TEFONU PTY LIMITED v ISC

Judges:
Beazley J

Court:
Federal Court

Judgment date: Judgment handed down 27 August 1993

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Beazley J

Introduction

This is an appeal brought pursuant to the provisions of s. 44(1) of the Administrative Appeals Tribunal Act 1975 from a decision of the Administrative Appeals Tribunal made on 22 June 1992, which affirmed the decisions of a delegate of the Insurance and Superannuation Commissioner not to give notices under s. 13(1) of the Occupational Superannuation Standards Act 1987 (the Act) to the trustee of the Neeta Homes Pty. Limited Staff superannuation fund in respect of the lodgement of returns under s. 12 of the Act for the financial years ended 30 June 1988 and 1989.

The Act, which commenced on 21 December 1987, is an Act to provide operating standards for superannuation funds and other funds and superannuation trusts. Section 7 of the Act provides that regulations may be made prescribing standards for the operation of superannuation funds. The first regulations made under the Act were notified on 22 December 1987. The combined effect of the regulations and ss. 12 and 13 of the Act is to specify the circumstances in which superannuation funds are entitled to the beneficial tax rate provided by s. 26(1) of the Income Tax Rates Act 1986.

Section 12 of the Act provides that the trustees of a superannuation fund may lodge a return providing information relating to the fund and its satisfaction of the superannuation fund conditions during a year of income, together with certificates, by both the trustees of the fund and an approved auditor, certifying the return. Where such a return and certificates are lodged, the Commissioner is required to give a notice to the trustees stating whether the Commissioner ``is satisfied that the fund satisfied the superannuation fund conditions in relation to the [relevant] year of income''. If the Commissioner is so satisfied, the fund is a ``complying fund'' for the purposes of the Income Tax Assessment Act 1936 and the Income Tax Rates Act, and is entitled to the beneficial tax rate provided for in the latter Act.

Section 13 of the Act provides that if the Commissioner does not give a notice under s. 12, but the trustee satisfies the requirements of s. 13, the Commissioner shall give a notice that the Commissioner is satisfied that the fund should be treated as complying with the superannuation fund conditions in relation to the relevant year of income. A notice given under this section has the effect of entitling the trustee to the beneficial tax rate as if a s. 12 notice had been given. As s. 13 is central to this appeal, it is convenient at this point to set out its relevant provisions:

``13(1) Where, in relation to a fund in relation to a year of income of the fund:

• (a)... the trustees of the fund... have given the Commissioner the return and certificates referred to in that subsection but the Commissioner is not satisfied that the fund satisfied the superannuation fund conditions; and
• (b) the trustees of the fund satisfy the Commissioner that, because of special circumstances that existed in relation to the fund during the year of income, it would be reasonable for the fund to be treated as if it had satisfied the superannuation fund conditions; and
• (c)...

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  ATC 4730

the Commissioner shall give notice in writing to the trustees of the fund stating that the Commissioner is satisfied that the fund should be treated as if it had satisfied the superannuation fund conditions in relation to the year of income.''

In this case, the Commissioner determined that the staff superannuation fund of Neeta Homes Pty. Limited did not comply with reg. 16(1)(b) for the years ended 30 June 1988 and 30 June 1989, as the trustee had borrowed and maintained a borrowing of money otherwise than to secure temporary finance in those years. Regulation 16(1)(b), which operates retrospectively to 1 July 1986 relevantly provides:

``(b)... the trustees of a superannuation fund shall not borrow, or maintain an existing borrowing of, money, whether by way of a secured or unsecured loan, otherwise than to secure temporary finance by way of overdraft with an eligible bank;''

``Eligible bank'' was defined and meant an institution with a banking licence.

The trustee made representations to the Commissioner for the issue of a notice under s. 13, however the Commissioner, by his delegate, refused this application.

Background

Neeta Homes Pty. Limited established its staff superannuation fund in 1977. The investments of the fund were primarily property based and the trustee had borrowed from time to time for the purposes of carrying out property development. The then trustee (which was in liquidation at the time of the hearing before the Tribunal) lodged returns with the Commissioner for the years ended 30 June 1988 and 30 June 1989. However, those returns each contained a qualification by the auditors of the fund. The qualification in the 30 June 1988 return was that: ``The Trustees have entered into a mortgage after 1 July 1986 amounting to $1,341,600 at 30 June 1988''; and in the 30 June 1989 return that: ``The Trustees entered into a mortgage after 1 July 1986, the balance on which was $770,000 at 30 June 1989''.

The auditor's qualifications were made because the trustee had borrowed moneys from AMEV Finance Limited to purchase and develop certain property. The contract to purchase the property, for a price of $400,000, had been entered into on 29 August 1986, pursuant to the exercise of an option to purchase, for which a fee of $8,000 had been paid. Prior to the exercise of the option, the trustee had incurred various expenses in relation to the proposed purchase totalling $10,877. After the purchase, the trustee paid stamp duty in an amount of $12,483.75.

At the time the property was acquired, the intention was to build a commercial development, which the trustee proposed to hold as a long-term investment, anticipating that the loan would probably be repaid from the rental income from the property. Approval for the development of the property was not obtained until 23 November 1987, after two development applications and an appeal to the Land and Environment Court. On 21 September 1987, prior to the grant of development approval, AMEV advised the trustee of its approval of the trustee's loan application for finance for the development. There was no evidence as to the date the mortgage and other loan documentation was executed. However, the Tribunal found that the trustee proceeded with the mortgage on 24 December 1987. The purchase was settled on 18 January 1988, which was the date that the Tribunal found the final borrowing occurred. The loan was for a period of 2 years and security was by way of a first registered mortgage over the property, together with other collateral security. There was no penalty for early repayment after 6 months.

On 11 June 1986, prior to the purchase of the property, the Treasurer had announced the proposed introduction of operating standards for superannuation funds. The Treasurer's statement specified, in so far as it is relevant, that:

``15. These standards will apply to all eligible superannuation funds, whether existing or new, from 1 July 1986.

16. `In-house' asset restrictions which are being phased in under existing provisions in the Income Tax Assessment Act will continue to apply.

...

19.... The assets of any fund will not be able to be charged except to obtain temporary finance such as overdraft or any other similar facility that might be prescribed. In the case of funds which have charged their assets beyond this limit as at the date of this announcement, such charging of assets will

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ATC 4731

be phased down in accordance with the rules which apply to the phasing down of `in- house' assets referred to in paragraph 16.''

It will be noted that there were a number of differences between the Treasurer's announcement and reg. 16(1)(b) as enacted. In the first place, the Treasurer's statement provided that assets ``will not be able to be charged'' other than to obtain temporary finance. The regulation prohibited borrowing, or the maintenance of an existing borrowing, ``whether by way of a secured or unsecured loan'' (emphasis added). In the Treasurer's statement, there was no proscription on the type of temporary finance which could be obtained. However, the regulation restricted the type of temporary finance which could be obtained to an overdraft with an eligible bank.

During the whole of the relevant period, the trustee had engaged Wyatt Company Pty. Limited (Wyatt's) as its actuary and superannuation consultant. Wyatt's produced a newsletter which it routinely sent to clients. Its June 1986 newsletter set out details of the Treasurer's announcement. However, whilst reference was made to ``overdraft'', as an example of the type of temporary finance which was to be permitted, the newsletter did not repeat the phrase ``or any other similar facility that might be prescribed'' contained in the Treasurer's statement.

In May 1988, the trustee became aware of the notification of reg. 16. It thereafter took steps to sell the property and obtained a valuation for that purpose. However, at that time the market was weak and eventually, in October 1988, because of the inability to find a buyer, the trustee sold the property to the trading trust company within the Neeta Homes group. The Tribunal found that this sale was for a higher price than could have been obtained had the property been sold on the open market in January 1988.

Issues before the Tribunal

The central issue before the Tribunal was whether the applicant had brought itself within s. 13(1)(b) of the Act, by demonstrating that ``special circumstances'' existed in relation to the fund in each of the relevant years of income, so that it was reasonable for the fund to be treated as if it had satisfied the superannuation fund conditions. It was also argued by the applicant that the provisions of s. 4(3) and reg. 2 did not give reg. 16 a valid retrospective effect, and that in any event the borrowing was temporary. The Tribunal rejected each of these submissions.

Issues before the Court

Before this court, the applicant submitted that the Tribunal erred in law as: (i) reg. 16 did not have retrospective operation, both because of the proper construction of s. 4(3) of the Act and reg. 2 and the operation of s. 48(2) of the Acts Interpretation Act, 1901 (Cth); (ii) reg. 16 was invalid as being uncertain; (iii) the uncertain nature of the regulation had to be taken into account in determining whether there were ``special circumstances''; (iv) in any event the borrowing had been for a temporary purpose; (v) the Tribunal applied too rigid a test in the determination of ``special circumstances'' and failed to take into account the transitional and retrospective elements of the legislation; (vi) that the Tribunal's exercise of discretion miscarried as it placed inappropriate emphasis on revenue raising rather than on the purposes of the Act; (vii) upon its proper construction reg. 16 was only operative if it was in force during an entire year of income, which was not the case in respect of the year ending 30 June 1988 (s. 5(2)(b) of the Act); (viii) reg. 16 is ultra vires s. 7; and (ix) the operation of reg. 16(3).

Issues not raised before the Tribunal

A number of these issues, namely the operation of s. 48(2) of the Acts Interpretation Act, whether reg. 16 was invalid as being uncertain, whether it was authorised by s. 7, and whether the question of uncertainty was to be taken into account in determining the existence of ``special circumstances'', were not argued before the Tribunal. Nor, so far as I am able to determine from the Tribunal's reasons and the applicant's written ``Statement of Issue and Contentions'' to the Tribunal, were two further issues put to the Tribunal, namely that the transitional and retrospective elements of the regulation were themselves ``special circumstances'' within the meaning of s. 13.

The respondent submitted that having regard to the nature of the proceedings in this court, namely an appeal on a question of law, it is not now open to the applicant to raise issues which were not argued before the Tribunal. However, there is no absolute principle that a new issue may not be raised in this court in appeals under s. 44(1) of the Administrative Appeals Tribunal

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ATC 4732

Act, the authorities clearly indicating that it depends upon the issue involved. In
Kuswardana v. Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186, the Full Court allowed a new point of law to be raised, namely the applicant's immigrant status, notwithstanding that matter had been conceded by the Minister before the Tribunal. The Full Court held that the failure of the Tribunal to consider that legal issue was itself an error of law, as the relevant immigrant status was a statutory precondition for the application of the section under consideration. As Bowen CJ stated at p. 195:

``... a party is not necessarily precluded by the conduct of his case before the Tribunal from arguing on `appeal' matters conceded below. If he is successful then the decision of the Tribunal may be overturned - found in some way to be wrong in law, even though that error may have been substantially contributed to by the conduct of the case by the party in question. In other words, the conduct of the party's case before the Tribunal goes to this court's discretion as to what course it will take given that there has been an error rather than to the question as to whether the Tribunal really made an error.''

Fox J held that there was no requirement that ``the point be taken'' before the Tribunal. Deane J agreed with both Bowen CJ and Fox J.

Gummow J reached the opposite conclusion in
FC of T v. Raptis 89 ATC 4994, where the Commissioner had urged the court to draw an inference from the Tribunal's findings of fact, which it had not asked the Tribunal to consider. Gummow J expressed the view at p. 4999 that:

``There must be some difficulty in such circumstances in finding an `error of law' in the failure in the Tribunal to make a finding first urged in this Court.''

Raptis was cited with approval by the Full Court of the Federal Court in
Secretary, Department of Social Security v. Cooper (1990) 97 ALR 364 although it was not necessary for the court there to decide the issue.

In
Secretary, Department of Social Security v. Salvona (1989) 10 AAR 521 Lee J held, after referring to Kuswardana that:

``The question of whether counsel should be permitted to raise in this Court a contention that has not been submitted to the Tribunal and which, it is argued, displays that the Tribunal made an error, has to be answered by determining whether justice demands that such an opportunity be granted in the circumstances of the case.''

FC of T v. Perkins 93 ATC 4524 was another case where the court refused to allow a new matter to be raised. There, the Commissioner's case before the Tribunal had been argued upon one issue only. During the course of the appeal before the Full Court, the contention which had been put by the appellant to the Tribunal was abandoned, and it was submitted that the Tribunal should have taken into account another fact which had not been argued before the Tribunal. Davies J, with whom French and Heerey JJ agreed, stated [at 4526]:

``... I am of the view that no error of law has been demonstrated in the manner in which the Tribunal dealt with the matter. It was the role of the Tribunal to decide questions of fact and, before the Tribunal, counsel for the Commissioner identified one fact alone as the crucial fact which had not been disclosed. No other fact was so identified or relied upon. The Tribunal did not err in law in failing to regard as a material fact a fact which counsel for the Commissioner failed in his submissions to the Tribunal to contend was material.''

In the present case, save to the extent that the applicant wishes to bring the question of uncertainty into the consideration of ``special circumstances'', and to possibly raise a new argument as to the manner in which retrospectivity and the transitional nature of the regulations should be taken into account in relation to ``special circumstances'', the other issues which the applicant wishes to argue here for the first time, directly raise the question of the validity of reg. 16. They do not involve the court considering factual matters which were not canvassed before the Tribunal. Nor do they require the court to draw inferences which the Tribunal was not asked to draw, or involve it in the consideration of discretionary matters, which are properly within the province of the Tribunal. In these circumstances, I consider that the issues which relate to the validity of reg. 16(1)(b) should be allowed to be raised.

The issue of the uncertainty of the regulation being a relevant factor in determining ``special circumstances'' falls into a different category. Whether the Tribunal is satisfied that a

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ATC 4733

particular fact, matter or circumstance constitutes ``special circumstances'' is a matter for the Tribunal to determine, and it is not appropriate for the court to consider it for the first time on an appeal under s. 44(1) of the Administrative Appeals Tribunal Act. The question of the retrospective and transitional nature of the regulation is more difficult. In its written ``Statement of Issue and Contentions'' the applicant made the following submission to the Tribunal: ``One of the purposes of the special circumstances provisions of s. 13 of the Act is to ameliorate what otherwise would be harsh provisions in the Regulations by virtue of their having retrospective application''. However, the transcript of the oral submissions made to the Tribunal was not before me and it may be that the submissions made to the court reflected a different emphasis rather than the raising of a new issue. Had it been clear that these were entirely new issues I would not have allowed them to be raised here. However, as I do not have that certainty, I propose to consider them.

Retrospectivity

Section 48(2) of the Acts Interpretation Act

By the operation of s. 4(3) of the Act and reg. 2, reg. 16 purports to have retrospective operation to 1 July 1986. The applicant submits that to the extent that reg. 16(1)(b) purports to do so, s. 48(2) of the Acts Interpretation Act renders it void and of no effect. Section 48(2) (in the form in which it existed at 22 December 1987) provided:

``(2) Regulations shall not be expressed to take effect from a date before the date of notification in any case where, if the regulations so took effect-

• (a) the rights of a person (other than the Commonwealth or an authority of the Commonwealth) existing at the date of notification, would be affected in a manner prejudicial to that person; or
• (b) liabilities would be imposed on any person (other than the Commonwealth or an authority of the Commonwealth) in respect of anything done or omitted to be done before the date of notification,

and where, in any regulations, any provision is made in contravention of this sub-section, that provision shall be void and of no effect.''

The applicant submitted that the effect of s. 48(2) was that a regulation could not be made to take effect before the date of notification, if it prejudicially affected the rights of a hypothetical person as at the date of notification or imposed liabilities on that hypothetical person, in respect of any thing done or omitted to be done before the date of notification. It was submitted that the retrospective operation of reg. 16 imposed a liability to taxation on a fund as a non-complying fund, by virtue of a borrowing entered into before and maintained after the purported operative date of the regulation, since the supposed breach of reg. 16 would have taken place prior to the notification of the regulation, and the liability to tax would thereby accrue before the date of notification. Senior counsel referred, as an example, to a hypothetical fund which borrowed in the year ended 30 June 1987 and so would be a non- complying fund for that year. It followed, according to the submission, that the tax liability would exist as at 22 December 1987, the date of notification of the regulation.

Senior counsel for the applicant conceded that s. 48(2) only invalidated the retrospective operation of the regulation and did not make it void absolutely (
Toowoomba Foundry Pty. Limited v. The Commonwealth & Ors. (1945) 71 CLR 545 at 568-569, 575 and 587-588). Accordingly, as the Tribunal found that the borrowing in this case occurred after the notification of the regulation, the import of the submission was that the Tribunal erred in law, when determining whether there were ``special circumstances'', by looking at the matter as at 1 July 1986, rather than the date of notification.

It was not submitted that s. 48(2) affected any right prejudicially, the focus of the submission being on the imposition of a liability, namely tax, should a fund not comply with the regulation during the period of retrospectivity. The meaning of ``liability'' was discussed by Windeyer J in
Ogden Industries Pty. Limited v. Lucas (1967) 116 CLR 537 where his Honour said at p. 584:

``It seems to me that without descending to too much refinement there are at least three main senses in which lawyers speak of a liability or liabilities. The first, a legal obligation or duty: the second the consequence of a breach of such an obligation or duty: the third a situation in which a duty or obligation can arise as the

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ATC 4734

result of the occurrence of some act or event.''

His Honour said that in the case before him, it was in the third sense that the provision of the Workers Compensation Act with which the court was concerned referred to ``liability'', when it spoke of an employer being ``liable to pay compensation in accordance with the Act''. His Honour held, however, that the liability must:

``become complete by past events rather than a situation in which some future event must occur to make the effect of past events create a completed liability.''

The liability to taxation of a trustee of a superannuation fund is imposed by the provisions of the Income Tax Assessment Act 1936. The rate of tax payable is as specified in the Income Tax Rates Act 1986. Pursuant to s. 26 of the latter Act, the rate of tax payable by the trustee of a ``complying fund'' is 15%. If the fund does not comply, the rate of tax is approximately 30% higher (the rate for non- complying funds having varied slightly from time to time between 47% and 49%). A fund is a ``complying fund'' if the Commissioner has issued a certificate to the trustee under either ss. 12 or 13 of the Act. Regulation 16(1)(b) itself does not impose any liability to tax. Its effect is that should there be non-compliance with its provisions, a higher rate of tax may or may not be imposed, depending upon whether a certificate under ss. 12 or 13 is given. Further, because the liability to taxation is imposed by the operation of quite separate, although associated legislation, it cannot be said that the liability ``became complete by a past event'', as Windeyer J held was necessary in Ogden Industries v. Lucas.

Even if it could be said that reg. 16(1)(b) did impose a liability because a trustee of a fund which did not comply may have to pay a higher rate of tax, I do not consider that the regulation falls within the proscription against retrospectivity contained in s. 48(2) of the Acts Interpretation Act. It is not sufficient, to bring s. 48(2) into operation, that a liability might be incurred depending upon the individual circumstances involved. Rather, to be rendered void, the regulation must necessarily impose a liability on an hypothetical person. Having regard to the operation of s. 13 of the Act, it cannot be said that the mere fact of contravention of reg. 16(1)(b) will result in a trustee incurring a liability. Accordingly, I do not consider that s. 48(2) has any operation in relation to reg. 16(1)(b).

Section 4(3) and reg. 2 of the Act

During the course of the hearing, senior counsel for the applicant argued, as had been argued before the Tribunal, that reg. 16(1)(b) did not have retrospective effect as s. 4(3) required that the regulation itself specify the date of its coming into operation. This submission was not repeated in the written submissions filed on behalf of the applicant after the conclusion of the hearing. However, as it is not clear that the submission was abandoned I shall deal with it briefly.

Section 4(3) provides:

``4(3) Where any of the first regulations made for the purposes of subsection 7(1) specify a day (not being a day before 1 July 1986) before the date of notification of the regulations in the Gazette as the day on which specified regulations are to be taken to have come into operation, those regulations shall be taken to have come into operation on the day so specified.''

Regulation 16 does not specify the date from which it is to have effect. Regulation 2(1) makes that specification in relation to reg. 16 and a number of other regulations.

I agree with the reasoning of the Tribunal that the submission ignores the very words of s. 4(3), which expressly provides that any regulation may specify a day, being a day before notification of the regulations, upon which any particular regulation shall come into effect. As I have said, reg. 2(1) makes that specification in relation to reg. 16.

It follows that the Tribunal did not err in law in considering the existence of ``special circumstances'' during the period commencing 1 July 1986, rather than focusing upon the date of notification. Having come to this conclusion, it is not necessary to deal with the submission that the findings of fact made by the Tribunal ``would have amounted to `special circumstances' had it considered the circumstances of the Applicant at about 22 December 1987''. Had my conclusion been different, I consider that the proper order would have been that the matter be remitted to the Tribunal for its redetermination of this issue.

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ATC 4735

Uncertainty

It was submitted that reg. 16(1)(b) was uncertain and thereby invalid. The authorities, both in Australia and England, recognise that although there is no separate ground of invalidity based upon uncertainty, a regulation may be ultra vires and thereby invalid, because it is uncertain. As Dixon J said in
King Gee Clothing Co. Pty. Limited & Ors. v. The Commonwealth & Anor. (1945) 71 CLR 184 there is no general rule of law

``that subordinate or delegated legislation is invalid if uncertain.''

rather

``... uncertainty, as a test of validity, arose from the nature of the power. On this footing, in the end, the question comes back to ultra vires.''

(at pp. 195-196)

His Honour held that upon a proper construction of the power granted by the subordinate legislation, which was a power to fix prices, although it was not necessary to specify a fixed price, it was necessary that there

``be standards or criteria from which a price may be calculated. It is not enough if the price, or some element entering into its composition, can be obtained only by estimation or by the exercise of judgment or discretion, as, for instance, where apportionment or allocation is required.''

(at 197)

Viscount Radcliffe expressed a similar view in
Chertsey Urban District Council v. Mixnam's Properties Limited [1965] AC 735 when stating his agreement with Diplock LJ in the Court of Appeal that:

``Such supposed grounds of invalidity in subordinate legislation as unreasonableness, repugnancy, arbitrariness or injustice must be regarded as particular applications of `the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute'. If they cannot be brought within the contemplation of that general rule they are not, in my opinion, valid grounds of invalidity at all, for it is the local authority, not the law court, that is entrusted with responsibility for making the conditions that it thinks the circumstances require.''

(at p. 753)

See also
Cann's Pty. Ltd. v. The Commonwealth & Anor. (1946) 71 CLR 210;
Television Corporation Limited v. The Commonwealth & Anor. (1963) 109 CLR 59.

Senior counsel for the applicant submitted that no specific meaning could be given to the words ``temporary finance'' in reg. 16(1)(b). Therefore, the regulation was not relevantly within power. Reference was made to the Shorter Oxford Dictionary definition of ``temporary'', namely

``lasting for a limited time; existing or valid for a time (only); transient; made to supply a passing need''

and the Macquarie Dictionary definition to like effect. Senior counsel then submitted:

``If one was just to look at those definitions, they are all things we might use the word `temporary' for but they are all - they are different notions of what is temporary. Does it mean, not permanent? Does it mean, just existing for a time only against - does transient mean, a short period and if so, what is a short period? If you get away from time, is it just to supply a passing need, which is different to a notion of time. Metaphorically occurring or existing in time, not for an eternity.''

I do not consider that the words ``temporary finance'' are uncertain. Such a borrowing must have a quality of transience about it, which is to be ascertained from the purpose of the borrowing and the period of time involved in the borrowing. The purpose must be to provide finance for a passing or transitory need. As Wilcox J said in
Hafza v. Director-General of Social Security (1985) 60 ALR 674 [at 682] in relation to the phrase ``temporary absence'' in s. 103(1) of the Social Services Act 1947 (Cth):

``I think that the adjective `temporary' was used to denote an absence that was, both in intention and in fact, limited to the fulfilment of a passing purpose.... But, whatever the purpose, it seems to me to be implied in the concept of `temporary' absence that the absence will be relatively short and that its duration will be either defined in advance or be related to the fulfilment of a specific, passing purpose.''

The period of the borrowing must be for a short term. However, it is not sufficient that the finance be merely limited in time, as was submitted by senior counsel for the applicant. All finance is limited in time as it must be repaid at some time.

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ATC 4736

Further, the words ``temporary finance'', as they appeared in the regulation at the time, were qualified by the requirement that such finance be ``by way of overdraft''. It was argued that those words were of no assistance in determining the meaning of ``temporary finance'' as an overdraft may in effect be a permanent or semi-permanent form of financing. Whilst it is true that an overdraft may remain in place for a long period of time, it is usually to provide for the passing needs of the borrower, even if those needs, such as cash flow for a business, are ongoing. It is not usually the type of borrowing obtained for the purchase of a major capital asset or to finance a major development. In my opinion, the limitation that the temporary finance be by way of overdraft, reinforces the meaning of the phrase to which I have already referred.

The applicant also argued that the regulation was invalid as the words ``temporary finance'' do not lay down any certain objective standard by which liability to conform is to be measured. (King Gee Co. Pty. Limited. v. The Commonwealth & Anor.; Cann's Pty. Limited v. The Commonwealth & Anor.) However, not only do the words have a meaning which is certain, reg. 16(1)(b) provided that such temporary finance had to be by way of overdraft. The prescription of the only type of temporary finance which could be obtained, of itself, provided a ``certain objective standard'', by which compliance could be measured.

Senior counsel for the applicant also submitted that the Tribunal erred in law by referring to the definition of ``temporary finance'' in reg. 16(5), as that sub-regulation was not in force during the two relevant years with which the Tribunal was concerned. Strictly, this submission is correct, as reg. 16(5) was not introduced into reg. 16 until 1 July 1990. However, it is clear that the Tribunal did not rely on reg. 16(5) for its finding, as appears from paragraph 32 of its reasons, where it stated:

``In any event, the submission does not bear examination if the phrase is given its ordinary commercial meaning. In our view, it is an unreal assessment of the nature of the investment. Members' contributions shown in the annual returns were $6,045 in one year and $4,960 in the other year. The company contribution was of the order of $4,201. Even allowing for a maximum rental return on the investment, there is no way that the mortgage could have been repaid from these sources within the 24 months of its original term. The mortgage must be regarded as a fixed borrowing intended to support the construction and letting of a long term investment.''

Accordingly, the error is not one which taints the decision under appeal.

Counsel for the respondent submitted that even if it could be said that the words ``temporary finance'' were uncertain, they could be severed, so that the regulation would be restricted to the borrowing of money by way of overdraft. Therefore, as the borrowing was not by way of overdraft the trustee was, in any event, in breach of the regulation. Having regard to my conclusion that the words are certain, it is not necessary for me to determine this question. However, I am inclined to the view that severance would not be permitted in this case. (
Bank of New South Wales & Ors. v. The Commonwealth & Ors. (1948) 76 CLR 1 at 368-371.)

The applicant also submitted that the borrowing in this case was temporary, being for a period of only 24 months and able to be repaid in 6 months. However, the Tribunal found that the borrowing was not temporary. That is a question of fact for the determination of the Tribunal and is not a matter for this court. (
Australian Broadcasting Tribunal v. Bond & Ors. (1990) 170 CLR 321.)

Application of too rigid a test

Senior counsel for the applicant accepted that the Tribunal had correctly identified the test to be applied in determining whether circumstances were special: See
Re Beadle and Director-General of Social Security (1984) 6 ALD 1 and
Minister for Community Services and Health & Anor. v. Chee Keong Thoo (1988) 78 ALR 307 at 324 where Burchett J said:

``Bearing in mind the care shown by the draftsman of cl 8 to avoid laying down any binding rules, it is particularly important that the broad discretions, created to give a lively flexibility to the administration of the scheme, should not by the gradual deposition of judicial decisions become fossilised into rigidity. Those discretions are intended to be applied to a great variety of situations. In such a context, the core of the idea of `special circumstances' is that there

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ATC 4737

is something unusual or different to take the matter out of the ordinary course, according to which the presumptions set out in the clause would be expected to apply. As a result, the ordinary course appears less appropriate or fair: cf
Crabtree v Hinchcliffe (Inspector of Taxes) [1972] AC 707 at 731 per Lord Reid;
Jess v Scott (1986) 12 FCR 187 at 195; 70 ALR 185;
R v Secretary of State for Home Department; Ex parte Mehta [1975] 1 WLR 1087;
Re X and Adoption of Children Ordinance 1965 (1984) 2 FCR 533;
Cortez Investments Ltd v Olphert & Collins [1984] 2 NZLR 434 at 437, 439, 441...''

However, it was submitted that the Tribunal had erred in law in the application of this test by failing to take into account the retrospective and transitional nature of the regulation, by failing to have regard to the reasonableness of the trustee's conduct, once it ascertained that there was a breach of the regulation, and in the manner it dealt with the trustee's ignorance of the proposed introduction of the standards and their eventual implementation.

Retrospectivity as a ``special circumstance''

Senior counsel for the applicant submitted that the courts have always lent against retrospectivity and in circumstances where the legislation imposed conditions, as did reg. 16(1)(b), ``it is reasonable and appropriate that persons caught in this net, if they have acted reasonably, should be given favourable treatment''. It was submitted that unless the retrospective nature of the regulation was considered as ``special circumstances'', an affected taxpayer would have to regulate its affairs, in this case for a period of 18 months, without any certainty that the legislation introduced would be the same as that announced. In this case, the regulation was not identical to that foreshadowed in the Treasurer's statement.

The original formulation of this submission was that retrospectivity was itself a ``special circumstance''. However, during the course of oral argument, senior counsel for the applicant said:

``Well, I do not mind treating it as a starting point as long as it is regarded as a very, very significant starting point.''

Thus, the effect of the oral submission which appeared to have been made on behalf of the applicant, was not that retrospectivity was itself a ``special circumstance'', but that it was a relevant factor to be taken into account as the starting point from which consideration was to be given to whether there were ``special circumstances''. However, in the written submissions it was asserted that:

``The Tribunal has failed to consider at all the argument that the retrospectivity is capable, of itself to represent a `special circumstance'. That this is a mistake, whether the operative date of the regulation was 1 July 1986 or 22 December 1987, can be seen from the attitudes expressed, as cited above, about retrospective legislation, and in particular retrospective regulations.''

The ``attitudes... about retrospective legislation'' to which this submission referred were extracts from a statement by Barwick CJ in
Watson & Anor. v. Lee & Anor. (1979) 144 CLR 374 at 379; a paragraph in the 1987 Butterworth's Weekly Tax Bulletin; and a statement from the Senate Standing Committee as reported in the Scrutiny of Bills Alert Digest No. 9 of 1987, all of which were critical of retrospective legislation.

In my opinion, the fact that legislation is retrospective, does not of itself constitute ``special circumstances''. Rather, it is the consequences which flow to a particular trustee, having regard to the fact that the legislation is retrospective, which must be taken into account in determining whether ``special circumstances'' exist in any given case.

To the extent that the submission made was that retrospectivity was a ``very very significant starting point for the determination of whether there were special circumstances'', it amounts to no more than a complaint as to the weight which was given to the retrospective nature of the regulation. The weight which is to be given to a relevant factor is a matter for the Tribunal, unless it can be said that the Tribunal's decision is manifestly unreasonable. (
Minister for Aboriginal Affairs & Anor. v. Peko-Wallsend Limited & Ors. (1985-1986) 162 CLR 24 at 41;
Associated Provincial Picture Houses, Limited v. Wednesbury Corporation [1948] 1 KB 223 at 230, 233-234.) In the present case, it is clear that the Tribunal had regard to the retrospective nature of the legislation in determining whether there were ``special circumstances'': see, for example, its consideration of the issues of the date at which ``special circumstances'' were to

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be considered; the trustee's lack of awareness of the Treasurer's statement and the gazettal of the regulations; the prejudice to the trustee had it not proceeded with the purchase and the borrowing; and the fact that the Treasurer's statement was different to the regulation as proclaimed. It was not submitted that any of the Tribunal's findings, including in relation to these matters, were manifestly unreasonable. Indeed, such a submission was expressly disavowed by senior counsel for the applicant. Nor could the Tribunal's reasons be so categorised. Accordingly, I am of the opinion that no error of law on this ground has been made out.

Transitional nature of the legislation as a ``special circumstance''

During the course of oral argument senior counsel for the applicant submitted that ``whether or not there is retrospectivity here, the transitional nature of the period, that is, the introduction of this legislation, gives rise to special circumstances''. However, senior counsel resiled from this general proposition and submitted that the transitional nature of the regulation ``... is the start of the consideration of whether there are special circumstances''. It was then submitted that the Tribunal had not given this matter ``the weight it deserves in the circumstances, and its failure to do this is an error of law'' - it had ``dismissed it as a relevant circumstance''.

As the change in senior counsel's submission recognised, the mere fact of the introduction of legislation cannot constitute ``special circumstances'' for the purposes of that legislation. Rather, it is the starting point of the consideration of whether there are ``special circumstances'' in an individual case. The real complaint which the applicant made in this submission was as to the weight which the Tribunal gave to this consideration. However, as I have already said, weight is a matter for the Tribunal and does not raise a question of law.

Reasonableness

It was next contended for the applicant that if the regulation is retrospective, ``the real question is in the face of that, has the trustee acted reasonably. If it has acted reasonably in order to remedy the breach, then that ought to be the end of it. It ought to be entitled to the exercise of a favourable discretion''. It was submitted that the Tribunal's finding, that the breach was unreasonable, involved an error of law as the Tribunal had ``been harsh and unreasonable in the exercise of that discretion... by being harsh at various points and in failing to take into account in this case non- retrospectivity''.

I have already rejected the submission that the Tribunal failed to take the retrospective nature of the regulation into account. To the extent that this submission alleges that the discretion miscarried because the Tribunal's decision was unreasonable, it would be necessary, for there to be an error of law, to find that the decision was manifestly unreasonable. I do not consider that the Tribunal's decision can be so categorised. The Tribunal took into account the relevant factual matters which resulted in the fund being in breach of the regulation. It also formed the opinion that the breach could also be regarded ``as unreasonable, because it was unnecessary''. It expressed its reasons for coming to this conclusion, including the fact that at the time of the breach the fund had available to it certain cash deposits and equities, as well as a debt owing by the trading trust which eventually purchased the property. The Tribunal concluded that:

``The trustee, as trustee of the fund, chose not to call up a substantial loan account, which the same trustee, as trustee of the trading trust, had with the fund, preferring instead to borrow from external sources contrary to the regulations... As external borrowings were resorted to eventually to dispose of the property, so also the same borrowings would have been available to relieve the trading trust of its obligation to the fund.''

The Tribunal held that the failure to use the alternative assets that were available to the fund must militate against the giving of a notice under s. 13(1) to the fund. In addition, the Tribunal took the view that the trustee ``seems to have taken a leisurely course'' in seeking to dispose of the property. Those findings were all reasonably open to the Tribunal and therefore no error of law, on this ground, is disclosed.

Knowledge of the trustee

It was next submitted that the Tribunal made an error of law in finding that:

``If the directors of the trustee did not know of the proposal, then in our opinion, they

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ATC 4739

should have known... Even if we assume that the applicant had no actual knowledge of the existence of the proposal or of the regulation until May 1988, we find that it had an obligation to inform itself which it failed to carry out.''

It was said that the Tribunal cited no authority for such a proposition as a matter of law and that whilst it was true that ignorance of the law is not a defence, ignorance ``may well be taken into account in determining whether `special circumstances' existed''.

It was submitted that:

``The Applicant should not be penalised for its ignorance by virtue of the fact that by reliance on an actuary and a firm of accountants, it went further in discharging its fiduciary obligations than if it had not done so. By the Tribunal's reasonings, they would obtain more favourable treatment if they had been less diligent altogether.''

It was submitted that the Tribunal's approach was therefore ``harsh and inflexible and the antithesis of reasonableness''. As such, it was said that the Tribunal misunderstood the nature of the discretion invested in it by the provisions of s. 13 and thereby erred in law. It was also submitted that the Tribunal's approach was to ignore its finding that the trustee did not become aware of the Treasurer's statement and the introduction of the regulation. Presumably, what was meant by this was that the Tribunal failed to take into account relevant considerations.

I do not agree with either limb of this submission. The effect of the Tribunal's finding was that the trustee's failure to either remember the information in Wyatt's newsletter, or to seek expert advice before it engaged in a major commercial project did not amount to ``special circumstances''. This was a finding which was open to it and no error of law is disclosed. The Tribunal's finding that the trustee should have known or had an obligation to find out is no more than a corollary of the concept that ignorance is no defence, a maxim which the applicant did not contest. Further, the Tribunal took the trustee's ignorance into account in determining whether there were ``special circumstances'' but was not satisfied that that factor gave rise to ``special circumstances''.

Failure to have proper regard to the purposes of the Act

It was further submitted that the Tribunal had placed inappropriate emphasis on revenue raising and not had proper regard to the purposes of the Act. The applicant submitted that the primary purpose of the Act was not to raise revenue but was, in the terms of the Departmental Guidelines ``to enhance the role of superannuation in the provision of genuine retirement income''. It was submitted therefore that the Act ``should... not be interpreted in a manner that would give rise to greater tax liability wherever possible, and the discretion provided by s. 13(1) should be viewed in the light of the fact that the purpose of establishing a minimum standard such as r. 16(1)(b) was to enhance the role of superannuation in the provision of genuine retirement income''.

This submission appears to relate to two of the ``special circumstances'' relied upon by the applicant before the Tribunal, namely that the trustee would have been prejudiced and suffered losses, had it not proceeded with the purchase and the borrowing, and that if no notice was given under s. 13 the members would be penalised by the requirement that additional taxation would be payable.

As to the first, the Tribunal held that this was not a reasonable way of viewing the circumstances, having regard to the fact that the purchase had not been entered into until 29 August 1986, which was after the Treasurer's statement, and ``the final borrowing did not occur until 18 January 1988, by which time the regulations had been promulgated''. It pointed out that in the end result, no loss had been suffered and that the same exercise could have been carried out in January 1988. It was submitted however, that the Tribunal was wrong in law in assuming that the trustee was in a position in January 1988 to have sold the property for an appropriate price. It was submitted that this contradicted the Tribunal's own finding that the trustee was not aware of the Treasurer's announcement or reg. 16 until May 1988. It is possible that the reference in the Tribunal's finding to January may have arisen because initially, in agreed facts put to the Tribunal, the trustee stated it first ascertained the existence of the regulations in January. However, in oral evidence this was modified to May and this is the date referred to by the Tribunal as the date the trustee so became

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aware. However, if the Tribunal was in error in relation to its finding that the property could have been sold in January, this was a wrong finding of fact, and does not constitute an error of law. (Australian Broadcasting Tribunal v. Bond & Ors.)

It was then submitted that even if the trustee had become aware of the regulation immediately after the settlement of the purchase it would have taken some months at a minimum to rectify the breach. However, this submission merely seeks to induce the court to make a different finding as to the reasonableness of the trustee's actions to that made by the Tribunal, and does not reveal any error of law. It was next submitted that even if the trustee had become aware of the regulation immediately after it had settled the purchase in January 1988, there was no evidence upon which the Tribunal could reach the conclusion that in January 1988 the property could have been sold to an associated party at the price which was obtained in October 1988. Presumably, this submission seeks to rely on a ``no evidence'' ground as an error of law. However the submission misstates the effect of the Tribunal's finding on this issue. The Tribunal had, at this point, rejected that ``special circumstances'' existed. Nevertheless, it went on to consider the second limb of s. 13(1)(b) of the Act, namely, whether, had ``special circumstances'' existed, it was reasonable to excuse the breach. Its reasoning was that the trustee could have adopted the same strategy in January, as it in fact adopted in October, that is, sale to a related company. This is clear from paragraph 31 of the Tribunal's reasons where it said:

``It transpired in cross-examination, however, that the property was eventually disposed of, at a profit to the fund, to another company in the group and that the sale was financed by external borrowings. In hindsight, it was agreed, that this course of action could have been taken by the trustee at the outset, in January 1988.''

Whilst the Tribunal erred in its reference to January, that reference, as I have said, was either a slip or a non-appealable error. It seems clear that the Tribunal meant to refer to a time proximate to when the trustee became aware of the breach. There was material upon which the Tribunal could come to the conclusion it did on this point, notwithstanding the internal error within its consideration.

In any event, were there to be any such error of law as was alleged it would not taint the Tribunal's decision, as I have found there was no error of law in its determination as to ``special circumstances''.

The second aspect of this submission that the Tribunal failed to have proper regard to the purposes of the Act, related to the argument that the members of the fund would be penalised unless a s. 13 notice was given. The Tribunal held that the fact that a fund may be non- complying, with the possibility that a notice would not be given under s. 13, is not ``unusual, uncommon, exceptional or abnormal''. It is the very consequence of the application of the statute. As the Tribunal said:

``It is a consideration that could be raised on every occasion when the Commissioner is asked to give a notice under s. 13(1).''

This finding was clearly open to the Tribunal, and does not reveal that any inappropriate emphasis was given or that proper regard was not had to the purposes of the legislation. Again, I am of the opinion that the real complaint which is made in this submission concerns the weight which the Tribunal gave to these various factors. As I have already said, weight is a matter for the Tribunal, and does not raise a question of law.

It was further submitted that:

``The Tribunal was wrong in law in assuming that because the fund was a `defined benefits fund'... and that `if this is so, and the fund is actuarially solvent... then there can be no prejudice to members by failure to obtain a notice under s. 13(1)'. It is submitted that it was in evidence... that the members of the fund would be directly affected by any additional tax liability in relation to the 1988 and 1989 tax years.''

However, no error of law in this regard is disclosed in the Tribunal's reasons. The Tribunal had already rejected as a ``special circumstance'' the proposition that the members of the fund would be penalised by the imposition of a higher rate of tax. It then dealt with the issue on an alternative basis that the fund provided for ``defined benefits for members''. It stated that if this was so, there would thereby be no detriment to the members. Such a finding was open to the Tribunal, even if it involved rejecting other evidence before the Tribunal that the members of the fund would be

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ATC 4741

directly affected by any additional tax liability. However, the Tribunal only dealt with this matter on an alternative basis, and upon an assumption that the fund was a defined benefits fund. Accordingly, no error of law is disclosed in this reasoning.

In the written submissions, the applicant also submitted that the Tribunal was in error in finding that even if there was an adverse consequence to members, there would have been no effect during each of the years of income in question, but rather in the subsequent year when the tax was levied. It was submitted that this finding was erroneous as any extra tax liability for the 1988 tax year must affect the 1989 tax year. There is substance in this submission. However, as I have already found that there was no error in the Tribunal's finding that the imposition of a higher rate of tax did not give rise to ``special circumstances'', this is not an error which taints the decision.

In any event, this finding is arguably a finding of fact and thereby not open to challenge.

Satisfaction of the Superannuation Fund Conditions - s. 5(2)(b)

Section 5(2) of the Act provides:

``A reference in this Act to a fund satisfying the superannuation fund conditions in relation to a year of income is a reference to the following conditions being satisfied in relation to the fund in relation to the year of income:

• ...
• (b) at all times during the year of income when the fund was in existence and there were in force regulations for the purposes of subsection 7(1) prescribing standards applicable to the fund, the fund complied with those standards;''

It was submitted that whatever the operative date of reg. 16(1)(b) was, it could not be said that the regulation was ``in force'' until the regulations were proclaimed, that is on 22 December 1987. It was argued therefore that the effect of s. 5(2)(b) was that in the year ended 30 June 1988 it was not a requirement that the fund comply with reg. 16(1)(b). In my opinion, that is not a correct construction of the section. The words ``in force'', in the context in which they appear, mean ``in operation''. They do not mean ``in existence'', being the meaning which this submission would require to be ascribed to them. The effect of the retrospective nature of the regulations was that they were to be in force, that is in operation, from the time specified, that is 1 July 1986.

Whether reg. 16(1)(b) is ultra vires the regulation making power in s. 7

The applicant submitted:

``That reg. 16(1)(b) was designed to utilise the power conferred by s. 7(2)(h) and that in order for it to do so, it would have been necessary for s. 7(2)(h) to have read `the investment of assets of superannuation funds and the borrowing by trustees'. The borrowing of money is to do with the liabilities of superannuation funds, and not with the investment of assets.''

Consequently regulation 16(1)(b) was ultra vires.

Section 7(1) permits regulations to be made prescribing ``standards applicable to the operation of superannuation funds''. Section 7(2) provides that regulations may be made in relation to the specific subject matters set out. However, the specification of individual subject matters is inclusive only. Subsection (1) has an independent operation and reg. 16(1)(b) is a regulation which not only could be made thereunder, but the introductory words of reg. 16 state that the regulation is made under s. 7(1). Accordingly, I reject this submission. In any event, a standard relating to borrowing is probably incidental to a standard relating to investment (see
Morton v. The Union Steamship Company of New Zealand Ltd. (1951) 83 CLR 402), although it is not necessary for me to decide that point.

The applicant also submitted that the Tribunal erred in finding that the breach was unreasonable because it was unnecessary. However, no error of law is identified. The highest the submission goes is that there was no evidence that the trading trust would have been in a position to repay its debt to the superannuation fund by borrowing from an external source, since there was no evidence that the trading trust could provide sufficient security which would not have required the charging of the assets of the superannuation fund. To some extent this submission reiterates the submission made in relation to the reasonableness of the trustee's action, and I have already dealt with that matter. In any event, as I have found there was no error of law

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ATC 4742

in the Tribunal's decision that there were no ``special circumstances'', it is not necessary to deal further with this submission. However, I should say in passing that there was material from which the Tribunal could draw the inferences which it did, and it is not for this court to interfere with the Tribunal's conclusion in this regard (Australian Broadcasting Tribunal v. Bond & Ors.).

Regulation 16(3)

Finally, a submission was made in relation to reg. 16(3). However, as that subregulation does not apply in this case, it is not necessary to consider it further.

Accordingly, the application is dismissed with costs.

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant pay the respondent's costs.