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FEDERAL COURT OF AUSTRALIA

Rio Tinto Ltd v Federal Commissioner of Taxation

[2004] FCA 335

Sundberg J

29 March 2004 - Melbourne

Sundberg J.    The following factual background to the matters that fall for decision on the parties' notices of motion is taken from the applicant's counsel's opening. In January 1996 the applicant, formerly CRA Ltd, and RTZ Plc, now known as Rio Tinto Plc, an English corporation, combined as a dual-listed company structure. In effect that involved a merger of the 2 companies. However they remain listed on their respective stock exchanges and retain their separate identities, but operate as if they together own their combined assets. The board of each company is identical. The shareholders of the applicant, being shareholders in an Australian company, remain entitled to receive franked dividends. In the lead up to and promotion of the dual listing, shareholders were informed that the applicant expected to continue to pay twice-yearly fully franked dividends to its Australian shareholders. After the dual listing it was discovered that the applicant did not have sufficient franking credits to do this. One of the methods the applicant considered in order to supplement its franking credit balance was for it and 2 of its subsidiary companies to "borrow" shares in companies having surplus credits, and take franked dividends upon the shares while the applicant and the subsidiaries were shareholders.

  2  In May 1997 the applicant became registered as the holder of shares in Bankers Trust Australia Ltd (BTA). Fully franked dividends declared in respect of the shares were paid to it while it was a shareholder. The applicant used the franking credits to pay fully franked dividends to its shareholders. A management fee and an assignment fee were payable to BT Investments (Australia) Ltd (BTIA) in connection with the transaction.

  3  In his assessments the respondent treated the dividends paid by BTA as fully assessable and non-rebateable income of the applicant, denied the availability of the franking credits, denied the deductibility of the fees, assessed income tax and franking deficits tax and imposed substantial penalties. The applicant's objections to the assessments were disallowed, and the applicant appealed against the objection decisions by filing applications in accordance with O 52B of the Federal Court Rules.

The consent orders

  4  Order 52B(5) of the Federal Court Rules provides:

   

Within 28 days after a sealed copy of an application is served on the Commissioner, the Commissioner must …

 (a)  file:
 …  
 (ii)  a copy of the notice of the appealable objection decision concerned; and
 (iii)  a copy of the taxation objection concerned; and
 (iv)  any return or other document in the Commissioner's possession or under the Commissioner's control to which the taxation objection relates that is relevant to the hearing of the matter; and
 (v)  a statement outlining succinctly the Commissioner's contentions and the facts and issues in the appeal as the Commissioner perceives them; and
 (b)  serve on the applicant:
 …  
 (ii)  a list of the documents filed under subparagraphs (a)(ii) to (iv) (inclusive); and
 (iii)  a copy of the statement referred to in subparagraph (a)(v).

  5  On 5 September 2003, a registrar ordered by consent that, amongst other things:

   

 …  
 3.  On or before 15 September 2003, the respondent shall file and serve his statement of facts issues and contentions.
 …  
 5.  Any request for further and better particulars of the respondent's statement of facts, issues and contentions be served on or before 6 October 2003.
 6.  The respondent shall respond to any such request on or before 27 October 2003.
 7.  On or before 1 December 2003, the applicant shall file and serve its statement of facts, issues and contentions.

The statement

  6  On 15 September 2003, the respondent filed a document headed "Respondent's Statement of Facts Issues and Contentions". In the document the applicant is referred to as CRA, its name at the time of the relevant transactions. The document contains this "Preamble":

   

The respondent relies on section 14ZZO(a) of the Taxation Administration Act 1953 (Cth) (the TAA). The respondent also relies on section 14ZZO(b) of the TAA and, save for any facts expressly agreed or admitted in writing, puts the applicant to proof of all facts on which it seeks to rely. The respondent's perception of the facts is primarily derived from documents and information supplied by the applicant and its advisers. For the purpose of identifying the issues in dispute between the parties in these proceedings, the respondent states that, on the information currently available to him, it appears that the facts, issues and contentions are as follows.

  7  Under the overall heading "Facts" and the sub-heading "A. The proceedings" the document records the applicant's appeal against the assessments, and then outlines the transaction referred to at [2]:

   

 2.  The issues in the proceedings arise from a "divided assignment" transaction claimed by CRA to have been carried out by it and completed in Jersey before the time of the Commonwealth Budget at 7.30 pm Australian Eastern Standard time on 13 May 1997 by the execution of transaction documents.
 3.  Pursuant to the transaction documents CRA paid an assignment fee of $115,000,008.72 (assignment fee) to BT Investments (Australia) Ltd (BTIA), in consideration for the assignment of the rights in respect of a dividend payable by Bankers Trust Australia Ltd (BTA). BTA paid an amount of $100,000,007.58 to CRA.
 4.  Pursuant to the transaction documents CRA asserts it became a shareholder in BTA by reason of registration on the BTA share register for approximately 2 hours in circumstances where CRA was from the outset contractually bound to retransfer its interest in the relevant shares and to be removed from the BTA share register, and was so removed. CRA claims that the amount of $100,000,007.58 derived by it was derived by it as a shareholder in BTA and the amount was a dividend. CRA did not obtain the attributes of a shareholder in a company, such as exposure to the risks and benefits of ownership, management, control or physical custody of scrip.
 5.  CRA claims to have realised a predetermined cash loss of $15,082,500.42 as a result of the transaction documents. CRA did not obtain any commercial benefit from the dividend assignment transaction. CRA claims to have obtained tax benefits. In the absence of the availability of such tax benefits, CRA would not have undertaken the dividend assignment transaction.

  8  The document then recites the claims made in the applicant's objections to assessment, the respondent's decisions on the objections, and determinations made by the respondent under s 177F(1)(b) of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) that various amounts should not be allowable as a deduction.

  9  Under the sub-heading "B. The entities and the persons involved" the document first identifies the members of the CRA group consisting of CRA and its subsidiaries. It records the dual listing arrangement between the applicant and RTZ Plc (commonly referred to as RTZ-CRA). It then identifies other parties involved in the transaction: BTA, BTIA, Bankers Trust Co (BTCo), Campbell Investment (Australia) Pty Ltd, Campbell Investment Co, Barclays de Zoete Wedd Ltd, Mourant Du Feu Jeune (Mourant), the last being lawyers in Jersey. It then names the CRA group individuals who appeared to the respondent to have played a significant role in the planning and implementation of the arrangement.

  10  The next sub-heading is "C. Background to the CRA group dividend assignment transactions". The 16 paragraphs under this heading contain summaries of and quotations from various CRA group documents relating to:

 •  CRA's franking shortage problem;
 •  consideration of CRA entering into securities lending arrangements;
 •  consideration of CRA entering into a dividend assignment;
 •  preparation of draft dividend assignment documents;
 •  resolution of the directors of 2 subsidiaries of CRA (Hamersley Iron Pty Ltd and Capricorn Diamonds Ltd), on the instructions of CRA, to take a dividend assignment;
 •  consideration of the taxation consequences of the proposed transaction;
 •  awareness that the Australian Taxation Office was targeting franking credit trading.

  11  The next sub-heading "D. The execution of the CRA dividend assignment transaction" sets out the respondent's understanding of the facts with respect to the transaction "on the basis of material provided to him by or on behalf of the applicant". This consists of 45 paragraphs which deal with the following matters:

 •  BTA opening a share register in Jersey and the removal of 13,186,475 shares held by BTIA from the New South Wales register to the Jersey register.
 •  On 8 May 1997 CRA Finance Ltd authorised the transfer of the United States dollar equivalent of $A230 million to BTCo London for overnight deposit.
 •  On 9 May 1997 in London, the Board of CRA resolved that should an offer be made by BTIA to assign a final dividend of approximately $A200 million, it should be accepted by way of conduct.
 •  On 11 May 1997 the directors of BTA declared a final 100% franked dividend of $A200 million in respect of the 13,186,475 shares to be paid at 7.30 pm on 12 May 1997 to the registered holder of the shares as at 6.30 pm on that date.
 •  On 12 May BTIA and/or CRA executed an offer to assign, a legal mortgage of shares, a guarantee and indemnity and a deed of reassignment.
 •  The offer to assign offered to assign to CRA a final dividend aggregating $A100,000,007.58 in respect of 6,593,230 shares in BTA. The central provisions of the offer are set out or summarised.
 •  A guarantee and indemnity in favour of CRA was then executed by BTIA, by which BTIA guaranteed the payment of the cash amount of the dividend by BTA to CRA. Various provisions of the document are summarised.
 •  BTIA as mortgagor and CRA as mortgagee executed a legal mortgage of shares by which BTIA as legal and beneficial owner of the 6,593,238 shares mortgaged the shares to CRA, and it was provided that the shares be reassigned to BTIA promptly after the dividend was received by CRA or a claim under the guarantee was satisfied. Various provisions of the mortgage document are summarised or set out.
 •  An escrow agreement was executed by Mourant, CRA, BTIA and BTCo in favour of CRA, conditional on CRA depositing $US89,389,506.78 in an escrow account held with BTCo in the name of CRA and administered by Mourant. Various provisions of the escrow agreement are summarised.
 •  On 12 May 1997 an officer of BT Trustees (Jersey) Ltd made a statutory declaration that at 9.02 am on that day in Jersey an officer of BTIA orally offered to assign BTIA's rights in respect of the dividend to CRA on the terms of the offer to assign, and an officer of CRA acknowledged receipt of the offer and that in order to accept it CRA must pay $US89,389,506.78 into the escrow account.
 •  On 12 May Mourant instructed BTCo London to pay $US89,389,506.78 from the CRA escrow account to BTIA's account at BTCo London.
 •  At 9.20 am on 12 May a transfer from BTIA to CRA was executed in respect of 6,593,238 BTA shares in consideration of $A100,000,007.58, and a share certificate was issued certifying that CRA was the registered holder of those shares.
 •  On 12 May $A200 million was deposited by BTA into BTCo London's account.
 •  On 12 May a deed of reassignment was executed by CRA as mortgagee in favour of BTIA as mortgagor which provided for the reassignment of the 6,593,238 shares to BTIA.
 •  A few hours after the transfer to CRA the shares were retransferred to BTIA in consideration of the discharge of the legal mortgage.
 •  On 12 May an entry was made to the franking account of CRA reflecting the receipt of a fully franked dividend of $100,000,007.58 from an external source.
 •  CRA paid management fees of approximately $82,500 to Rio Tinto Services Ltd in connection with the transaction.
 •  In its income tax return CRA returned the receipt of $100,000,007.58 as a dividend which was assessable under s 44 of ITAA 1936, claimed deductions for $100,000,007.58 of the $115,000,008.72 dividend assignment fee and for a management fee under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997), claimed a dividend rebate under s 46 of the ITAA 1936, and credited its franking account under s 160APP of the ITAA 1936 as follows:
Section 44 dividend income $100,000,007.58
Section 8-1 deduction:
Part of the dividend assignment fee $100,000,007.58
Management fee               $82,500.00 $100,082,507.58
Section 46 dividend rebate: $ 31,861,573.92
Section 160APP franking credit: $100,000,007.58
 •  On 1 September 1997 CRA lodged a company tax instalment variation by estimating its tax liability for the year ended 31 December 1997 to be nil.
 •  In its objection, CRA claimed the full amount of the dividend assignment fee as a deduction (namely $115,000,008.72).
 Part B of the document is as follows:   Issues and contentions
 

Issues

 

Respondent's

contentions

1.

Whether the amount of $100,000,007.58 received by the applicant was a dividend for the purposes of s 44 of the ITAA 1936.

No

2.

Whether the amount of $100,000,007.58 received by the applicant was assessable income under s 6-5 of the ITAA 1997.

Yes

3.

Whether the amount of $100,000,007.58 was received by the applicant in the capacity of a trustee.

Yes

4.

If the amount of $100,000,007.58 was received by the applicant as a dividend for the purposes of s 44 and s 46(1), whether s 46(12) denied the entitlement to a rebate under s 46.

Yes

5.

If the amount of $100,000,007.58 was received by the applicant as a dividend for the purposes of s 44:

Whether that dividend was a dividend to which s 46A applied

Yes
 

(b) What was the amount of the dividend rebate to which the applicant was entitled pursuant to s 46A?

Nil

6.

If the amount of $100,000.007.58 was received by the applicant as a dividend for the purposes of s 6 and thus was a "frankable dividend" within s 160APA of the ITAA 1936:

(a) Whether that dividend arose out of, or was made in the course of, a scheme that was by way of or in the nature of dividend stripping or had substantially the effect of a scheme by way of or in the nature of dividend stripping for the purposes of ss 160APHA and 160APP of the ITAA 1936?

Yes
 

(b) What was the amount of the credit to the applicant's franking account pursuant to s 160APP of the ITAA 1936?

Nil

7.

Whether the payment of $115,000,008.72, or any part thereof, made by the applicant and described as a dividend assignment fee was an allowable deduction under s 8-1 of the ITAA 1997.

No

8.

Alternatively, if the payment of $115,000,008.72, or any part thereof, made by the applicant was an allowable deduction under s 8-1, whether that deduction constituted a tax benefit obtained in connection with a scheme to which Pt IVA of the ITAA 1936 applies.

Yes

9.

Alternatively, whether the transaction gave rise to a loss of $15,082,500.42 which was deductible under s 8-1 of the ITAA 1997.

No

10.

Whether the payment of $82,500 made by the applicant and described as a management fee was an allowable deduction under s 8-1 of the ITAA 1997.

No

11.

Alternatively, if the payment of $82,500 for management fees made by the applicant was an allowable deduction under s 8-1, whether that deduction constituted a tax benefit obtained in connection with a scheme to which Pt IVA of the ITAA 1936 applies.

Yes

12.

Whether the level of additional tax by way of penalties has been correctly imposed and remitted?

Yes

  12  The document concludes with "Other matters":

   

The respondent was not a party to the transactions the subject of these proceedings and is required to meet the submissions advanced on behalf of the applicant. Accordingly the respondent reserves the right to assert further facts, raise further issues, and make further contentions in amplification, clarification or deletion of the matters in dispute.

  13  On 25 September 2003, the applicant's solicitors wrote to the respondent's solicitor asserting various deficiencies in the document, and giving him the opportunity to withdraw or amend it, in default of which the applicant would seek orders that it be struck out and a proper statement be filed. In reply the respondent's solicitors rejected the complaints. A notice of motion seeking the threatened relief was lodged with the court for filing. On 24 October 2003, before the notice of motion had been filed, the respondent filed and served a document headed "Respondent's Amended Statement of Facts, Issues and Contentions". The document does not differ greatly from the original document. The differences are these:

 •  under the sub-heading "A. The proceedings", after the respondent's decisions on the objections, a new paragraph is added stating that the Commissioner was satisfied that if the amount of $100,000,007.58 was derived by CRA as a dividend, having regard to the matters referred to in s 46A(3), the payment of the dividend arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement by way of dividend stripping; and
 •  under the sub-heading "C. Background to the CRA group dividend assignment transactions" the content of various memoranda, file notes and other documents is expanded.

  14  At the request of the applicant's solicitors, the notice of motion was not filed and was returned to them. On 4 November 2003, the respondent's solicitors wrote to the applicant's solicitors providing particulars of the amended statement "notwithstanding the applicants' failure to request particulars in accordance with the orders of the court". The letter noted that the respondent does not have direct knowledge of the facts, the particulars are the best the respondent is able to give on the information at present known to him, he reserves the right to amend the particulars, and he relies on s 14ZZO(b) of the TAA and puts the applicant to proof of all facts on which it seeks to rely. The particulars are of the respondent's contention that Pt IVA was activated by the transaction: see at [8]. The scheme is said to consist of:

   

… the development, implementation and execution of the transaction carried out by CRA and described as a dividend assignment, and included the following steps … .

 Then are set out 9 numbered steps described as "Background and Preparatory Steps" and 6 numbered steps described as "Dividend Assignment Steps". Paragraph 5 of the particulars is as follows:
   

CRA obtained tax benefits in connection with the scheme consisting of the deductions for the dividend assignment fee ($100,000,007.58 and $15,000,001.14) and for a management fee ($82,500), being amounts that would not have been allowable, or might reasonably be expected not to have been allowable, to the applicant in relation to the subject year of income if the scheme had not been entered into or carried out.

 Paragraph 6 is in part as follows:
   

On the basis of the information presently available to the respondent, the following persons entered into or carried out the scheme:

 (a)  each person who was a party to any of the transaction documents;
 (b)  each person who participated in the planning of or implementation of any of the steps or courses of conduct referred to in para 4 above;
 (c)  each person who was a director, officer or employee of, or advisor to, any of the persons referred to in paras (a) and (b) and who participated in the planning of or implementation of any of the steps referred to in para 4 above.

 

Without limiting the generality of the above, the persons who entered into or carried out the scheme included the following persons … .

 Then are set out the names of the companies and individuals mentioned in the amended statement: see at [9].

The notices of motion

  15  The applicant was still not satisfied with the respondent's documents (the amended statement and the particulars). In its solicitors' letter of 14 November 2003 it set out its reasons for being dissatisfied, and advised that if the respondent did not provide a "proper statement", the applicant would seek the assistance of the court. The respondent did not provide any further document, and on 26 November the applicant filed a notice of motion seeking, amongst other things, the following orders:

   

 1.  That the respondent file and serve a statement of facts, issues and contentions in compliance with O 52B, r 5 of the Federal Court Rules within 14 days of the hearing of this motion.
 2.  That the document filed by the respondent on or about 15 September 2003 entitled "Statement of Facts Issues and Contentions" be removed from the court file.
 3.  That the document filed by the respondent on or about 24 October 2003 entitled "Respondent's Amended Statement of Facts Issues and Contentions" be removed from the court file.
 4.  Any request for further and better particulars of the respondent's statement of facts, issues and contentions shall be served by the applicant within 28 days of receipt of the respondent's statement of facts, issues and contentions.
 5.  The respondent shall serve any such particulars on the applicant within 28 days of receipt of the applicant's request.
 6.  The Applicant shall file and serve its statement of facts, issues and contentions within 28 days of receipt of the respondent's particulars of its statement of facts, issues and contentions.

 On 4 December the respondent filed a notice of motion seeking an order that the applicant file and serve a statement of facts, issues and contentions on or before 8 March 2004, and that the applicant's notice of motion be adjourned to 8 April 2004.

Applicant's submissions

  16  The applicant submits that a "statement" within the meaning of O 52B, r 5(a)(v) is intended to serve the same purpose as pleadings. It must identify, with sufficient clarity, the real issues in the proceeding and the case that must be met by the taxpayer. It must also set out the contentions of law on which the respondent relies. Amongst other things it must:

 •  set out a comprehensive statement of the facts as perceived by the Commissioner;
 •  avoid putting in issue facts the respondent ought not to place seriously in question;
 •  propound all the necessary ingredients of each claim which as a matter of legal substance the respondent contends ought to be found.
 Where an assessment relies upon matters within the knowledge of the respondent, such as the reaching of a state of satisfaction, or the exercise of a discretion, the statement must disclose that state of mind or the exercise of that discretion, and in each case set out its basis. This obligation is not avoided by asserting that the respondent was not a party to the relevant events or transactions the subject of the assessment, or by relying on the fact that the onus is on the taxpayer to show that the relevant assessment is excessive.

  17  The applicant's general complaints about the respondent's document are directed at the amended statement (the document). They can be summarised as follows:

 (a)  The document does not state what the respondent perceives to be the facts. Instead it refers to various documents the relevance of which is not made out, lists conclusions, recites his understanding of the applicant's perception of the facts, and makes submissions. The applicant gives as an example the matter appearing under sub-heading B: "The entities and the persons involved". It is said that instead of stating the facts as the respondent perceives them, the document submits that a series of entities and individuals "played a significant role in the planning and implementation of the arrangement", a concept that is nowhere defined. The matter appearing under sub-heading C - "Background to the CRA group dividend assignment transactions" - is also attacked. The passages paraphrasing parts of documents (paras 30-32 and 37-40) are said not to state perceived facts. Rather they are contentious evidence that may or may not relate to such facts.
 (b)  The document presents a bundle of disjointed paragraphs as "facts" and makes no attempt to link or connect any particular fact or facts to any particular issue or contention. Reference is made to the single word contentions in the table of issues and contentions.
 (c)  Some contentions that relate to matters exclusively within the knowledge of the respondent are not particularised. These concern determinations said to have been made pursuant to s 177F, and the respondent's alleged satisfaction that there was the payment of a dividend arising out of, or made in the course of, a transaction by way of dividend stripping for the purposes of s 46A.
 (d)  Parts of the document do not appear to relate to any matter in issue in the proceeding. It is said that under sub-heading B, it sets out what is called "Background", yet nowhere does the respondent rely upon the background to make good any of his contentions.
 (e)  The contentions are often inconsistent with each other, yet are not presented as alternatives.
 (f)  The document does not state the necessary ingredients of each contention in the table of issues and contentions. The applicant takes each issue, and in effect sets out the types of facts the respondent would need to assert in order to justify his "yes" or "no" contention. I will not at this stage attempt to summarise the applicant's treatment of each issue, but will take issue 1 as the example. That issue is whether the $100,000,007.58 received by the applicant was a dividend for the purposes of s 44. In support of the "no basis" contention the applicant claims:
 •  there is no assertion that the applicant was not a shareholder of BTA, or that a dividend was not relevantly declared or paid to it, or that the dividend was not paid out of profits;
 •  there is no positive statement of any facts concerning the performance and timing of the payment of the dividend which might support the contention that no dividend was received;
 •  the statements, in the body the "Facts" part of the document, that the applicant did not "obtain the usual attributes of a shareholder in a company" and that its interest "in BTA" was "limited", are not facts but conclusions or submissions based upon facts that are not set out.

Respondent's submissions

  18  The respondent placed considerable emphasis on s 14ZZO(b) of the TAA:

   

In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision:

 …  
 (b)  the appellant has the burden of proving that:
 (i)  if the taxation decision concerned is an assessment (other than a franking assessment)-the assessment is excessive; or
 (ii)  if the taxation decision concerned is a franking assessment - the assessment is incorrect; or
 (iii)  in any other case-the taxation decision should not have been made or should have been made differently.

 Accordingly, it was said, the respondent has no burden of proof to discharge in the proceedings. It was submitted that the requirement in O 52B, r 5 that the respondent go first in filing a statement must not be interpreted in a way which would, to adopt the language of Gibbs J in McCormack v FCT (1979) 143 CLR 284 at 303; 9 ATR 610 at 622; 79 ATC 4111 at 4121, operate to "invert the onus of proof" in s 14ZZO(b). The decision in the appeal will ultimately turn on the facts established by the applicant, and not on those perceived and stated by the respondent. It was said that the applicant seeks to invert the onus of proof, and thereby put the respondent in a position analogous to that of a plaintiff seeking to enforce a cause of action that must be pleaded in accordance with the rules applicable to pleadings.

  19  The respondent took issue with the applicant's "pleadings" submission recorded at [16]. It was said to be inconsistent with the language of O 52B, r 5. The statement is to be a succinct outline of the "Commissioner's contentions and the facts and issues in the appeal as the Commissioner perceives them". In most cases the respondent, not having been a participant in the relevant factual events, will have an imperfect knowledge of those events. It was submitted that it was doubtless for that reason that it is the Commissioner's perception of the facts and issues that is to be succinctly outlined.

  20  It was then said that the applicant's contentions are not supported by any decision of the court, and are inconsistent with the observations of Hill J in Evans v FCT (1989) 20 ATR 922 at 923; 89 ATC 4540 at 4542 that the practice of the court, before the introduction of O 52B, requiring the parties to file a statement of issues, was a "less formal procedure" for defining the issues "than would be involved in the filing of pleadings".

  21  The respondent also contended that the applicant's stance is inconsistent with the long-standing practice of making provision in orders for the applicant to request particulars of the respondent's statement. That provision was made in the present case. Before the applicant was required to file its own statement, it is entitled to ask the respondent for further and better particulars of his statement. Here, however, the applicant requires the respondent to anticipate all matters that might be the subject of a request for further particulars, and provide them in the initial statement. It was then said that it is inappropriate to impose pleading type obligations on the respondent, because he has only second hand, hearsay knowledge of the relevant transactions. Finally it was submitted that the applicant's stand was inappropriate when it, having the burden of proof, has given no indication as to the nature of its case, or the means by which it proposes to discharge that burden, with the result that neither the court nor the respondent knows what matters are ultimately likely to be in dispute in the proceeding.

The case law

  22  In Bailey v FCT (1977) 136 CLR 214; 7 ATR 251; 77 ATC 4096, the Commissioner had issued an assessment in relation to a bottom of the harbour scheme. From correspondence between the parties it appeared that the Commissioner relied on s 260 of ITAA 1936 to subject a distribution by a company to tax in the hands of the taxpayer. The taxpayer sought particulars of the facts on the basis of which the Commissioner considered there was an arrangement within s 260. The Commissioner replied that all the facts were peculiarly within the taxpayer's knowledge, and that accordingly he was not obliged to give particulars. The Commissioner's refusal was upheld by the Supreme Court of New South Wales. Helsham J said that s 260 was self-executing, and did not depend upon the formation of any opinion or the exercise of any discretion. His Honour was of the view that whatever might be the position with opinion or discretion cases, there was no obligation to give particulars in this case. The High Court disagreed. Barwick CJ said (at CLR 217; ATR 253; ATC 4098):

   

Of course, as was submitted, s 260 is a self-operating provision, in particular not dependent on the opinion of the Commissioner. But the process of assessment requires the application of the Act to the facts as known to and accepted by the Commissioner. He must of necessity, as part of that process, adopt a view of the relevant facts. They must be facts which disclose a taxable income. If those facts are the result of the operation of s 260, the Commissioner must observe and act in his assessment upon that operation. Hence the identification by the Commissioner of that contract, agreement or arrangement which the section has avoided is indispensable to the formation of the view of the facts which are the basis of the assessment. Those are what I might call the taxable facts which avoidance by s 260 of the contract, agreement or arrangement has exposed.

 Gibbs J (at CLR 219; ATR 254; ATC 4099) said:
   

A taxpayer who comes to court in a case in which it is suggested that s 260 applies is, as a matter of justice, entitled to know what case it is that the Commissioner intends to raise against him. The circumstance that s 260 must be applied to the facts whether or not the Commissioner holds any opinion on the subject provides no reason why the issues of fact arising in the case should not be defined. The fact that the taxpayer bears the onus of proving that the assessment is excessive makes it all the more necessary that he should be given particulars of the basis of the assessment … .

 

The facts in a case arising under s 260 are not necessarily all within the knowledge of the taxpayer. However, it is a misapprehension to think that the only function of particulars is to reveal to a party facts of whose existence he is unaware. As I have indicated, particulars have the important function of informing a party of the nature of the case he has to meet and of limiting the issues of fact to be investigated by the court.

 Mason J (at CLR 221; ATR 255; ATC 4100) said:
   

Under s 190 the taxpayer bears the onus of showing that the Commissioner's assessment is excessive. Consequently the relevant facts in the appeal include the view of the facts on which the Commissioner has based his assessment, the manner in which he has arrived at his assessment. These facts are not within the knowledge of the taxpayer; they are within the knowledge of the Commissioner.

  23  In Jackson v FCT (1989) 20 ATR 611 at 618; 89 ATC 4429 at 4435; 87 ALR 461 at 469, a Pt IVA case, Gummow J said:

   

The conditions [in the opening lines of s 177F(1)] are "self-operating" or "self-executing" in the sense that their fulfilment in a particular case is not dependent upon the Commissioner having a particular satisfaction or holding a particular opinion. Nevertheless, the process of assessment requires the application of the Act (including the conditions) to the facts as known to and accepted by the Commissioner, and as part of that process the Commissioner must adopt a view of the facts.

 Later (at ATR 620; ATC 4436; ALR 470), his Honour quoted with approval the observations of Barwick CJ in Kolotex Hosiery (Australia) Pty Ltd v FCT (1975) 132 CLR 535 at 541; 5 ATR 206 at 211; 75 ATC 4028 at 4031:
   

If, as is the case in the present matter, there is more than one such matter upon which the Commissioner's state of mind is of the essence of the assessment, the Commissioner should arrive at and record his satisfaction or lack of it as to each of these matters along with its factual basis. It should not be left as it is in the present case for the court to draw inferences as to whether such a matter was considered by the Commissioner, and, if it was, as to what [was] his relevant state of mind with respect to it. Further … the Commissioner must expose to the taxpayer, particularly if so requested, both his state of mind at the relevant time and its basis.

  24  In Evans v FCT (1989) 20 ATR 922 at 926; 89 ATC 4540 at 4544, Hill J, referring to the pre-O 52B practice of ordering a statement of issues, described the practice as "a less formal procedure than would be involved in the filing of pleadings to define the issues". In Saffron v FCT (1991) 22 ATR 131; 91 ATC 4501, decided before the introduction of O 52B, Beaumont J said (at ATR 135; ATC 4505):

   

Strictly speaking, we are not here concerned with a formal pleading. This is an informal pleading ordered pursuant to the court's general powers to give directions with a view to identifying the real questions in dispute … . The statements of facts, issues and contentions may not be pleadings in a technical sense. But they are intended to serve the same purpose as pleadings, that is, to identify the real issues.

  25  In Bartlett v FCT (2003) 54 ATR 261 at 265; 2003 ATC 4962 at 4965, Hill J said:

   

The court should be able to expect that the issues stated by the parties properly reflect the matters which are to be raised in a tax appeal where the statement of facts, issues and contentions are intended to take the place of pleadings so that both parties to the litigation know what the case is which they have to meet. Particularly a taxpayer should know in advance what construction of a section is to be advanced by the Commissioner if that construction differs from the construction which the taxpayer has clearly adopted.

  26  The respondent asserted that, as a result of the usual provision in taxation directions that the taxpayer be at liberty to seek further particulars, it has become the accepted practice that "matters such as the identification of the steps involved in an alleged Pt IVA "scheme" occur through the provision by the Commissioner of a response to an appropriate request provided by the taxpayer". As the respondent pointed out, that appears to have happened in FCT v Peabody (1994) 181 CLR 359; 28 ATR 344; 94 ATC 4663. It may be doubted, however, whether there is any accepted practice. The applicant pointed to 4 recent Pt IVA cases in which the steps were identified in the statement itself: see Binetter v FCT (2003) 53 ATR 646, Bridgestone Australia Ltd v FCT (2002) 51 ATR 449, FCT v Mochkin (2003) 52 ATR 198; 2003 ATC 4272 and Spassked Pty Ltd v FCT (No 5) (2003) 52 ATR 337; 2003 ATC 4184.

  27  The applicant called in aid the extra-judicial observations of Beaumont J in Anatomy of a Federal Court Tax Case (2000) UNSW Law Journal 237 at 238-239. Having described the statement of facts, issues and contentions as the "central point of reference in every tax appeal", his Honour said:

   

The statement is divided into 3 distinct parts as follows:

 •  First, a comprehensive statement of the facts, including background or historical facts, which the particular party, in accordance with its own professional advice, contends ought to be found by the court.
    …
    … the Crown is expected to act, and does act, as a "model" litigant, so that it may be anticipated that the Commissioner's response to the taxpayer's statement of facts will not seek to put in issue facts which the Commissioner ought not to place seriously in question.
    …
 •  Thirdly, the statement of contentions is also a novel feature .... Under the modern system of pleading, propositions of law need not be pleaded. Rather, what is required of modern pleading is no more than a statement of the facts relied upon to establish the cause of action asserted. However, in a tax appeal the statement of contentions of the party concerned must propound all the necessary ingredients of the claim for which, as a matter of legal substance, that party contends … .

 These observations are the source of the applicant's submission at [16].

Jurisdiction invoked by the applicant

  28  It will be recalled that by its motion the applicant seeks orders that the respondent file a statement in compliance with O 52B, and that the existing statements (original and amended) be removed from the court file. The source of the power to grant this relief was not the subject of submissions.

  29  Order 41, r 5 provides:

   

If there is matter in a document (other than an affidavit) which is, having regard to the issues in the proceeding, scandalous, vexatious or oppressive, the Court may order that:

 (a)  the document be removed from the file; or
 (b)  the matter may be struck out of the document.

 If by a pleading a party is not informed of the precise nature of the case he has to meet, it has been held to be embarrassing and may be struck out under rules in essentially the form of O 11, r 16 of the Federal Court Rules: Re WR Willcocks & Co Ltd [1974] Ch 163 at 166 and Davy v Garrett (1878) 7 Ch D 473 at 483, 485 and 488. In my view that vice may also result in a document which is not a pleading being "oppressive" within O 41, r 5. In Hamilton v Oades (1989) 166 CLR 486 at 502, Deane and Gaudron JJ said:
   

The inherent power of a court to control and supervise proceedings includes the power to take appropriate action to prevent injustice … .

 

The power of a court to control and supervise its process to prevent injustice is not restricted to defined and closed categories … . In this context injustice is not simply a question of the purpose or motive for which the relevant proceedings were instituted but includes a consideration of the consequences of the proceedings for the person invoking the power. The terms "oppressive" and "vexatious" are often used to signify those considerations which justify the exercise of the power to control proceedings to prevent injustice, those terms respectively conveying, in appropriate context, the meaning that the proceedings are "seriously and unfairly burdensome, prejudicial or damaging" and "productive of serious and unjustified trouble and harassment" … .

 Accordingly, I proceed on the basis that in an appropriate case O 41, r 5 and the court's inherent power enable it to make the orders sought by the applicant.

Relevance of s 14ZZO(b)

  30  At all material times the income tax legislation has included a provision imposing on the taxpayer the burden of proving that the assessment is excessive. At the time of Bailey it was s 190(b) of ITAA 1936. The more expansive form of s 14ZZO(b) is not relevantly different. The respondent, in my view, overstates the significance in an O 52B, r 5(a)(v) context of the fact that the burden is on the taxpayer. Rule 5(a)(v) and s 14ZZO(b) deal with different issues and different stages of a tax appeal. The section is concerned with the ultimate disposition of the appeal. Unless the court otherwise orders, the appellant is limited to the grounds stated in its objection, and has the burden of proving that the assessment is excessive or incorrect. The rule, on the other hand, is concerned with the management of the appeal in its early stages. There are no pleadings in taxation appeals, and the rule was introduced to formalise the practice that had developed in the court of providing an alternative to pleadings so as to ensure that each party is aware of the other's case: see, for example, Binetter (at ATR 647). That the section and the rule (or the earlier practice) are dealing with different issues is reflected in Gibbs J's observations in Bailey (at CLR 219; ATR 254; ATC 4099) that the fact that the taxpayer bears the onus of proving that the assessment is excessive "makes it all the more necessary that he should be given particulars of the basis of the assessment".

Subjecting respondent to a plaintiff's obligation

  31  Related to the onus submission is the respondent's contention that the applicant seeks to subject the respondent to the obligations of a plaintiff having a cause of action which he is required to plead in accordance with the usual rules applicable to pleadings. This is said "in effect, to invert the onus of proof". The respondent placed much emphasis on Hill J's remark in Evans (at ATR 926; ATC 4544) that a statement of issues is a "less formal procedure than would be involved in the filing of pleadings". His Honour was there describing the order made by Lockhart J, before the introduction of O 52B, that the parties file an agreed statement of issues, and failing agreement each file a statement of the issues as seen by them. The pleading regime in the Rules is formal, detailed, structured and well-developed by case law. Hill J's use of the words "less formal procedure" is intended to reflect the absence of such a regime in taxation appeals, and the practice of giving curial directions designed to fill the gap so as to ensure that each party knows the case that has to be met. As Aickin J said in Bailey (at CLR 227; ATR 259; ATC 4103) (quoted by Hill J in Evans (at ATR 926; ATC 4544)):

   

The fact that a proceeding may go forward without pleadings does not deprive the court of such control as is necessary to ensure that the issues are defined and that each party is provided with the necessary information as to the case which he has to meet.

 In any event, since O 52B was made there is a formal procedure in place. Doubtless for this reason, Hill J in Bartlett (at ATR 265; ATC 4965) described the statement of facts, issues and contentions as "intended to take the place of pleadings". Whether one looks to the pre-Order 52B practice or the current regime, the real point is not whether what the order mandates is less formal than pleadings or takes the place of pleadings, but that the intention behind the practice and the rule is that "both parties to the litigation know what the case is which they have to meet": per Aickin J in Bailey (at CLR 227) and per Hill J in Bartlett (at ATR 265; ATC 4965).

Commissioner's knowledge of the facts

  32  In my view, the respondent also places undue emphasis on the significance of the respondent's "second hand, hearsay knowledge of the transactions purported to have been implemented" by the applicant. The facts in this case are not all within the knowledge of the taxpayer. The relevant facts include the view of the facts on which the respondent has based his assessment and the manner in which he has arrived at his assessment: see per Barwick CJ and Mason J in Bailey (at CLR 217; ATR 252; ATC 4097) and (CLR 221; ATR 254; ATC 4099) respectively and per Gummow J in Jackson (at ATR 612; ATC 4430; ALR 469). Further, it is apparent from the information contained in the document that the respondent is in possession of the transaction documents, and is aware of the background facts and concerns that led the applicant to bring them into existence. All that can in truth be said is that the applicant may have a more complete understanding of the events that happened and their timing. Other matters that are within the knowledge of the respondent relate to the respondent's s 46A "satisfaction" that payment of the dividend was by way of dividend stripping, the matters that led the respondent to exercise the discretion conferred by s 177F in the way he did, and the imposition of penalties and the decision not to remit or not wholly to remit them.

Relevance of bailey

  33  The respondent stressed that Bailey and later cases such as Bridgestone and Binetter were not concerned with statements of facts, issues and contentions, but with the provision of particulars. It was said that "one does not draw conclusions about the proper content of a statement of facts, issues and contentions from cases that are concerned with the making clear of a party's case by means of the provision of particulars". As is apparent from the cases to which I have referred, the procedure now enshrined in O 52B is based on the practice established in the earlier cases. The words of r 5(a)(v) - "the facts and issues in the appeal as the Commissioner perceives them" - can be traced back to Barwick CJ's "the facts as known to and accepted by the Commissioner": Bailey (at CLR 217; ATR 256; ATC 4098), echoed by Gummow J in Jackson (at ATR 618; ATC 4435; ALR 469) and to Hill J's remark in Binetter (at 647), speaking of the practice before O 52B - "facts and issues in the appeal as perceived by him". For that reason I think Bailey and the other "particulars" cases are of assistance in determining the content of an O 52B statement. Bailey is especially important because it was not a "further particulars" case but an "initial particulars" case where the Commissioner's adjustment sheet gave no reason for the adjustment, and his reliance on s 260 appeared only in the course of correspondence, and simply referred to "an arrangement of the type against which s 260 … operates".

The respondent's "issues"

Issue 1

  34  Whether the amount of $100,000,007.58 received by the applicant was a dividend for the purposes of s 44 of the ITAA 1936  The respondent's contention is "No". Section 44(1) provided in part:

   

The assessable income of a shareholder in a company (whether the company is a resident or a non-resident) shall, subject to this section and to section 128D -

 (a)  if he is a resident - include dividends paid to him by the company out of profits derived by it from any source … .

 The subsection may be inapplicable to the applicant because the applicant is not a shareholder of BTA, because the amount received by it was not paid out of profits, or because for some other reasons it was not a dividend. All that appears in the document that might explain why s 44 does not apply to the amount received by the applicant is in paras 4 and 70 thereof. Paragraph 4 is as follows:
   

Pursuant to the transaction documents CRA asserts it became a shareholder in BTA by reason of registration on the BTA share register for approximately 2 hours in circumstances where CRA was from the outset contractually bound to retransfer its interest in the relevant shares and to be removed from the BTA share register, and was so removed. CRA claims that the amount of $100,000,007.58 derived by it was derived by it as a shareholder in BTA and the amount was a dividend. CRA did not obtain the usual attributes of a shareholder in a company, such as exposure to the risks and benefits of ownership, management, control or physical custody of scrip.

 In para 70 it is said that the:
   

… limited nature of CRA's interest in BTA appears from cl 7.1 of the mortgage which provided:

 

7.1 Until an Event of Default occurs:

 (a)  the Mortgagor [ie BTIA] may exercise rights to take up further Shares in the Company; and
 (b)  the Mortgagee [ie CRA] may not exercise any other rights in respect of the Present Security without the Mortgagor's consent.

  35  If the respondent's contention in relation to issue 1 is founded on the above matters, it should say so expressly, so that the applicant is in no doubt as to the case it has to meet. The respondent should refer to facts in support of its contention, rather than saying that the applicant's interest was "limited". That is to say, if the contention is that s 44(1) is not applicable because the applicant was not a shareholder in BTA for reasons such as those suggested in para 4, the facts said to support the contention should be stated along the following lines:

 •  the applicant did not obtain custody or control of the scrip;
 •  the provisions in cl 7.1 of the mortgage;
 •  the applicant was from the outset contractually bound to re-transfer its interest in the shares and be removed from BTA share register;
 •  the applicant was only on the BTA share register for approximately 2 hours
 •  the applicant was removed from the register.

Issue 2

  36  Whether the amount of $100,000,007.58 received by the applicant was assessable income under s 6-5 of the ITAA 1997  The respondent's contention is "Yes". Section 6-5(1) provides that a person's assessable income includes income according to ordinary concepts. The respondent does not refer to any facts that have led him to the conclusion that the amount received was ordinary income, and the applicant should not have to dredge through the 14 pages of "Facts" in the hope of identifying the matters that might be relied on by the respondent to support his conclusion. The relevant facts may be in the document, but they do not leap out.

Issue 3

  37  Whether the amount of $100,000,007.58 was received by the applicant in the capacity of a trustee  The respondent's contention is "Yes". If, as appears to be the case, this is an alternative to the first and second contention, that should be stated, and the facts relied on for the contention that the applicant received the amount as a trustee should be stated. A pleader must state separately the facts that support an alternative plea: JC Decaux Australia Pty Ltd v Adshel Street Furniture Pty Ltd (2000) 178 ALR 339 at 343. I see no reason why this rule should not apply to an O 52B statement, whether it be viewed as an informal pleading or a substitute for pleadings. As I have said earlier, the tag attached to the obligation is not what matters, but the fact that, on all the authorities, the purpose of the document is to inform the applicant of the case it has to meet. An alternative claim is just as much a case that must be met as the claim to which it is the alternative. How did the trust come into existence? Who are the beneficiaries? What are the terms of the trust?

Issue 4

  38  If the amount of $100,000,007.58 was received by the applicant as a dividend for the purposes of ss 44 and 46(1), whether s 46(12) denied the entitlement to a rebate under s 46  The respondent's contention is "Yes". Section 46(12) provides that a shareholder in the capacity of trustee is not, and is taken never to have been, entitled to a rebate under this section. What I have said about issue 3 is applicable here.

Issue 5

  39  If the amount of $100,000,007.58 was received by the applicant as a dividend for the purposes of s 44:

 (a)  whether that dividend was a dividend to which s 46A applied;
 (b)  what was the amount of the dividend rebate to which the applicant was entitled pursuant to s 46A?
 The respondent contends that the answer to (a) is "Yes". Section 46A dealt with the rebate entitlement on dividends paid as part of a dividend stripping operation. The word "dividend" for the purpose of s 46A was defined in subs (1) as:
   

… a dividend paid by a company that is a resident, but, except in paragraph (6)(a) or (b), does not include a dividend unless the payment of the dividend arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner is satisfied was by way of dividend stripping.

 Subsection (3) provides:
   

In considering whether the payment of a dividend (in this subsection referred to as the "relevant dividend") by the relevant company arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement by way of dividend stripping, the Commissioner shall take into consideration:

 (a)  whether the effect of the payment of the relevant dividend by the relevant company to the shareholder, or the effect of that payment and of the payments of any other dividends that have been or are likely to be made by the relevant company to the shareholder has been, or would be, to reimburse the shareholder wholly or substantially for the amount or amounts paid by him in respect of the acquisition of any relevant property;
 (b)  whether the value of any relevant property immediately after the time when the relevant dividend was paid was substantially less than the value of that relevant property at the time when it was acquired by the shareholder and, if so, whether the reduction in value was wholly or mainly attributable to the payment of a dividend to the shareholder by the relevant company;
 (c)  whether the right to receive dividends in respect of any relevant property consisting of shares in the relevant company is, by reason of any provision in the constituent document of the company or of any agreement, limited as to the total of the amounts that may be paid as dividends in respect of the shares or as to the source of the profits from which, or the period during which, dividends may be paid in respect of the shares; and
 (d)  any other relevant matters.

  40  In arriving at the conclusion that s 46A applies, the Commissioner must have been satisfied that the dividend arose out of, or was made in the course of a transaction etc by way of dividend stripping. And he must have reached that state of satisfaction after having taken into consideration the matters listed in s 46A(3). But there is no mention in the document of any facts or matters that form the basis for the respondent's state of mind. I refer to Barwick CJ's judgment in Kolotex quoted at [23]. Nor is there any reference to the subs (3) matters - either whether those in paras (a), (b) and (c) existed or whether any other matters were taken into consideration under para (d). Nor is there any statement of the facts or matters that led the respondent to conclude that the correct amount of the dividend rebate was nil: see issue 5(b).

Issue 6

  41  If the amount of $100,000,007.58 was received by the applicant as a dividend for the purposes of s 6 and thus was a frankable dividend within s 160APA of the ITAA 1936:

 (a)  whether that dividend arose out of, or was made in the course of a scheme that was by way of or in the nature of dividend stripping or had substantially the effect of a scheme by way of or in the nature of dividend stripping for the purposes of ss 160APHA and 160APP of the ITAA 1936;
 (b)  what was the amount of the credit to the applicant's franking account pursuant to s 160APP of the ITAA 1936?
 The respondent contends that the answer to (a) is "Yes". Section 160APP deals with the circumstance in which franking credits come into existence. Subsection (6) provides that no franking credit arises if the dividend was paid as part of a dividend stripping operation. Section 160APHA provides:
   

For the purposes of this Part, a dividend paid to a shareholder in a company shall be taken to be a dividend paid as part of a dividend stripping operation if, and only if, the payment of the dividend arose out of, or was made in the course of, a scheme that:

 (a)  was by way of or in the nature of dividend stripping; or
 (b)  had substantially the effect of a scheme by way of or in the nature of dividend stripping.

  42  The respondent's contention is that the dividend (if there was one) did arise out of, or was made in the course of, a scheme of the relevant kind. But the document does not contain any facts to support a finding that there was a "dividend stripping operation" as defined. No "scheme" is identified. The document does not say whether the scheme asserted falls within paras (a) or (b) of s 160APHA or within both.

Issue 7

  43  Whether the payment of $115,000,008.72, or any part thereof, made by the applicant and described as a dividend assignment fee was an allowable deduction under s 8-1 of the ITAA 1997  The respondent contends it was not. Section 8-1(1) provides:

   

You can deduct from your assessable income any loss or outgoing to the extent that:

 (a)  it is incurred in gaining or producing your assessable income; or
 (b)  it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

 Subsection (2) provided:
   

However, you cannot deduct a loss or outgoing under this section to the extent that:

 (a)  it is a loss or outgoing of capital, or of a capital nature; or
 (b)  it is a loss or outgoing of a private or domestic nature; or
 (c)  it is incurred in relation to gaining or producing your exempt income; or
 (d)  a provision of this Act prevents you from deducting it.

  44  The document does not tell the respondent why it is that the deduction is not allowable. Is it because it was not incurred in gaining assessable income or necessarily incurred in carrying on a business for that purpose? Or is it because it falls within one of the categories in subs (2)? Further, no facts or matters are disclosed that have led the respondent to conclude that the deduction is not available.

Issue 8

  45  Alternatively, if the payment of $115,000,008.72, or any part thereof, made by the applicant was an allowable deduction under s 8-1, whether the deduction constituted a tax benefit obtained in connection with a scheme to which Pt IVA of the ITAA 1936 applies  The respondent's contention is "Yes". I deal with this issue at [50].

Issue 9

  46  Alternatively, whether the transaction gave rise to a loss of $15,082,500.42 which was deductible under s 8-1 of the ITAA 1997  The respondent's contention is "Yes". I refer to what I have said about issue 7.

Issue 10

  47  Whether the payment of $82,500 made by the applicant and described as a management fee was an allowable deduction under s 8-1 of the ITAA 1997  The respondent's contention is "Yes". The document records the payment of the fee but states no facts and makes no contentions of law concerning the disallowance. I refer to what I have said about issue 7.

Issue 11

  48  Alternatively, if the payment of $82,500 for management fees made by the applicant was an allowable deduction under s 8-1, whether that deduction constituted a tax benefit obtained in connection with a scheme to which Pt IVA of the ITAA 1936 applies  The respondent's contention is "Yes". I deal with this issue at [50].

Issue 12

  49  Whether the level of additional tax by way of penalties has been correctly imposed and remitted  The respondent's contention is "Yes". The document contains no facts relating to this issue, and does not identify the provisions of the Act that entitled the respondent to impose additional tax or to remit it.

Part IVA

  50  The document records in paras 9-11 the making of determinations under s 177F(1)(b) that the amounts of $100,000,007.58, $82,500 and $15,000,001.14, being tax benefits referable to a deduction being allowable should not be allowable. There is no other express reference to Pt IVA in the "Facts" part of the document, other than in para 8. Issues 8 and 11 relate to the three s 177F(1)(b) determinations referred to above: the first and third amounts together totalling the $115,000,008.72 the subject of issue 8, and the other being the amount in issue 11.

  51  As appears at [14], the respondent of his own volition provided particulars of the contention that Pt IVA was activated by the transaction. As appears at [26] there was some disagreement as to whether in cases where the respondent relies on Pt IVA there is a practice that information be provided by way of particulars rather than in the O 52B statement. I can see no justification in a case raising Pt IVA for not including the facts and contentions relating to that issue in the statement itself. It is true that Pt IVA will often be the respondent's alternative case. But as I have said in another connection, it is just as important for the taxpayer to know how an alternative case is put as it is to know the primary case.

  52  The material in the particulars is in some respects deficient. There is no assertion by the respondent that it should be concluded from the purposes of s 177D that a party to the scheme alleged entered into or carried out the scheme, or part of it, for the sole or dominant purpose of enabling the applicant to obtain a tax benefit in connection with the scheme. That can perhaps be inferred in the circumstances. However, it should be stated so as to highlight the consequential need for a statement of the facts upon which reliance is placed to support the conclusion required by s 177D: see Bridgestone (at [24]) and cf FCT v Casuarina Pty Ltd (1971) 127 CLR 62 at 72; 2 ATR 161 at 163; 71 ATC 4068 at 4071.

  53  Section 177D refers to the conclusion that "the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme". The particulars do not identify which party or parties had the requisite purpose.

  54  Complaint was made by the applicant about the description of the persons who entered into the scheme: see paras (b) and (c) of the description at [14]. It was contended that the parties must be named: see Bridgestone (at [18]). The respondent goes some way towards satisfying this requirement by adding to the general description of the persons involved a list of 10 corporations and 7 individuals who entered into or carried out the scheme. However their names are introduced by the words: "Without limiting the generality of the above." It would have been preferable for the document to have said that on the information available to the respondent, the persons who entered into or carried out the scheme were the named persons. The document reserves the respondent's position to amend the particulars in the light of later acquired information.

  55  Section 177F(1)(b) confers a discretion on the respondent to determine that a deduction should be disallowed. The facts relied upon for the exercise of the discretion should be disclosed.

Another source of information

  56  The respondent drew attention to the fact that much of the information about the way he puts his case, and his reasoning process relating to the contentions, is available to the applicant in other documents. Under cover of a letter dated 12 December 2001 the respondent provided a position paper in relation to the applicant (and comparable papers for two of its subsidiaries). This sets out, amongst other things, the "taxation consequences" of the transaction as seen by the respondent. However it is essentially a statement of conclusions on the taxation issues, without disclosing any reasoning process. In a further position paper applicable to all 3 companies the respondent set out his reasoning on various issues:

 •  the legal efficacy of the arrangements;
 •  the existence of a trust;
 •  the character of the "dividend" received by the applicant;
 •  the character of the dividend assignment fee paid by the applicant
 •  why the transaction had the character of a dividend strip;
 •  why Pt IVA applied.
 Reference was also made to the respondent's notice of decision on the applicant's objection dated 26 May 2003. This contains an elaborate exposition of the respondent's position on each issue.

  57  On the basis of this material the respondent says he has made clear to the applicant his view of the facts and of the application of the tax law to those facts. He submits that "the demands that are made by the applicants of the Commissioner in respect of what they say his statement of facts, issues and contentions should contain, are quite inappropriate given the extent of the explanation of his position as he's provided it". However, as the applicant pointed out, the respondent is not excused from complying with O 52B, r 5(a)(v) of the Federal Court Rules by the fact that he has provided the requisite information by another means. Indeed what the other documents show is that the respondent has to hand the very material that he could have used to construct a proper statement.

Conclusion

  58  The amended document filed on 24 October 2003 falls seriously short of the statement contemplated by O 52B, r 5(a)(v). The most important deficiency is the absence of any stated basis for the contentions in the table of issues and contentions. The issues are sufficiently stated, save for the omission of clear identification of alternative cases. But more is required than a "Yes" or "No" answer to the question posed by each issue. I share Beaumont J's extra-judicial view (at [27]) that the statement of contentions "must propound all the necessary ingredients of the claim for which, as a matter of legal substance, that party contends". It is now well-established that the statement takes the place of pleadings so that after the exchange of statements the parties to a tax appeal know the case each has to meet. A statement that leaves a taxpayer uncertain as to how the case is put against it is embarrassing and oppressive. A statement that does not disclose the facts on which the respondent has based his assessment and the manner in which he has arrived at it, suffers from these twin vices. I have identified in my consideration of the issues the deficiencies in these respects. I do not consider they can be remedied by ordering further particulars or by leaving the matter to be resolved by a request for further particulars under para 5 of the consent order of 5 September 2003. The mechanism contemplated by that paragraph has its place to supplement or fill out a statement that constitutes a genuine attempt to comply with the requirements of r 5, but suffers from insufficient detail. But refuge cannot be found in the customary order for further and better particulars in a case such as the present that is structurally wanting in important respects. I have expressed the view that facts and contentions in relation to a Pt IVA case should be contained in the r 5 statement, even when reliance on Pt IVA is the respondent's alternative case. Had the material in the Pt IVA particulars letter of 4 November 2003 appeared in the amended document of 24 October 2003, the gaps in it may have been capable of being filled by particulars.

  59  I am conscious that much of the information missing from the statement is available to the applicant in the documents referred to at [56]. I have taken this into account in exercising my discretion as to the order to be made under O 41, r 5 or under the inherent jurisdiction. However, as I have indicated earlier, O 52B was made in the knowledge that it will have been preceded by the respondent's decision on a taxpayer's objection, and I am unable to conclude that this provides a reason for not making the order I would otherwise make.

  60  I will order that within 28 days the respondent file and serve a statement of facts, issues and contentions in compliance with O 52B, r 5, and that the document filed on 15 September 2003 entitled "Respondent's Statement of Facts Issues and Contentions" and that filed on 24 October 2003 entitled "Respondent's Amended Statement of Facts Issues and Contentions" be removed from the court file.

  61  While the applicant claims that the documents that have been filed do not disclose the case mounted against it, the claim rings somewhat hollow. I have considered whether the fact that most of the information that is not contained in the documents filed is otherwise in the applicant's possession should be reflected in the order for costs. However I have concluded that it should not. The statement takes the place of pleadings, and an appellant taxpayer is by the Rules entitled to have a proper statement just as much as a respondent is entitled to pleadings disclosing the case against it. It is no answer to the requirement for a statement of claim that the respondent well knows aliunde the case against him. The applicant should not suffer a penalty for insisting on its right to a proper statement.


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