of their dealings with suppliers of goods and services to properties owned by the clients of the Applicants, and should have found that they did make such acquisitions.
  • (3) The Tribunal erred in law in determining that the Applicants acted as agents in the course of all of their dealings with suppliers of goods and services to properties owned by the clients of the Applicants, and should have found that they acted as principals.
  • (4) The Tribunal erred in law in determining that the First Applicant's contentions were not reasonably arguable, and ought to have set aside the objection decisions in so far as penalties and interest were imposed on the First Applicant.

Is there the appeal on a question of law?

6. Unlike the superior courts of the States, none of the courts established by or under Chapter III of The Constitution is or can be a superior court of general jurisdiction. In the exercise of the power conferred by s 77(i) of The Constitution, Parliament has, by s 19(1) of the Federal Court of Australia Act 1976 (Cth), defined this Court's original jurisdiction to be "such original jurisdiction as is vested in it by laws made by the Parliament" which, by s 19(2) of that Act, expressly includes any jurisdiction vested in it to hear and determine appeals from decisions of persons, authorities or tribunals other than courts. Section 44 of the AAT Act is such a law.

7. Section 44 confers on a party to a proceeding in the Tribunal a right of appeal to this Court in respect of any question of law arising in that proceeding. Though the right is described by s 44 as an appeal, any resultant proceeding is in this Court's original jurisdiction. That means that the proceeding in this Court is best classified as a statutory appeal. That the right of appeal is "on a question of law" means that the existence of at least one question of law is not merely a pleading issue; rather, it goes to jurisdiction. That question of law must be specified in the notice of appeal.

8. In
Haritos v Commissioner of Taxation (2015) 233 FCR 315 (Haritos), the Full Court (specially constituted by five judges) reached a number of conclusions about appeals under s 44 of the AAT Act (the High Court later refused special leave to appeal:
Commissioner of Taxation v Haritos [2015] HCATrans 337). The Full Court, at 341-341, [62] summarised its conclusions thus:

  • (1) The subject matter of the Court's jurisdiction under s 44 of the AAT Act is confined to a question or questions of law. The ambit of the appeal is confined to a question or questions of law.
  • (2) The statement of the question of law with sufficient precision is a matter of great importance to the efficient and effective hearing and determination of appeals from the Tribunal.
  • (3) The Court has jurisdiction to decide whether or not an appeal from the Tribunal is on a question of law. It also has power to grant a party leave to amend a notice of appeal from the Tribunal under s 44.
  • (4) Any requirements of drafting precision concerning the form of the question of law do not go to the existence of the jurisdiction conferred on the Court by s 44(3) to hear and determine appeals instituted in the Court

    ATC 18487

    in accordance with s 44(1), but to the exercise of that jurisdiction.
  • (5) In certain circumstances it may be preferable, as a matter of practice and procedure, to determine whether or not the appeal is on a question of law as part of the hearing of the appeal.
  • (6) Whether or not the appeal is on a question of law is to be approached as a matter of substance rather than form.
  • (7) A question of law within s 44 is not confined to jurisdictional error but extends to a non-jurisdictional question of law.
  • (8) The expression "may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal" in s 44 should not be read as if the words "pure" or "only" qualified "question of law". Not all so-called "mixed questions of fact and law" stand outside an appeal on a question of law.
  • (9) In certain circumstances, a new question of law may be raised on appeal to a Full Court. The exercise of the Court's discretion will be affected not only by
    Coulton v Holcombe (1986) 162 CLR 1 considerations, but also by considerations specific to the limited nature of the appeal from the Tribunal on a question of law, for example the consideration referred to by Gummow J in
    Federal Commissioner of Taxation v Raptis (1989) 20 ATR 1262 that there is difficulty in finding an "error of law" in the failure in the Tribunal to make a finding first urged in this Court.
  • (10) Earlier decisions of this Court to the extent to which they hold contrary to these conclusions, especially to conclusions (3), (4), (6) and (8), should not be followed to that extent and are overruled. Those cases include
    Birdseye v Australian Securities and Investments Commission (2003) 38 AAR 55;
    Australian Securities and Investments Commission v Saxby Bridge Financial Planning Pty Ltd (2003) 133 FCR 290;
    Etheridge; HBF Health Funds and Hussain v Minister for Foreign Affairs (2008) 169 FCR 241.

9. In this Court, those conclusions now carry particular authority but the difficulties of characterisation with respect to what is and is not a question of law presented by a right of appeal so confined is no new subject, either in Australia or abroad: see, notably,
Australian Gas Light Company v Valuer General (1940) SR (NSW) 126 at 137-138 per Jordan CJ and
Bracegirdle v Oxley [1947] KB 349 at 358 per Denning J (as his Lordship then was).

10. Long before Haritos was decided, an earlier Full Court, in
Brown v Repatriation Commission (1985) 7 FCR 302 at 304, had sounded a cautionary note about the limited nature of the appeal right conferred by s 44 of the AAT Act and, related to that, any embarking by the Court upon its own survey of the evidence before the Tribunal:

The existence of a question of law is not merely a qualifying condition to ground an appeal from a decision of the Tribunal; rather, it and it alone is the subject matter of the appeal, and the ambit of the appeal is confined to it. Although it is necessary in some … for this Court to consider the evidence before the Tribunal (for example, where the alleged question of law is that there is no evidence upon which the Tribunal could reasonably support its finding) the court should be cautious before embarking on its own analysis of the evidence where the task of assessing facts has been placed by the legislature in the hands of specialist bodies such as the Tribunal …

11. Another early authority of enduring importance concerning the formulation of a question of law is
Australian Telecommunications Corporation v Lambroglou (1990) 12 AAR 515 at 527 (Lambroglou) in which Ryan J observed:

[I]t simply begs the question of law to commence it with the words 'Whether the Tribunal erred in law'. If the question, properly analysed, is not a question of law no amount of formulary like 'erred in law' or 'was open as a matter of law' can make it into a question of law.

In Haritos, this observation was expressly approved, although, at 350, [92], the Full Court emphasised the words "properly analysed" and added:

But this is not to say that it is impermissible to commence a question of law for the

ATC 18488

purposes of s 44 with the expression "whether the Tribunal erred in law" if that is given sufficiently precise content by what follows.

12. A specification in a notice of appeal which does nothing more than solicit a broad and hypothetical enquiry as to the construction and operation of statutory provisions is not a specification of a question of law:
Screen Australia v EME Productions No 1 Pty Ltd (2012) 200 FCR 282 at 289, [24] per Keane CJ, Finn and Gilmour JJ (Screen Australia v EME Productions).

13. In my view, each of the so-called questions of law in the amended notice of appeal exhibits the same vice as identified, in respect of Question 2A of the notice of appeal considered, in Lambroglou by Ryan J. By reference to observations made by Lord Radcliffe in
Edwards (Inspector of Taxes) v Bairstow [1956] AC 14, his Honour stated:

To state that the Tribunal erred in law in making certain findings simply begs the question of whether those findings were vitiated only by a wrong selection between two or more alternatives all open to the A.A.T. as a matter of law, or were infected by some error of law of the kind described thus by Lord Radcliffe in Edwards (Inspector of Taxes) v Bairstow (supra) at 35:

If a party to a hearing before commissioners expresses dissatisfaction with their determination as being erroneous in point of law, it is for them to state a case and in the body of it to set out the facts that they have found as well as their determination. I do not think that inferences drawn from other facts are incapable of being themselves findings of fact, although there is value in the distinction between primary facts and inference drawn from them. When the case comes before the court it is its duty to examine the determination having regard to its knowledge of the relevant law. If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination, or as one in which the true and only reasonable conclusion contradicts the determination. Rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three, since I think that it is rather misleading to speak of there being no evidence to support a conclusion when in cases such as these many of the facts are likely to be neutral in themselves, and only to take their colour from the combination of circumstances in which they are found to occur.

14. Insofar as it might be thought that the vice identified is ameliorated by the addition of "construing and applying" a nominated statutory provision or principle of law, prior to the reference to a particular conclusion or determination of the Tribunal, all that does, in my view, is to add to the vice already identified a solicitation to conduct a broad, hypothetical enquiry, the vice identified in Screen Australia v EME Productions.

15. These vices remain even if one reads the specified questions in the context of the specified grounds for assistance in determining what, in substance, are the questions which the applicants seek to raise.

16. For these reasons, my conclusion is that no question of law has been identified in the amended notice of appeal.

17. The Court's jurisdiction will be invoked if the notice of appeal specifies at least one question of law:
Belton v General Motors-Holden's Ltd (No 1) (1984) 58 ALJR 352 at 353. There was no application during the hearing of the appeal further to amend the amended notice of appeal. The Court must determine the proceeding by reference to the notice of appeal upon which an applicant chooses to prosecute it. It necessarily follows from the conclusion which I have reached that the applicants have not invoked the Court's jurisdiction. It follows that the objection to competency ought to be upheld. This alone provides a basis for the dismissal of the appeal.

ATC 18489

18. An additional reason why the Commissioner submitted that Questions 2 (expressly) and also 1 (by necessary implication) in the notice of appeal raised no question of law was that a conclusion that TPM was an agent of the property owners was, so the submission went, one of fact.

19. In support of this proposition, reference was made to
DSE (Holdings) Pty Ltd v InterTAN Inc (2003) 135 FCR 151 at 179, [94] where, in the context of deciding whether particular communications made by a third party to a lawyer were subject to client lawyer privilege, Allsop J (as the Chief Justice then was) stated, "[u]ltimately, it is a question of fact whether the third party can be said to have been appointed by the client as an agent to communicate with the lawyer." Also referred to on behalf of the Commissioner was
Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469 at 486 where Marks J, with whom Fullagar and Ormiston JJ agreed), citing
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at 573 and 587 (Branwhite v Worcester Works Finance) stated, "agency depends on the facts of a particular case". That statement was made in the context of a case in which resolving whether or not a person was an agent of a credit provider was a material question.

20. When one goes to the passages cited from Branwhite v Worcester Works Finance by Marks J, they do not, with respect, offer unqualified support for the proposition that whether or not a relationship of agency exists is always a question of fact. The observation made by Lord Morris of Borth-y-Gest at 573 was, "issues as to agency are mainly to be determined as questions of fact". The other citation made by Marks J of that case takes one to the speech of Lord Wilberforce, at 587, where his Lordship stated, "… while agency must ultimately derive from consent, the consent need not necessarily be to the relationship of principal and agent itself (indeed the existence of it may be denied) but may be to a state of fact upon which the law imposes the consequences which result from agency. It is con-sensual, not contractual".

21. In my view, the true position, which emerges from Branwhite v Worcester Works Finance, is that, while questions as to the existence of agency are usually questions of fact, those questions of fact emerge from settled legal principles as to what is necessary in order that one person be considered the agent of another and there can be circumstances where, upon evidence of a particular consensual relationship, the law will impose upon the parties to that relationship the consequences of agency. It is not therefore impossible to conceive of a case where a question of law might be found in posing as a question that, having found particular facts, was the Tribunal obliged in law to conclude that an agency relationship existed?

22. Neither Question 2 nor Question 1 in the amended notice of appeal is pleaded in this way.

23. Another way of putting such a proposition would be to pose as a question whether, on the facts found, the Tribunal was obliged in law to conclude that it was TPM which had made the creditable acquisition? Once again, that is not the way in which either Question 2 or Question 1 is pleaded.

24. Thus, while I do not accept the Commissioner's submission that the existence of agency is always a question of fact, TPM has chosen not to frame its amended notice of appeal in a way which would, on the basis of the findings of fact made by the Tribunal, raise questions as to whether on those facts TPM was not acting as an agent in acquiring particular goods and services or, put another way, whether it was the party making the creditable acquisition?

Was it open for the Tribunal to conclude that there had been no creditable acquisition?

25. If, contrary to my view, it is possible to read the first and second questions in the notice

ATC 18490

as invoking the Court's jurisdiction, on the basis that the Tribunal was obliged in law to conclude, on the evidence before it, that the applicants had made the creditable acquisitions claimed, I propose to address that issue. It is desirable to do that against the background of the general scheme of GST taxation.

26. A general summary of the scheme of taxation found in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) is offered by the High Court in
Federal Commissioner of Taxation v MBI Properties Pty Ltd (2014) 254 CLR 376 at 382, [3] (MBI Properties):

Under the GST Act, an entity is liable to pay GST on any "taxable supply", and is entitled to an input tax credit on any "creditable acquisition". For each tax period applicable to the entity, amounts of GST are set off against amounts of input tax credits to produce a net amount, which may then be subject to adjustments. The net amount, as adjusted, is the amount which the entity must pay to the Commonwealth, or which the Commonwealth must pay to the entity, in respect of the period.

27. Further elaboration of the general scheme of the GST act is to be found in
Rio Tinto Services Limited v Federal Commissioner of Taxation (2015) 235 FCR 159;
[2015] FCAFC 117 (Rio Tinto) at [3], where the Full Court stated:

The general scheme of the GST Act is to impose tax upon the supply of goods and services. The burden of the tax is designed to fall upon the ultimate consumer by a system of invoice-based credits: see
HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 at [13]; Cooper G and Vann R, "Implementing the Goods and Services Tax" (1999) 21 Sydney Law Review 337 at 347-8. The Australian GST is a multi-staged tax in the sense that it is imposed on every supply of goods and services (unless it is GST-free or input taxed) but, generally speaking, each supplier in the chain will be entitled to a credit for the GST imposed upon the preceding supply until the final supply to the consumer who is not entitled to a credit. The supply of some goods and services, however, is treated differently. Some supplies are GST-free and some are input taxed. The latter effectively treat the business purchaser who supplies goods and services to others as if the business purchaser was the consumer of the goods and services. The final supply of goods and services which are input taxed is not subject to GST but the supplier will be entitled to credits except to the extent that the acquisitions related to supplies that would be input taxed: see s 11-15(2)(a) and HP Mercantile at [46] and [50].

28. In the ordinary course, the calculation of the net amount, as described in the passage quoted from MBI Properties, is made by the entity concerned and then specified in that entity's GST return (Business Activity Statement) for a particular period. The Commissioner is then treated as having made an assessment under s 155-5 of Sch 1 to the TAA of the net amount mentioned in the return for that period: s 155-15(1) of Sch 1 to the TAA. In this sense, it is not inaccurate to describe GST as a "self-assessing tax".

29. That does not mean that the Commissioner is precluded from himself making or amending an assessment of a net amount. The Commissioner may at any time make an assessment of an "assessable amount": s 155-5(1) of Sch 1 to the TAA. An "assessable amount" is defined to include, materially, a net amount: s 155(2)(a) of Sch 1 to the TAA. Here, the applicants self-assessed for the periods in question but, following an audit, the Commissioner came himself to assess the net amount for the periods concerned and to give notice of that assessment to the second applicant. The Commissioner separately assessed administrative penalty and made a remission decision, giving notice of each to the first applicant. Each of these then became the subject of objection. It was the Commissioner's consequential objection decisions that were reviewed and decided by the Tribunal.

30. The GST liability issue before the Tribunal turned on the input tax credit aspect of the general GST scheme. By virtue of s 11-20 of the GST Act, a person is entitled to an input tax credit for any "creditable acquisition". The GST issue therefore became whether TPM had, in the course of the dealings in question, made

ATC 18491

"creditable acquisitions" for the purposes of the GST Act?

31. The definition of "creditable acquisition" is found in s 11-5 of the GST Act. Paragraph (a) of that definition states, "You make a creditable acquisition if, (a) you acquire anything solely or partly for a *creditable purpose". "Creditable purpose" is defined in s 11-15 of the GST Act, in which only sub-section (1) is presently relevant, "You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise". Paragraphs (b) and (c) of the definition of "creditable acquisition" state:

  • (b) the supply of the thing to you is a *taxable supply; and
  • (c) you provide, or are liable to provide, *consideration for the supply.

The elements of the definition of creditable acquisition set out in the paragraphs of s 11-5 of the GST Act are cumulative.

32. The effect of this analysis of the GST Act means that the GST issue before the Tribunal may be more precisely stated as whether it was TPM which was the entity which had acquired the goods or services ("the thing") from a third party? As the Tribunal saw it, that, in turn, meant in this case that the issue became, "was TPM acting as a principal that acquired goods and services from third parties which it resupplied to its owner-clients, or was it dealing with the contractors et al. as the agent of the owners in each case?" The parties to the appeal did not gainsay the correctness, in the circumstances of this case, of that formulation.

33. Review by the Tribunal is part of an administrative decision-making continuum:
Jebb v Repatriation Commission (1988) 80 ALR 329 at 333 per Davies J. In general, that means that the issues which arise in the Tribunal in relation to the decision under review are necessarily and inherently related to the course of that administration decision-making continuum in a particular case:
SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152.

34. Where the decision under review is an objection decision, that continuum and the issues before the Tribunal are affected by ss 14ZU and 14ZZK of the TAA. Pursuant to s 14ZU(c), a taxpayer must, in an objection, "state in it, fully and in detail, the grounds that the person relies on". Where, as here, the subsequent objection decision has become the subject of an application for review by the Tribunal, "the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates": s 14ZZK(a) of the TAA.

35. Further, while, ordinarily in the Tribunal, terms such as onus and standard of proof are "borrowed from the universe of discourse which has civil litigation as its subject" and "[t]he present context of administrative decision-making is very different" -
Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 282 (Wu Shan Liang) - the review of an objection is affected by s 14ZZK(b) of the TAA, which provides that:

  • (b) the applicant has the burden of proving:
    • (i) if the taxation decision concerned is an assessment--that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
    • (ii) in any other case--that the taxation decision concerned should not have been made or should have been made differently.

36. The operation of each limb of s 14ZZK of the TAA must be borne in mind not just by the Tribunal in deciding the review application but also by those who come to read the Tribunal's reasons for that decision. Those reasons must not only, as with the Tribunal's reasons generally, be read bearing in mind that they are responsive to the issues which have emerged in the course of the particular administrative decision-making continuum. That includes the way in which the parties have chosen to identify issues before the Tribunal either in accordance with its general practice and procedure or as permitted in a particular case. In the case of an objection decision, the reasons must also be read in light of the way in which the applicant has gone about discharging the onus of proving, by reference to issues as stated in the grounds of objection, that the assessment is excessive or that the taxation decision should either not have been made or should have been made differently.

37.

ATC 18492

In this case, the applicants were contending that the assessed net amounts were excessive because of an erroneous failure to give credit for input tax credits on creditable acquisitions. The applicants chose not to give detailed evidence as to the circumstances appertaining to each and every creditable acquisition for each and every period in question so as to show that the "You" in the definition of "creditable acquisition" was TPM. Instead, they approached the discharge of their onus of proof at a much more general level of evidentiary abstraction. The Tribunal's reasons were responsive to this and must be read accordingly.

38. Paragraph [22] of the Tribunal's reasons is explicable in just this way:

I was provided with limited evidence about the detail of specific transactions with third parties. There are some financial records reproduced in exhibit one at pp 198-205, and a lone invoice at p 206 which is addressed to TPM but refers to the property where the contractor carried out the work. But I was not shown anything in the evidence which suggests the Commissioner's conclusion about the existence of an agency relationship was wrong, and that a different outcome was appropriate. I was certainly not shown invoices or other documents evidencing or describing transactions in a way that suggested the third party and TPM intended that goods or services would be supplied to TPM as principal, rather than to a property-owning client.

39. TPM's practice was that its clients signed a PAMD Form 20a: Appointment of agent - Letting and property management document, a form prescribed for use pursuant to the Property Agents and Motor Dealers Act 2000 (Qld) (the PAMD Act). Having regard just to that form, in particular, Pt 4, "The client appoints the agent to perform the following services [with nominated particular services then selected]", a conclusion that TPM became an agent of the client for the performance of the nominated services would have been unremarkable. The Tribunal reached just such a conclusion [21]:

I am satisfied the document describes a relationship between TPM and each of its property-owning clients in which TPM acts as an agent in the classic sense of that term. The essence of agency is there for all to see: TPM is clearly in a position to "create or affect legal rights and duties as between another person, who is called [the] principal, and third parties".

The authority cited by the Tribunal,
Petersen v Moloney (1951) 84 CLR 91 at 94-95 per Dixon, Fullagar, Kitto JJ (Petersen v Moloney), is apt. The finding of fact namely, that the clients executed the PAMD Form 20a was uncontroversial. That a person appointed by a client in the terms set out in that form was, for those purposes, constituted the client's agent followed, inexorably, from the settled legal principle described in Petersen v Moloney.

40. The Tribunal also had evidence from the director of TPM, Mr Watts, that the relationship between TPM and its clients extended beyond the terms of the PAMD Act Form 20a. This was summarised by the Tribunal in the following way [8]:

Mr Watts also referred to a number of examples where he says the goods or services were not expressly authorised in the Form 20a. In such a case - in an emergency, for example, or where the owner was not readily contactable, or where there was an informal or oral agreement to act - TPM would arrange for the acquisition of goods or services in its own name.

The Tribunal accepted Mr Watts' evidence.

41. Against this wider background, the Tribunal concluded that a relationship of principal and agent existed between TPM and its clients either by agreement or necessity. The following paragraph of the Tribunal's reasons ([17]) contains the essence of the reasoning for that conclusion:

Agency relationships typically arise when the principal appoints the agent to act in that capacity. The agent's authority may be express or implied from the agreement between the principal and agent if the agent has actual authority; otherwise the authority might be apparent from the conduct of the principal (so-called 'ostensible' authority): see
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502 per Diplock LJ. Agency relationships may also arise by operation of law. The agency of necessity is an example of such a relationship. A person may become an agent and, in an emergency, commit the principal without first obtaining instructions or authority provided (a) it is practically impossible to obtain instructions from the principal in the circumstances, (b) there is an emergency situation which necessitates prompt action, and (c) the action taken is reasonable and in the interests of the principal: see, generally,
China Pacific SA v Food Corp of India (The Winson) [1982] AC 939 at 961 per Lord Diplock. In such a case, the agent is still creating a relationship between the principal and the third party. The agent would only be liable to the third party on the agreement he or she negotiated if it were apparent the parties intended that should occur. (An agent who misrepresents his or her authority may be liable for a breach of the warranty of authority, or for misleading or deceptive conduct - but that is irrelevant for present purposes.)

ATC 18493

42. The authority cited by the Tribunal in respect of an agency of necessity arising in the circumstances related by Mr Watts, being
China Pacific SA v Food Corporation of India (The Winson) [1982] AC 939, is also apt. In that case, at 961, Lord Diplock observed:

It is, of course, true that in English law a mere stranger cannot compel an owner of goods to pay for a benefit bestowed upon him against his will; but the latter principle does not apply where there is a pre-existing legal relationship between the owner of the goods and the bestower of the benefit, such as that of bailor and bailee, which imposes upon the bestower of the benefit a legal duty of care in respect of the preservation of the goods that is owed by him to their owner.

43. That a relationship of principal and agent existed as between TPM and its clients was, given the findings of fact which the Tribunal made, the correct conclusion in law. That, in these circumstances, it was TPM which made the creditable acquisition was the inevitable, consequential conclusion and the one made by the Tribunal.

44. The Tribunal had before it an invoice addressed to TPM by a third party in respect of services undertaken at the property of a client of TPM. As to this, the Tribunal remarked [22]:

But I was not shown anything in the evidence which suggests the Commissioner's conclusion about the existence of an agency relationship was wrong, and that a different outcome was appropriate. I was certainly not shown invoices or other documents evidencing or describing transactions in a way that suggested the third party and TPM intended that goods or services would be supplied to TPM as principal, rather than to a property-owning client.

The Tribunal was entitled to reach this factual conclusion. In itself, the invoice addressed to TPM was neutral as to whether, in fact, there had been an acquisition made by TPM on behalf of a client or by TPM in its own right. It was up to TPM to place evidence before the Tribunal to persuade the Tribunal that the latter was the factual position. This, TPM did not do.

45. Question 3 in the amended notice of appeal concerns the penalty aspect of the review. Though not drawn so as to raise a question of law in this regard, it emerged in the course of the second applicant's submissions that the underlying complaint was an assertion that, in relation to an imposition of penalty under Div 284 of Sch 1 to the TAA, it was a relevant consideration that a taxpayer's position was reasonably arguable and, so it was alleged, the Tribunal had failed to take this consideration into account.

46. Whether or not this proposition is sound, an immediate (and fatal) difficulty with it is that the Tribunal did take this consideration into account. In its reasons, the Tribunal stated at [27], "[t]he taxpayers say the amount of the penalty should be reduced to nil because their case was at least arguable". What followed thereafter at [28], was a reasoned value judgement that, "as an experienced businessman with legal qualifications and access to professional advice, he should not have made the mistakes he made" such that a lower penalty was not warranted. The Tribunal was entitled to take such a view of the facts.

47.

ATC 18494

In these circumstances, even if Question 3 did raise a question of law as to what was or was not a relevant penalty consideration, it would not be necessary to answer it.

48. I make the following additional observations.

49. TPM submitted that support for its contended position was to be found in
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483 (Sanctuary Lakes). That case offers no such support. That point is most succinctly made in that case by Edmonds J, at 513, [150] where his Honour stated, "[s]imilar arguments have been rejected in a number of recent decisions which have held that having a reasonably arguable position and taking reasonable care are independent standards …". Sanctuary Lakes is, as the Commissioner correctly and properly conceded, authority for the proposition that, in the exercise of the penalty remission discretion conferred on the Commissioner by s 298-20 of Sch 1 to the TAA, it is not irrelevant to take into account that a taxpayer's was reasonably arguable: see Sanctuary Lakes at 514, [157] per Greenwood J and at 528, [225] per Griffiths J. That a consideration is not irrelevant for the purposes of remission does not automatically make it relevant for the separate, anterior purpose of assessing the base penalty amount.

50. Section 284-15 of Sch 1 to the TAA defines when a matter is "reasonably arguable". That definition appears in Subdivision 284-A, which contains a number of general provisions relating to Div 284. It is not though expressly there stated to be a consideration applicable generally for the purposes of that Division. Rather, whether a position is reasonably arguable is expressly made a relevant consideration in relation to the assessment of some but not all amounts under Div 284. It is, for example, expressed to be a relevant consideration in relation to the determination of "shortfall amounts" for the purposes of s 284-80 but its application there is confined to income tax law or the petroleum resource rent tax law cases (see s 284-80, Items 3 and 4), which do not include GST cases. The same restriction of relevance is evident in the table for the assessment of base penalty amount in s 284-90 of Sch 1 to the TAA (see Item 4).

51. Finally, though the Tribunal did not find it necessary to pass comment on the subject (and given that its role was to "stand in the shoes" of the Commissioner in reviewing the objection decision, it was not obliged to make any comment), it came to notice in the course of submissions that the Commissioner was administering the TAA on the basis that:

Where a shortfall arises as a result of making a false or misleading statement, the penalty is to be assessed in four stages:

  • • Determine the shortfall amount.
  • • Work out the base penalty amount.
  • • The base penalty amount may be increased and/or reduced.
  • • The Commissioner considers remission of the calculated penalty amount.

(Document T11, Interim Audit Report of 16 August 2013 - Emphasis added)

52. This understanding of the Commissioner erroneously conflates what are, in law, two separate stages in the final determination of penalty, an assessment stage (of three steps which correspond to the first three of the Commissioner's nominated "stages") and a penalty remission stage (the fourth of the Commissioner's nominated "stages"). Division 284 penalty assessment is the province of assessment under s 298-30 of Sch 1 to the TAA. In respect of the penalty so assessed, the Commissioner is empowered by s 298-20 to remit all or part of that penalty. The fourth stage (remission) in the passage quoted is not part of the assessment process. There are separate rights of objection conferred in respect of the assessment and remission decisions.

53. Conflating the assessment and remission stages runs the risk of taking into account considerations which are not relevant to the making of an assessment of Div 284 penalty in a particular case but which may nonetheless not be irrelevant in the making of a remission decision.

54. It follows from the above that the appeal must be dismissed. The applicants must pay the Commissioner's costs of an incidental to the appeal, including in that regard the costs of the objection to competency, as well as reserved costs.


Back to top

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.