HART v DFC of T

Judges:
Greenwood J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2005] FCA 1748

Judgment date: 5 December 2005

Greenwood J

1. Section 264 of the Income Tax Assessment Act 1936 (Cth) ("I T A Act") empowers the Commissioner of Taxation by notice in writing to require any person whether a taxpayer or not to furnish him with information as he may require. On or about 23 November 2004, the Applicant, a solicitor and principal of the firm Cleary Hoare received a Notice dated 23 November 2004 issued under s 264 of the I T A Act under the name of Mr Michael Monaghan, Deputy Commissioner of Taxation, signed by Mr Bradley Magill.

2. The decision to issue the Notice was made by Mr Iain Young described in the Statement of Reasons pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("A D (J R) Act") as the "duly authorised officer of Michael Monaghan, Deputy Commissioner of Taxation, Serious Non-Compliance in Mr Monaghan's capacity as a delegate of the Commissioner of Taxation". No challenge is made by the Applicant to the instruments of delegation.

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The Notice is in these terms:

"NOTICE PURSUANT TO SECTION 264

OF THE INCOME TAX ASSESSMENT ACT 1936

TO: MICHAEL JAMES PATRICK HART

CLEARY HOARE SOLICITORS

LEVEL 1, 145 EAGLE STREET

BRISBANE QUEENSLAND

Pursuant to section 264 of the Income Tax Assessment Act 1936, I require you to furnish the information described in SCHEDULE 1 which relate to the arrangement implemented for certain clients of the firm known as Cleary Hoare (solicitors) that is referred to in correspondence as the 'Limited Liability Partnership' or 'Removal of Accumulated Profits' arrangement -

1. to BRADLEY MAGILL, whom I authorise for the purpose;

2. in writing;

3. at the Australian Taxation Office, 140 Creek Street, Brisbane QLD 4000;

4. not later than 4.00 p.m. on 22 December 2004.

The powers of the Commissioner of Taxation under section 264 have been delegated to me as Deputy Commissioner of Taxation pursuant to section 8 of the Taxation Administration Act 1953.

SCHEDULE 1

1. The full name and last known contact address of each and every client for whom the firm Cleary Hoare Solicitors has facilitated involvement in a 'Limited Liability Partnership' or 'Removal of Accumulated Profits' arrangement.

Dated: 23 November 2004

MICHAEL MONAGHAN BREAKDEPUTY COMMISSIONER OF TAXATION BREAKPer:

(Bradley Magill)

PENALTIES FOR FAILURE TO COMPLY WITH THE NOTICE

TAKE NOTICE THAT A PERSON who, when and as required pursuant or under a taxation law, refuses or fails to:

• Furnish information; or

• Produce a book, paper, record or other document; or

• Attend (and answer questions); or

• Take an oath or make an affirmation when attending

to the extent that the person is capable of doing so, that person will be guilty of an offence or offences under sections 8C and/or 8D of the Taxation Administration Act 1953.

That person will be liable, under sections 8E and 8ZF of the Taxation Administration Act to;

• A fine not exceeding $2,200 for a first offence; or

• A fine not exceeding $4,400 for a second offence; or

• A fine not exceeding $5,500, and/or imprisonment not exceeding 12 months, or $27,500 for a company, for a third or subsequent offence."

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The Notice was enclosed with a letter from the Australian Taxation Office in these terms:

"Mr Michael Hart 23 November 2004

RE: SECTION 264 NOTICE TO FURNISH INFORMATION

Enclosed is a notice issued pursuant to section 264 of the Income Tax Assessment Act 1936. If you have any questions concerning the notice or what you are required to do to comply with the notice you should contact Bradley Magill on (07) 3213 6720 as soon as possible.

If you are having difficulty complying with the notice in the time allowed you should advise the Commissioner in writing as soon as possible and in any event, before the date stated in the notice. You should state your concerns and the reasons for them for consideration by this Office.

You are advised that penalties can apply if you do not comply with all of the requirements of the notice. These penalties are set out below the notice.

Please note that section 264 does not override legal professional privilege but does override the privilege against self-incrimination.

The information requested in the attached notice is required for the purposes of the Income Tax Assessment Act 1936. In very limited circumstances, some information may be given to certain parties as prescribed in taxation law. Further details on Privacy can be found in the brochure 'Safeguarding your Privacy' available at your nearest Taxation Office.

Yours faithfully

(Bradley Magill) BREAKfor Michael Monaghan BREAKDeputy Commissioner of Taxation BREAKSerious Non Compliance"

5. The statutory foundation of the power to issue the Notice is s 264(1)(a). Section 264 is in these terms:

"SECTION 264 COMMISSIONER MAY REQUIRE INFORMATION AND EVIDENCE

264(1) [Commissioner's power] The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:

(a) to furnish him with such information as he may require; and

(b) to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto.

264(2) [Oath or affirmation] The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose he or the officers so authorized by him may administer an oath or affirmation.

264(3) [Expenses] The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend."

6. The Applicant seeks an Order of Review pursuant to s 5 of the A D (J R) Act of the decision of the Deputy Commissioner to exercise the power to issue the Notice on the grounds contained in a Further Amended Application for an Order to Review for which leave was sought at the commencement of the hearing. The first ground relied upon is that the making of the decision was not authorised by s 264 of the I T A Act pursuant to which the decision-maker purported to act (s 5(1)(d) of the A D (J R) Act). The second ground is that the making of the decision was an improper exercise of the power conferred by s 264 (s 5(1)(e)). The Amended Application abandons as a particular of both grounds that "the Notice seeks to compel the Applicant to divulge information the subject of legal professional

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privilege of clients of the firm Cleary Hoare" (particular 2.1) and introduces a new particular of both grounds that "the Notice seeks to compel the Applicant to acquire information outside his knowledge in circumstances where that will involve cost and expense which costs and expense the Applicant will not be able to recover from the Respondent" (particular 2.5).

7. The Amended Application introduces a new ground 3 as an expression of an improper exercise of the power conferred by s 264, namely, that the Respondent failed to take into account as a relevant consideration in the exercise of the power, the cost and inconvenience to the Applicant in complying with the Notice (s 5(1)(e) and s 5(2)(b) of the A D (J R) Act).

8. The Respondent contends that particular 2.5 is an improper particular of grounds 1 and 2 and that ground 3 fails to satisfy the "threshold" necessary for establishing a failure to take into account a relevant consideration. In other words, the Applicant is not able to establish the orthodoxy reflected in the reasons for decision in
Minister for Aboriginal Affairs v Peko-Wallsend (1986) 162 CLR 24 at pages 39-40 and
Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at paras. 73 and 74 that the ground of failure to take a relevant consideration into account can only be made out if the decision-maker is bound to consider the particular matter, as a proper construction of the statute and failed to do so.

9. The Respondent accepts that the Applicant's written submissions address the proposed amendments and in that sense the Respondent is not taken by surprise. The parties agreed that the question of leave to amend the Application would be dealt with in the reasons for judgment, submissions having been heard on all grounds relied upon by the Applicant.

10. A further preliminary question arose concerning the admissibility of evidence relied upon by the Applicant in support of the grounds of review: an affidavit by the Applicant sworn 11 March 2005 and an affidavit of Domenico Festa, a principal of Cleary Hoare, sworn 6 April 2005. To the extent that Mr Festa's evidence goes to the objective assessment of whether the time for compliance allowed by the Notice is a reasonable time, the Respondent accepts that such evidence is admissible. Otherwise, only evidence before the decision-maker is relevant to the Grounds of Review. The question of whether the evidence is admissible is a function of the content of the Grounds of Review and the scope of the evidence.

The grounds of review

11. The ground the Applicant describes as his "primary point" is this. The Notice issued by the Deputy Commissioner requiring the Applicant to furnish in writing to Mr Magill the full name and last known contact address of each and every client for whom Cleary Hoare facilitated involvement in a "Limited Liability Partnership" or "Removal of Accumulated Profits" arrangement, relies upon the power conferred by s 264(1)(a) of the I T A Act which is a grant of power independent of the power conferred by s 264(1)(b). Nevertheless, as a question of proper construction of the limits of the power conferred by s 264(1)(a), principles derived from the jurisprudence concerning s 264(1)(b) inform whether the Notice is in excess of power and therefore a nullity. The Applicant says it is so because:

(a) the Notice requires the Applicant to bring a document into existence and furnish it to the Respondent notwithstanding that, for the purposes of s 264(1)(b) a purported exercise of that power which required an addressee to bring a document into existence (that is, a copy of a document) was found to be beyond power in
Fieldhouse & Ors v Commissioner of Taxation (1989) 25 FCR 187 per Lockhart J at 194 and Hill J at 209;
(b) the Notice requires the Applicant to seek out and acquire information concerning the subject matter of the Notice, become knowledgeable of all such matters and furnish that knowledge to the Respondent notwithstanding that for the purposes of s 264(1)(b), Stephen J concluded in
Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 481 that that power did not extend to compel an individual to inform himself of matters he might know nothing about, firsthand;
(c) the compulsive power conferred by s 264(1)(a) is limited to require an addressee of the Notice to furnish information known to the addressee or, alternatively, to identify

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others who possess the relevant knowledge: Stephen J, Smorgon v Australia and New Zealand Banking Group Ltd (supra) at p.482;
(d) the Notice compels the furnishing of information by an exercise of the s 264(1)(a) power notwithstanding that the Respondent could not compel the Applicant to bring the "list" into existence and "produce" it to the Respondent as a "document" within power for the purposes of s 264(1)(b). The Respondent thereby exceeds the limits of the power conferred by s 264(1)(a) as expounded by Gibbs CJ in
Geosam Investments Pty Ltd & Ors v Australia and New Zealand Banking Group (1979) 25 ALR 445 at p.446, or as Counsel for the Applicant contends, "You can't use paragraph (a) to get behind paragraph (b)". The Applicant contends that this expression of principle is supported by the joint judgment of Branson, Finn and Kenny JJ in
May v Commissioner of Taxation (1999) 92 FCR 152 at 166;
(e) if the power conferred by s 264(1)(a) is sufficiently expansive to compel the Applicant to furnish the information required in writing as the Respondent contends, a question would arise as to whether the power so conferred is a valid law of the Commonwealth since, upon the Respondent's construction, it confers a power to acquire property from a person other than on just terms (see, Australian Constitution, s 51(xxxi)). The proposition derives by analogy from observations in Fieldhouse v Commissioner of Taxation (supra) per Lockhart J at page 194 (last sentence and the first paragraph at p.195); and Hill J at page 209 (fourth paragraph). The Applicant contends that the provisions are constitutional because they do not impose the burdens contended for by the Respondent (and hence no notice has been given under s 78B of the Judiciary Act 1903) and in that sense a construction that implies unconstitutionality is suggestive of a preferred construction that would avoid such a result.

12. Counsel for the Applicant contends that the resolution of the matters in issue necessarily involves a determination of the relationship between s 264(1)(a) and s 264(1)(b) on the facts of the Application.

13. Essentially, the question of whether the Notice directed to the Applicant is in excess of power is a question of construction of the I T A Act and the Notice in the light of the material before the decision-maker which speaks to the purpose. The particulars recited in the Amended Application go to both the "no power" ground and the "improper exercise of power" contention. Invalidity by reason of ambiguity is contended for by particular 2.3: "The description of the information sought by the Notice is so uncertain as to make compliance with the Notice impossible". The Notice calls for a list of all clients for whom the law firm has facilitated involvement in a "Limited Liability Partnership" or "Removal of Accumulated Profits arrangement". The Applicant contends that these two descriptive phrases which represent the point of connection to the relevant clients of the law firm are vague, uncertain, ambiguous and not capable of directing the Applicant to the accurate identification of the field of clients falling within the Notice.

14. A further ground of invalidity is particular 2.4: "The time prescribed in the Notice requiring the Applicant to furnish information as described in Schedule 1 was unreasonable because it was such as to deny the Applicant the capacity to comply by the said date". The Notice, served on or about 23 November 2004, required the list of all relevant clients in the two categories and last known addresses, to be furnished by 22 December 2004. The Applicant says that the test for determining whether the time allowed by the Notice is reasonable is an objective test measured against the circumstances and role of the addressee of the Notice, the magnitude of the task set by the Notice, the knowledge of the Respondent at the time the Notice issued, the period of the year when the tasks set by the Notice must be undertaken and other factors.

15. As to the new ground 3, the Applicant contends the section necessarily imports a consideration of the cost, dislocation and expense of compliance with the Notice because, upon the Respondent's construction of s 264(1)(a) and having regard to the burden of the sanctions for non-compliance with the Notice

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contained in the Taxation Administration Act 1953, the power is capable of great oppression. The decision-maker in exercising the power has a statutory obligation to consider and weigh up how the expression of the power might operate in the circumstances of each case balanced against the purposes of the Act, the scope of the section and the important role the Commissioner must discharge to properly investigate arrangements, facts and circumstances potentially concerning contraventions of and offences against Commonwealth taxation law.

16. The affidavit of the Applicant goes to the chronology of events, the position and role of the Applicant in the law firm, the steps taken by the Applicant to address and respond to the Notice, the methods by which a list of clients might be compiled, the Applicant's difficulty in comprehending the two descriptive phrases used in the Notice as the point of connection to the field of relevant clients, the number of closed files of the law firm held by document management and storage contractors, AUSDOC Information Management Pty Ltd ("AUSDOC"), the number of files held on the premises of the law firm and the number of word processing electronic documents (also called files) that use the descriptive phrase "limited liability partnership".

17. Mr Festa's affidavit is directed to the magnitude of the task involved in complying with the Notice, the methodology that might be adopted to isolate the field of files, the implementation steps and the cost and time that would be required, acting reasonably, to accurately and properly comply with the notice.

18. Both Mr Hart and Mr Festa were cross-examined by Counsel for the Respondent. Each affidavit was tendered as Exhibits 1 and 2 respectively subject to submissions concerning admissibility.

19. As to the question of admissibility, I am influenced by these principles. Essentially, the question of whether the Notice is beyond power is to be determined upon a construction of s 264(1)(a) in the context of the statute and the language of the Notice having regard to the material before the decision-maker. The power conferred by s 264(1)(a) is expressed in clear and unambiguous terms as a power to require any person to furnish the Commissioner with such information as he may require. The limits of the power are not conditioned by the elements that, in terms, limit the power conferred by s 264(1)(b). The power to require a person to furnish the Commissioner with such information as he requires is a power which must be exercised for the purposes of the Act or, as Mason J observed in
Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 535, "As it [the power conferred by s 264(1)(a)] is a power given to the Commissioner for the purpose of enabling him to perform his functions under the Act it must be circumscribed by reference to this purpose".

20. However, the purpose of the exercise of the power and whether the exercise of power is within the circumscription, may not be apparent from the Notice or the conjunction of the Notice and accompanying document such as the letter referred to in paragraph [4] even tested against the material before the decision-maker. Although the issue of whether the purported exercise of power is within power will usually involve a question of construction and therefore a legal question, evidence of facts going to limitations upon the power which lead to the conclusion that the Notice was not authorised by the I T A Act because it issued for a purpose beyond enabling the Commissioner to perform his functions or the Notice purported to require the acquisition and disclosure of information beyond that required to enable the Commissioner to perform his functions under the I T A Act, may be admissible.

21. Goldberg J in the face of challenges to notices issued to the managing partners in Sydney and Melbourne of Deloitte Touche Tohmatsu (in exercise of power pursuant to s 264(1)(a) of the I T A Act), on the ground that the notices issued for a purpose beyond that of enabling the Commissioner to perform his functions under the Act and in circumstances where it was contended that the Commissioner had failed to have regard to the relevant consideration of the content of guidelines in a particular Australian Taxation Office ("A T O") manual, admitted evidence of facts going to purpose,
Deloitte Touche Tohmatsu and Others v Deputy Commissioner of Taxation 40 ATR 435 at 451 and 452.

22.

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In relation to the question of whether a notice is ambiguous or not sufficiently clear to convey to the addressee what information is sought, the test is "whether a reasonable man in the position of the addressee of the notice can fairly comply with it and not be exposed to the possibility of penalty for non-compliance having regard to the manner in which the notice is formulated"; Fieldhouse & Ors v Commissioner of Taxation (supra) Hill J at p.208 (second last paragraph). Accordingly, evidence of the circumstances confronting the Applicant is relevant to the question of whether the Notice is unclear, uncertain or ambiguous. As to the question of whether sufficient time was afforded by the Notice for the completion of the tasks required by the Notice, "events preceding the issue of the Notice could be taken into account when determining whether the time allowed for compliance was reasonable"; Fieldhouse & Ors v Commissioner of Taxation (supra) Hill J at p.219, adopting
Ganke v Deputy Commissioner of Taxation (Cth) (No. 2) (1982) 78 FLR 455 at 459; and
Waterhouse v Commissioner of Taxation (Cth) (1988) 93 FLR 30.

23. Further, Hill J observed in Fieldhouse & Ors v Commissioner of Taxation (supra) Hill J at p.220 (third last paragraph), "In my view, the question of whether the time limited in a notice is reasonable is a matter of fact in each case. In the present proceedings, the onus lay upon the appellants (applicants) to show that the time limited for compliance was in the circumstances of the case unreasonable". In the same case, Lockhart J observed at p.198 (third last paragraph),"The test of reasonableness of a period of notice is an objective one to be determined in the light of the surrounding circumstances. It is for the court to determine whether the time allowed is reasonable when the matter is tested before it". Evidence of the tasks involved in complying with the Notice, the methods that might be adopted to identify the field of files and ultimately an accurate list of each and every client for whom the law firm has facilitated involvement in a Limited Liability Partnership arrangement or an arrangement for the removal of accumulated profits and the extent of the commitment of personnel and resources that would be necessary to answer the Notice within the time prescribed, seems to me admissible on the issue of whether a reasonable time was allowed. Section 264(1)(a) does not, in terms, demand a time for furnishing the information but a time must be nominated and the time must be reasonable. Evidence of the costs of compliance with the Notice is a fact although not necessarily a persuasive or determinative fact of whether the number of days allowed by the Notice is reasonable. A Notice which, for example, allows a period of one week for compliance and which calls for information across a long period of time involving the review of a large body of documentation which might not be able to be completed within the period without, for example, significant and additional staff being hired or other resources dedicated at significant cost to meet the time, may be found to prescribe an unreasonable time.

24. Accordingly, I propose to admit the affidavits of the Applicant and Mr Festa.

Background facts

25. The facts are these.

The Section 264(1)(a) Notice

26. The Applicant is a principal of the law firm Cleary Hoare which carries on practice in Brisbane. Although there seems to be no reference to the fact in Mr Hart's affidavit, he is described by his Counsel in submissions as "the sole trustee of the Cleary Hoare Practice Trust which is the proprietor of the business Cleary Hoare, solicitors".

27. On or about 23 November 2004, the Applicant received the Notice and letter reproduced at paragraphs [3] and [4].

28. Shortly after receiving the Notice and the letter, the Applicant provided a copy of the documents to his co-principals in the law firm and to the general manager of the firm, Mr Williams. The Notice required Mr Hart to furnish the information described in Schedule 1, as the full name and last known contact address of each and every client for whom the firm Cleary Hoare had facilitated involvement in a "Limited Liability Partnership" arrangement or "Removal of Accumulated Profits arrangement". Immediately after the reference to Schedule 1 in the introductory paragraph, are words of either qualification or explanation in these terms, "which relate to the arrangement implemented for certain clients of the firm known as Cleary Hoare (Solicitors) that is

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referred to in correspondence as the 'Limited Liability Partnership' or 'Removal of Accumulated Profits' arrangement".

29. Some observations should be made about the Notice. The Notice does not refer to any time period or financial years. Mr Festa, a principal of Cleary Hoare, deposes to the computing resources of the firm comprising a practice management system described as "CLO" implemented by Cleary Hoare in December 1997 and "WordPerfect" word processing software and the upgrades to that system effective from January 2004. Documents in respect of client files closed prior to 1 January 2004 were not imported into the new computer system. Those documents are held on six compact disks accessible on one computer which contains the previous word processing software, "WordPerfect Version 8" and those closed files are stored by AUSDOC for the firm off-site of the business premises. Documents in respect of files opened immediately prior to 1 January 2004 were imported into the new computer system. Although evidence in relation to file statistics will need to be analysed further, for present purposes Mr Festa says that there are a total of 40,574 files contained on the CLO practice management system dating from December 1997. Of those, 2,011 files from 1 January 2004 are "open files" physically on the premises of Cleary Hoare. The remaining 38,563 files are physically stored off the premises of Cleary Hoare by AUSDOC.

30. The Notice uses two phrases to identify the points of connection to each client whose full name and last known address must be provided. It requires the Applicant to identify every limited liability partnership arrangement established by a client facilitated by Cleary Hoare and every arrangement which bears the characterisation "removal of accumulated profits" arrangement in which a client has been involved facilitated by Cleary Hoare. The facilitation is presumably by promotion of the arrangement and the provision of legal services to clients that elect to engage in the arrangement. The Notice by paragraph 1 seeks to limit or explain the field of clients by reference to "correspondence" which is not identified. The Notice does not adopt the usual practice of defining terms (on an inclusive basis or otherwise) such as "correspondence", "limited liability partnership" or "removal of accumulated profits arrangement", in a legend or schedule.

31. Because the information was to be provided in writing, the Applicant understood he would be required to compile a list of the information. The Applicant enquired of the general manager whether the firm had an existing list of clients within either of the descriptive phrases in the Notice and was told it did not. The Applicant requested the general manager to compile a written report of what would be involved in creating such a list.

32. Mr Williams informed the Applicant that there would be five ways to create a list, however, each way would be a 'massive task' and the only way to provide an exhaustive list would be to look at every file created by the firm over a relevant period of years if the period could be determined. From such an inspection a complete list could then be compiled. The Applicant says he was advised that whatever path was chosen, simply conducting data searches for documents using the two descriptive phrases in the Notice would not provide a list of clients which might meet either description.

33. Nevertheless, the Applicant requested the general manager to prepare a report.

34. On 17 December 2004, the Applicant wrote to the A T O advising that "We do not have any list of clients falling within either category. As we understand the law we have no obligation to search through all our files to establish such a list." On 20 December 2004, the A T O wrote to the Applicant recognising that the Respondent could not require the Applicant to bring a document into existence for production pursuant to s 264(1)(b) of the I T A Act but that the Commissioner could require the Applicant to furnish information by paragraph 264(1)(a) which extended to the identity of clients involved in particular arrangements. The Respondent reminded the Applicant that a failure to comply with the Notice may result in the matter being referred for prosecution.

35. The Applicant had further discussions with the general manager of the firm. The general manager identified 13 ways by which a list might be compiled but, again, compilation

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of the list would be a "massive task" and would take "many weeks to compile". Mr Hart understood that compilation of an exhaustive list would require checking every file created during the relevant period if that period could be determined.

36. On 23 December 2004, the Applicant wrote to the A T O and asserted that the Notice was invalid for particular reasons, sought a Statement of Reasons under s 13 of the A D (J R) Act and sought an extension of time of 28 days from receipt of the Statement of Reasons within which to respond to the Notice. The Applicant further asserted, "I do not know the identity of clients for whom the firm Cleary Hoare Solicitors may have facilitated involvement in a 'limited liability partnership' or 'removal of accumulated profits' arrangement".

37. On 24 December, the A T O responded saying that it was not possible to extend the time for compliance with the Notice since it had already expired but invited submissions by 12 January 2005 as to why the Applicant's non-compliance should not be referred to the internal prosecution area of the A T O. An edited copy of a submission dated 18 November 2004 prepared by the A T O for the purpose of considering whether authority should be given to issue the Notice was enclosed with the letter pending a response from the Applicant as to whether s 13 Reasons would be necessary.

38. On 10 January 2005, the Applicant wrote to the A T O and confirmed the request for s 13 Reasons, asserted that an application would be made under the Act "in respect of your notice", asserted his view that the A T O had power to extend time to respond to the Notice and said, "It is reasonably common practice for your office to provide appropriate definitions with s 264 notice, eg, a definition of 'Removal of Accumulated Profits arrangement'. You have not done so. What do you mean by such words?".

39. On 13 January 2005, the A T O wrote to the Applicant enclosing a Statement of Reasons for the decision and said that the Respondent would defer until 4.30pm on Friday, 14 January referring the Applicant's non-compliance with the Notice for prosecution so as to enable the A T O to take into account any material the Applicant might file in support of the foreshadowed A D (J R) Act Application and in response to the earlier question said:

"9. Firstly, the term 'Removal of Accumulated Profits arrangement' is a description used by the firm Cleary Hoare in relation to a particular arrangement provided to clients of that firm. The term 'Removal of Accumulated Profits arrangement' appears in correspondence provided by Cleary Hoare to clients. Accordingly, it has been assumed that the term is familiar to Cleary Hoare and does not require a definition by the Commissioner".

40. On 18 January 2005, the Applicant wrote to the A T O requesting to be provided with the material or information referred to in paragraph 9 of the letter of 13 January. On 20 January 2005, the A T O wrote to the Applicant in these terms:

"As you are aware, ATO officers obtained access to a number of files held at Cleary Hoare Solicitors during the period 20-24 September 2004. Some of those files related to limited liability partnerships. In those files were documents entitled as follows

'(name of file)-schedule of steps-removal of accumulated profits'

I now enclose copies of the said documents. There were also letters to persons which enclosed, inter alia, a step sequence. I now enclose a copy of a letter from Cleary Hoare dated 7 October 2003 referring to an attached step sequence. I advise that the barcodes which appear on the copied documents are Tax Office markings. Apart from that addition, the copy documents are in exactly the same state as appeared in your files. I note that this material has already been provided to you as a photocopy of all the material copied was provided to your Mr Mike Williams at the time of the access.

Further, by letter dated 11 October 2004 you were given a list of all the documents that were copied. I have enclosed a copy our letter dated 11 October 2004 for your ease of reference."

The Managed Access Arrangement

41. On 7 August 2001, officers of the ATO entered the premises of Cleary Hoare and spoke with the Applicant in seeking access to documents (particularly client lists relating to

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certain work the ATO believed Cleary Hoare had undertaken) pursuant to s 263 of the I T A Act.

42. After discussions with the Applicant, a "managed process of access" to material was agreed and implemented. The ATO supplied the Applicant with a list of "arrangements" of interest to it and details of "entity names" then known to the ATO and also of interest. On 10 August 2001, the Applicant wrote to the ATO confirming his belief that particular material held by the firm had been properly provided, made reference to information to be obtained from particular individuals within the firm and confirmed that the firm had provided "promotional material" in relation to the use of hybrid fixed trusts, pro forma hybrid fixed trust documentation and other information. Further meetings took place during 2001 concerning the managed access program particularly with a view to managing issues of client confidentiality and legal professional privilege.

43. The documents enclosed with the letter from the ATO of 18 January 2005 (see para. [40]) were identified from files held at Cleary Hoare to which the ATO had exercised managed access in the period 20 to 24 September 2004. That material was exhibited to Mr Hart's affidavit. Those documents include five examples of a matrix taken from the files of Cleary Hoare which, in each case, sets out a schedule or sequence of steps to be implemented to achieve a particular outcome. In each of the five examples, the first page of the matrix of steps is headed "SCHEDULE OF STEPS - REMOVAL OF ACCUMULATED PROFITS". Presumably, the sequence of steps forms part of an implementation arrangement which will bring about the desired result of removing accumulated profits which, if not removed, might be susceptible to certain tax treatment. The first step sequence marked CD62 and CD63 comprises a six step sequence. The second marked CD64 and CD65 similarly involves a six step sequence as does the third example marked CD66 and CD67. The next example marked CD68, CD69, CD70 and CD71 involves a 12 step sequence and the last example comprises a three step sequence marked CD74 although a further page may have been omitted.

44. To illustrate the matrix I have set out the Schedule of Steps reflected at CD66 and CD67. Because the title of particular companies and the name of the limited liability partnership has been deleted from the matrix, I have simply inserted the word "(BLANK)" in each place where there is a deletion.

SCHEDULE OF STEPS - REMOVAL OF ACCUMULATED PROFITS

SCHEDULE OF STEPS - REMOVAL OF ACCUMULATED PROFITS
*Step No*	*Step*	*Document*	*Person Executing*	*Date/Time*
1	Constitute the Limited Partner, establish corporate trustees as applicable, Constitute the (BLANK) PARTNERSHIP by executing the Partnership Agreement	(a) (b)	Limited Partner Trust Deed Partnership Agreement	(BLANK)	24 June 2003
2	Amend Constitution of (BLANK) PTY LTD ACN CAN	(a) (b) (c)	Minutes of Directors Notice of Meeting Minutes of Meeting	(BLANK)	26 June 2003
ATC 5033 3	Share issues to (BLANK) PARTNERSHIP	(a)	Application by (BLANK) PTY LTD CAN: (BLANK) on behalf of (BLANK) PARTNERSHIP for Z Class Shares	(BLANK)	26 June 2003
		(b)	Resolution to apply for Z Class Shares
		(c)	Resolution of (BLANK) PTY LTD ACN ACN (BLANK) to issue Shares
		(d)	ASIC From 20
4	Declaration of Discretionary Dividends by (BLANK) PTY LTD ACN ACN (BLANK) to (BLANK) PARTNERSHIP	(a) (b)	Shareholders Consents x 2 Minutes of (BLANK) PTY LTD ACN ACN (BLANK) to pay dividends	(BLANK)	26 June 2003
5	Loan Agreement (for (BLANK) PTY LTD ACN ACN (BLANK) to pay dividend)	(a) (b)	Resolution of (BLANK) PTY LTD ACN ACN Loan Agreement	(BLANK)	26 June 2003
6	Deed of Charge to Secure Debt	(a)	Resolution of (BLANK) PTY LTD ACN ACN (BLANK) borrow and charge assets	(BLANK)
		(b)	Resolution of (BLANK) PARTNERSHIP to lend the money and secure by charge
		(c) (d) (e)	Deed of Charge ASIC Form 309 ASIC Form 350

45. The examples at CD62, CD63, CD64 and CD65 are in similar terms to the example set out at para. [44]. The example at CD68 to CD71 is a more complicated sequence of steps or arrangements but they are these:

"CD68
Step No. 1	Establish the Mancorp Hybrid Fixed Trust with DEVELOPMENT GROUP PTY LTD as absolute beneficiary (BLANK) is principal and primary beneficiary and (BLANK) PTY LTD as trustee
Step No. 2	Transfer Goodwill of the business of DEVELOPMENT GROUP PTY LTD to the (BLANK) Hybrid Fixed Trust
ATC 5034 CD69
Step No. 3	Activate the Mancorp Hybrid Fixed Trust discretionary income provisions
Step No. 4	Long Term Lease over the Bribie Island property between (BLANK) and (BLANK) DEVELOPMENT GROUP PTY LTD
Step No. 5	Complete the transfer of the Limited Partnership to (BLANK) PTY LTD and (BLANK) as trustee of the Lima Trust
Step No. 6	Establish the (BLANK) Trust No. 2 with (BLANK) trustee principal and primary beneficiary
CD70
Step No. 7	Amend Constitution of (BLANK) DEVELOPMENT GROUP PTY LTD
Step No. 8	Share issue to (BLANK) PTY LTD as general partner of the (BLANK) PARTNERSHIP (a Limited Partnership)
Step No. 9	Declaration of (BLANK) Discretionary Dividends by (BLANK) DEVELOPMENT GROUP PTY LTD ACN (BLANK) to (BLANK) PARTNERSHIP (a Limited Partnership)
CD71
Step No. 10	Loan Agreement between (BLANK) PTY LTD on behalf of (BLANK) PARTNERSHIP and (BLANK) as trustee of the (BLANK) Trust No. 2
Step No. 11	Loan Agreement between (BLANK) as trustee of the (BLANK) Trust No. 2 and (BLANK) DEVELOPMENT GROUP PTY LTD
Step No. 12	Deed of Charge to Secure Debt"

46. The further document obtained from the files of Cleary Hoare under managed access and provided to the Applicant as illustrative of a removal of accumulated profits arrangement, was a letter dated 7 October 2003 from the firm to a client which enclosed as Document 1, a "Step Sequence" and other documents described as:

"1. [Step Sequence]

2. Resolution of (Blank) Pty Ltd to recommend amendment of the constitution.

3. Notice of shareholders meeting to decide on amendments to constitution.

4. Minutes of shareholders meeting resolving to amend constitution.

5. Resolution to apply for shares in (Blank) Pty Ltd.

6. Application for shares in (Blank) Pty Ltd.

7. Resolution of (Blank) Pty Ltd to accept application for shares.

8. Share Certificate.

9. ASIC Form 484C

10. Shareholders Consents to declaration of dividend (x 2).

11. Minutes of (Blank) Pty Ltd declaring Dividend.

12. Resolution of (Blank) Pty Ltd to enter Loan Agreement.

13. Loan Agreement (in duplicate).

14. Resolution of (Blank) Pty Ltd to execute Deed of Charge.

15. Resolution of General Partner to lend dividend to (Blank) Pty Ltd.

16. Deed of Charge (in duplicate).

17. Resolution of (Blank) Pty Ltd to pay dividend by way of bearer promissory note.

18. Bearer Promissory Note.

19. Resolution of General Partner of the (Blank) Partnership to accept bearer promissory note.

20. Resolution of (Blank) to accept bearer promissory note.

21. ASIC Form 309.

ATC 5035
22. Annexure 'A' for ASIC Form 309.

23. ASIC Form 350."

47. In relation to the documents illustrative of a removal of profits arrangement provided by the ATO to the Applicant, Mr Hart says, in his affidavit, this:

"39. When I first received [the documents] from the ATO, I went through the detail of it and could not find any reference to the words 'Removal of Accumulated Profits'. It was only when I read the material again a couple of days later that I noticed that the words were used in the heading to the Steps Sequence. To the best of my knowledge, I was not previously aware that these words were used in that document.

40. The establishment of precedents is allocated to various members of the firm and the final precedent is usually checked by a principal of the firm. In more recent years, I am not usually involved in the details compiling precedents. Even when I am involved in checking new precedents, it would not be usual for me to spend any details time on the Steps Sequence. I would normally be more concerned about the substance of the document.

41. I do not remember ever seeing a Steps Sequence with the heading 'Removal of Accumulated Profits'.

42. There was nothing in the Section 264 Notice that would assist me to know what the ATO meant by the use of the words 'Removal of Accumulated Profits' arrangement without further explanation.'

29. At any one time, I may remember some of the clients for whom the firm has established a Limited Partnership, but the number that I can recall from my own knowledge is never more than nominal.

30. The Notice does not indicate whether the 'Removal of Accumulated Profits' arrangement for which the information is required is limited to arrangements that involve the use of Limited Partnerships and nor does it define it in any other way.

31. There is a number of transactions that could be entered into that may remove the accumulated profits of a particular company. Some of those arrangements will involve the use of a limited liability partnership. Some of those arrangements will involve the use of a private company and no limited liability partnership. Some of those arrangements will involve the payment of a dividend. Some of those arrangements will involve neither a limited liability partnership nor a company, eg. dividends to individual shareholders.

43. In paras. 13, 16.3 and 21 of the Statement of Reasons, it is suggested there is a potential revenue leakage if taxpayers participate in limited liability partnership arrangements. The income tax law treats a limited liability partnership as if it is a company. The result is that income derived by limited partnerships is taxed at the company rate of tax of 30%. In the same way as applies to companies, when the income of limited partnerships is distributed to partners it is taxed as a dividend with the partner being entitled to a credit for the amount of tax paid by the limited partnership attributable to the dividend. In that way, there is no revenue leakage.

44. In no circumstances does Cleary Hoare recommend the non-disclosure of amounts that are considered to be assessable or taxable income."

48. The Applicant was cross-examined in relation to a number of matters including his understanding of the concept of an arrangement which might have the effect of removing accumulated profits.

"C" Ms Brennan (Counsel)

"A" Mr Hart (Applicant)

"C: Would you accept that your client base is a broad client base?

A: No, our client base is quite limited, but most of work is referred to us by a broad network of accountants and financial planners, to the extent that they may be considered clients, in a broad sense, than we have a 'broad base'.

C: And of your clients, would you be of the opinion that many of them would be recurrent clients or one-off clients?

A: Many of them are one-off clients.

C: Okay. Now, you are aware of a product, which is marketed by your firm, known as a 'limited liability partnership arrangement'?

ATC 5036
A: It's - through a whole variety of seminars, we illustrate the different uses of limited partnerships and we also put out …

C: Well, can I just stop you there, Mr Hart? You talk about seminars; are these seminars the 'legal resource club' seminars?

A: They are.

C: Are they provided to a group of, what, accountants and financial advisers?

A: They are.

C: And when you have those forums, the purpose of them is: it's a marketing strategy to those persons?

A: Yes, it is.

C: And one of the products that you would market at a legal resource club forum would be the limited liability partnership arrangement?

A: Yes.

C: Is it also the case, then, that at those legal resource club forums you would market products on the basis that, for example, they would remove accumulated profits?

A: As one of the uses could be the removal of accumulated profits from a company to a partnership.

C: Yes. Now, in fact, it has been the case that - if we can call that particular arrangement, that you've just described there - if we could just, for convenience, call that the LLP, you would agree that that LLP product has been a profitable source of business for your firm?

A: Profitable is a subjective judgment, because it's one of the many things that determines whether we're profitable, or not, at the end of the year; and years vary. But it's a reasonable fee source.

C: You would say you have been very successful in marketing that product?

A: Not as successful as I would have liked, but I would say we would have been relatively successful.

…

C: Now, you accept then that on 20 January 2005 following your request to the ATO the ATO provided you with some of those files related to limited liability partnerships. In those files were documents entitled as follows. I now enclose copies of those documents and there were also letters which enclosed a step sequence.

…

C: Do you accept on 20 January 2005 the Commissioner sent to you copies of documents relating to the files they had copied for Limited Liability Partnerships and a sample of the correspondence referring to limited liability partnership?

A: No, that's not correct. What I had asked for was an explanation of the term 'removal of accumulated profits' meant. From memory, without going through the exhibits, they responded that it was found in some of our documents, I then asked for the document which contained that term. What they then sent was a steps sequence which, when I re-read it another time, had that at the top of it, but it was not in relation - necessarily in relation to limited partnerships.

C: So it's your case that until you read those documents provided to you, you were not familiar with the term 'removal of accumulated profits'?

A: No. - What I said was that I was not aware that any of our documents which we prepared used those terms.

C: I see?

A: I am familiar with the concept or the various …

C: You are familiar with the concept?

A: As I said earlier in this evidence, that there are various ways of doing it, of removing accumulated profits of a company to a limited partnership or elsewhere."

49. I accept Mr Hart's evidence that at the time he was served with the s 264(1)(a) Notice, he did not know of a precedent stepped sequence document developed by the firm for strategic marketing of the utility of limited partnerships including the particular use adapted to the removal of accumulated profits from a company to a partnership. Nor did the Applicant have specific knowledge of the five matrices nor the Cleary Hoare letter dated 7 October 2003 enclosed with the letter from the ATO dated 20 January 2005, until receipt of copies of those documents from the ATO

ATC 5037

arising out of the managed access process in September 2004. I also accept that at any moment in time the Applicant may remember the name and address of some clients for whom the firm established a limited partnership arrangement but the number and accurate details that might be recalled from the Applicant's own knowledge is likely to be nominal. Compiling a list of clients of the firm who have engaged in transactions which might meet either descriptive phrase in the Notice would require the Applicant to make enquiries of administrative officers of the firm and lawyers within the firm having responsibility for the carriage of those classes of transactions.

50. However, the evidence establishes that:

(a) the firm seeks to attract clients, often "one-off" transactional clients referred by accountants and financial planners through a "wide variety of seminars" designed to "illustrate the different uses of limited partnerships";
(b) seminars to this end are provided to accountants and financial advisers through the vehicle of the "legal resource club" as a marketing strategy at which forums the firm seeks to demonstrate, among other things, the use to which a limited liability partnership might be put to remove accumulated profits from a company to a partnership;
(c) in this endeavour, the firm has been "relatively successful" and the efforts have been productive of a "reasonable fee source" and the processes that might be deployed to move retained profits to a limited partnership is an "important part" of the work of Cleary Hoare;
(d) notwithstanding that the Applicant was not aware that any of the firm's documents used the descriptive term "Removal of Accumulated Profits", Mr Hart, as he says, was aware of the "concept" that there are "various ways of removing accumulated profits of a company to a limited partnership or elsewhere";
(e) the firm has developed a methodology implemented by a series of steps [see paras. [43], [44], [45], [46] and [49]] sufficiently well defined to be the subject of a marketing program to professional financial advisers which involves the use of a limited liability partnership within more or less complicated structural arrangements. The steps are precise and sequential and the arrangement of steps is described collectively as "removal of accumulated profits" in a series of documents. I assume the use of the term in each matrix is the expression of the objective to be achieved by giving effect to the steps or what might sensibly be described as the arrangements. Similarly, the letter dated 7 October 2003 from Cleary Hoare identifies the precise content (23 separate actions) to be implemented as part of such an arrangement.

51. I am satisfied that the term "Removal of Accumulated Profits" is either a term of art adopted by the firm or, alternatively, a term which is understood to mean the formulation and implementation, in the circumstances of the particular client's affairs, of that sequence of steps involving the use of a limited partnership comprising some but not necessarily all of those steps identified at paras. [43], [44], [45] and [46] designed to effect a removal of accumulated profits from one legal entity to another howsoever those entities or collection of entities might be arranged.

52. I do not understand the Applicant to contend that the term "limited partnership" or "limited liability partnership" is uncertain. The arrangement involving the use of a limited partnership is the arrangement described in paragraph [51].

The Scope of the Task

53. Mr Festa is the principal of Cleary Hoare with the greatest knowledge of the firm's computing resources and search and data retrieval functions. Mr Festa's evidence is to this effect.

54. The computer system used by Cleary Hoare, upgraded at 1 January 2004 includes the CLO practice management system, a file management system called "iManage", a further file management tool called "iManage Desksite"and "Microsoft Word" word processing software.

55. Whenever a file is "opened", the relevant details are entered into CLO, a client number entered, a matter number allocated to the file, a description of the matter entered and a code for the higher level workgroup (of which there are 12) and a code for the specific

ATC 5038
worktype (of which there are 90 allocated across the 12 workgroups).

56. Only documents related to files "open" (eg. not closed and finalised) at 1 January 2004 were made part of the iManage file management system. All such documents (whether a deed, agreement, letter, memo etc) were allocated a document type described as "converted".

57. Closed files at 1 January 2004 also contained many different document types and those documents are retained on six compact disks accessible on one computer and formatted to configure (and be searched by) WordPerfect Version 8 software. These files, at least from December 1977, have been entered into the CLO practice management system.

58. The 12 higher level workgroups are banking/finance and securities, commercial law, commercial property, companies and trusts, estate planning, succession, rural, intellectual property, liquor and other licensing laws, conveyancing, taxation and revenue and superannuation. An example of worktypes within a workgroup is set out in the schedule below:

Work Group Code	Work Group	Work Type Code	Work Type
32	Taxation and Revenue	01	Income Tax Advice
		02	GST Advice
		03	CGT Advice
		07	Restructure
		11	Stamp Duty
		13	Land Taxes
		15	Objections/Appeals
		14	Limited Partnership
		99	Other

59. The worktype allocation will reflect the predominant worktype undertaken for the client where the legal service requires a number of different types of work to be completed. After completion, the closed file is sent to AUSDOC for storage.

60. Files that involve the preparation of documents for a limited partnership may be allocated a workgroup of 04 Commercial Law, 07 Companies and Trusts, 12 Estate Planning or 32 Taxation and Revenue. There is no workgroup called Limited Partnership. However, a worktype was established in November 2004 for limited partnerships in three workgroups: (12 Estate Planning - 08 Limited Partnership, 13 Succession - 05 Limited Partnership, 32 Taxation Revenue - 14 Limited Partnership).

61. Mr Festa says in his affidavit that the means of complying with the Notice are these:

"11.1 Obtain every file that is currently in storage or is currently held on the premises of Cleary Hoare so as to enable a review of its contents to determine whether or not it falls within the categories of files identified in the Notice.

11.2 Do a search in iManage Desksite of all documents that contain the phrase 'Limited Partnership', 'Limited Liability Partnership' or 'Removal of Accumulated Profits' with a view to identifying files which are likely to fall within the categories of files identified in the Notice;

11.3 Do a search in CLO of each matter description in which the phrases 'Limited Partnership', 'Limited Liability Partnership' and 'Removal of accumulated Profits' is used with a view to identifying files which are likely to fall within the categories of files identified in the Notice."

In the case of paragraphs 11.2 and 11.3, the procedure outlined would serve only to identify files which may fall within the categories of files identified in the Notice. It would be necessary to check those files

ATC 5039
individually, but only those identified by the searches in question."

62. Searches undertaken by Cleary Hoare (by Ms Christine Kilpatrick who has responsibility for the firm's accounting function) of files opened on CLO, files opened since a nominated date, files containing nominated words in the matter description and files allocated to a workgroup category that might correspond with the descriptive phrases used in the Notice together with searches undertaken on iManage Desksite (by Mr Festa) for documents using the phrases Removal of Accumulated Profits (R A P), or Limited Partnership (LP) or Limited Liability Partnership (L L P) reveal at the date of the search on 28 February 2005, the following:

(a) there are a total of 40,574 files entered into the CLO practice management system;
(b) of those, 2,011 files are "open" and physically held on the premises of Cleary Hoare;
(c) of the 40,574 files, 10,367 have been allocated to the four workgroups described at paragraph [59];
(d) since the adoption of the CLO system in December 1977, 9,479 files have been opened and entered on that system. Logically therefore, the vast majority of the CLO recorded files (31,095) represent old closed files;
(e) of the 9,479 files opened since 1 December 1977, a fee was raised on 4,669 files. Presumably then, 4,810 files although opened, did not proceed (eg. about half);
(f) of the 9,479 files, 6,810 were allocated to the workgroups listed at para. [59] and of those a fee was raised on 3,120;
(g) since the adoption of the worktype category, "limited partnership", in November 2004, one file only out of the 325 files opened by the firm was allocated to the worktype limited partnership;

63. Enquiries made of AUSDOC on 7 March 2005 reveal that:

(a) AUSDOC holds 783 boxes of files for Cleary Hoare. The average number of files per box is eight. Based upon spreadsheet data maintained by Cleary Hoare in relation to files sent to AUSDOC for storage, Mr Festa estimates that there are files in respect of 6,295 matters held by AUSDOC for the firm. If there are 783 boxes held by AUSDOC and the average number of matters per box is eight, AUSDOC will be storing approximately 6,264 matters even though 9,479 files have been opened on CLO since 1 December 1977. In addition to the 6,295 matters, there are 2,011 matters stored on site at Cleary Hoare (8,306 matters in all). These numbers of matters seem to be necessarily approximate;
(b) the retrieval service performed by AUSDOC involves the following. To retrieve 250 boxes would take approximately two days. To retrieve all boxes would take approximately a week. A retrieval fee of $2.53 is incurred for each box retrieved and a delivery charge of $15.99 plus GST for each box. If an individual file is retrieved from a particular box there is an additional charge of $1.00 per file;
(c) AUSDOC estimates that retrieval of, for example, 700 individual files from particular boxes (provided the correct box number for location of the file is properly identified) would take approximately five working days to complete. A courier van holds approximately 100 boxes.

Methods of Compliance with the Notice

64. As to the three methods of complying with the Notice, Mr Festa says this. The first method (see 11.1 at [61]) involves reviewing every file. This method initially seemed to suggest reviewing 40,574 files including 9,479 files opened since 1 December 1997 and 2,011 held on site at Cleary Hoare. However, in cross examination Mr Festa made it clear that this method involved physically examining 2,011 files open on the CLO system as at 28 February 2005 and held on the premises of the firm together with the files held in storage contained in 783 boxes which Mr Festa says represents 6,295 matters. Such a review involves obtaining a list of all files opened on the CLO system, retrieving all files held by AUSDOC, physically reviewing those files to establish a connection with an L L P or R A P arrangement, identifying all files held on the premises of Cleary Hoare, reviewing those files to determine whether the transaction involved establishing an L L P or an R A P arrangement

ATC 5040

and then compiling a list that accurately addresses the Notice.

65. An alternative approach to method 1 is to identify all files entered on the CLO system for which a bill has been raised (4,669 files [62(e)], determine from the list and the archive spreadsheet list, the number of the archive box within which the file is stored, retrieve the file from AUSDOC, review the file to establish a connection with an L L P or R A P arrangement, identify those files currently held on the premises of Cleary Hoare to similarly determine whether the transaction involved establishing an L L P or an R A P arrangement and then compile an accurate list that addresses the Notice.

66. Method 2 (see 11.2 at [61]) which involves undertaking a search by "iManage Desksite" to identify documents containing the relevant phrases involves undertaking the searches, examining each document to determine whether it relates to establishing an L L P or R A P arrangement, obtaining the file number referable to the document, searching CLO to determine whether a fee was generated for the related file, examining the archive spreadsheet to determine the number of the archive box within which the relevant file is stored, obtaining the file from storage or, if the file is on the premises of Cleary Hoare, obtaining the file from the solicitor handling the transaction and determine whether the documents have been executed and compile the list required by the Notice.

67. An alternative way of implementing method 2 is to examine the list of documents derived from an iManage Desksite search, obtain the corresponding file number for the document recorded in iManage, search the CLO database to determine whether a bill has been raised for that file, determine the number of the archive box containing the file (if a bill was raised), retrieve the relevant file from storage (or from a lawyer if the file is either a current file or on the premises of the firm), determine whether documents have been executed and then compile the list required by the Notice.

68. The phrases in issue seem to have some currency in the firm. An iManage Desksite search discloses there are 214 documents that use the phrase "Removal of Accumulated Profits". There are 5,598 documents that use the phrase "Limited Partnership" and 307 documents that use the phrase "Limited Liability Partnership". Accordingly, there are 6,119 documents in all. Searches aimed at cross referencing those documents to files reveal there are 100 matters referable to R A P, 562 matters linked to an L P and 113 matters linked to an L L P. This seems to suggest 775 files in all but there may be some overlapping of files in the search categories. It may be that documents have been created which are not linked to a particular file or client matter because the file might not have been opened on the system at the time of originating the document. However, Mr Festa says that the delay usually is only a matter of days and in principle, therefore, such a search would identify a file relating to a relevant document in the vast majority of cases and virtually all documents. There are 40 different document types specified for the purposes of the iManage Desksite file management system. A further search on iManage Desksite confined to the categories of documents most likely to be relevant ("agreement", "contract", "converted", "deed", "forms", "minutes", "miscellaneous" and "resolution"), discloses 3,211 documents using L P.

69. Method 2 is based on an iManage Desksite search for documents but Mr Festa says that such a search for documents will not reveal documents (and therefore related files) for files closed prior to 1 January 2004. Documents related to those files must be searched on a separate computer operating WordPerfect in respect of the six compact disks. A WordPerfect search of files closed prior to 1 January 2004 discloses eight documents (and six related files) using the phrase R A P, 250 documents (and 78 related files) using the phrase L P and 31 documents (and 13 related files) using the phrase L L P. The WordPerfect search for this information took six hours. Accordingly, 298 documents referable to 97 files have been identified.

70. Mr Festa says there are 640 files in all identified as a result of these searches based on iManage Desksite and WordPerfect document searches revealing 6,408 documents in all. Since the iManage search revealed 6,119 documents [68] and the WordPerfect search

ATC 5041

revealed 298 documents [69] there are 6,408 documents in all revealed by the searches.

71. The third method of searching the CLO system for every matter involving a matter description capturing the phrases L P, L L P and R A P is said by Mr Festa to be generally unsatisfactory because it will not provide an exhaustive list. The majority of matters involving the creation of an L P will not include L P or L L P or R A P in the matter description.

The Costs of Compliance

72. Mr Festa gives evidence of the costs the firm will incur and the time involved in undertaking various steps to comply with the Notice.

73. If the first approach to method 1 is adopted involving a search of all files as described at para. [64], Mr Festa estimates that it would take 215 working days (43 weeks) and would cost the firm approximately $140,000.00 because:

(a) 783 boxes of files would need to be retrieved from AUSDOC which would take five working days and cost $1,980.99 plus a delivery charge of $515.42. The same charges would be involved in returning the boxes to storage and re-delivering them;
(b) the review of the files contained in the AUSDOC boxes (estimated by Mr Festa to be 6,295 matters) would involve 210 working days on the part of a junior solicitor. Such a solicitor would not be able to work on the firm's work for 42 weeks resulting in loss of income to the firm of $135,000.00.

74. If the second approach to method 1 is adopted as described at para. [65], Mr Festa estimates that it would take 170 working days (34 weeks) and would cost the firm approximately $103,770.00 because:

(a) once a list of files entered into the CLO system from 1 December 1997 is produced, a junior accounts clerk would be engaged for 10.5 working days to identify the storage box in which the relevant file is located. Since a junior clerk is paid $17.56 per hour including superannuation and payroll tax, the cost of creating the AUSDOC retrieval list is $1,380.00;
(b) since the second approach involves reviewing those files upon which a bill was raised since 1 December 1997, the firm would need to retrieve 390 boxes from AUSDOC (eg. 50% of the boxes - 4,669 files) see para. [61(e)]. The retrieval and delivery charge is $986.70 and $256.96 respectively and a return to storage charge of $986.70 would be incurred;
(c) AUSDOC would require four working days to retrieve the files from storage;
(d) a junior solicitor would be engaged for 155 working days to examine 4,669 files to determine whether the transaction falls within the description in the s 264(1)(a) Notice. Based on an annual fee budget of $145,000.00 and 45 working weeks in a year, a junior solicitor deployed to analysing the files in question would result in the loss of productive work and revenue to the firm of $99,900.00.

75. If the second approach involves reviewing 390 boxes which on average holds eight matters per box, the number of matters to be examined would be likely to be 3,120 matters which seems at odds with Mr Festa's estimate of 4,669 files but that estimate is based on the number of files on which a fee was raised out of the total compliment of files (9,479) open on the CLO system since 1 December 1977.

76. If method 2 is implemented as described at para. [66], Mr Festa estimates that it would take approximately 26 working days (5 weeks and 1 day) and would cost the firm approximately $16,600.00 because:

(a) compiling the list derived from the iManage Desksite and WordPerfect searches (640 files) would take a junior solicitor 1.5 days and cost the firm $960.00 in lost work by such a solicitor;
(b) cross-referencing that list to the archive spreadsheet list to identify the archive box containing the particular file would take a junior accounts clerk 1.5 days at a cost of $200.00;
(c) this method would involve retrieving 300 boxes from AUSDOC at a retrieval charge of $759.00 and a delivery charge of $196.47 and a re-storage and re-delivery charge in the same amounts respectively. It will take AUSDOC 2.5 days to retrieve the boxes;

ATC 5042
(d) a junior solicitor would be engaged for 21 working days reviewing each retrieved file to determine its relationship to the two descriptive phrases in the Notice and such time will represent, on the same basis identified previously, a loss of income of $13,500.00.

77. If the second approach to method 2 is adopted as described at para. [67], Mr Festa estimates that it would take approximately 26 working days (5 weeks and 1 day) and would cost the firm approximately $18,000.00 because:

(a) a junior solicitor would need to undertake the iManage Desksite search for documents which would take one day;
(b) a junior solicitor would be engaged for 14 working days to go through 6,408 documents referenced by the search to determine whether those documents relate to establishing an L L P or an R A P arrangement at a cost to the firm of $9,700.00;
(c) a junior clerk would be involved for one day in determining from this CLO search whether a bill had been raised on a particular file which documents related, at a cost of $130.00;
(d) the approach would involve retrieving 320 files from AUSDOC which would involve 160 boxes at a retrieval and delivery cost of $404.80 and $110.98 respectively and the same re-storage and collection charge, respectively;
(e) a junior solicitor would be involved for 11 working days reviewing 320 files to determine whether the transactions involved establishing an L P or implementing an R A P arrangement at a cost to the firm of $7,100.00.

78. In cross examination Mr Festa conceded that there might be some confusion in his initial evidence between the steps necessary to implement the first and second approaches to method 2. The reference to a need to examine 6,408 documents [70] ought to have been confined to a step forming part of the first way of implementing method 2. That being so, the costs of that step ($9,700.00) are presumably referable to the cost of implementing the first approach of undertaking method 2. If that is true, the total costs of the first way of undertaking method 2 are presumably $26,300.00 approximately and the second way of undertaking method 2 presumably reflects a reduction of $9,700.00 approximately.

79. The effect of all this evidence is set out in the following summary.

Method	Approach	Implementation
1	First Approach	Review all AUSDOC files (6,295) plus onsite files (2,011) @ 210 working days (solicitor) Opportunity cost $135,000.00 AUSDOC charges $4,992.00 Total: $140,000.00 (approx.)
1	Second Approach	Examine CLO print-out and reconcile to archive storage box (clerk - 10.5 days) $1,380.00 Review (solicitor) 390 AUSDOC boxes (4,669 files) Opportunity cost $99,900.00 AUSDOC charges $2,500.00 Total: $103,780.00 (approx)
ATC 5043 2	First Approach	Compile iManage Desksite and WordPerfect searches (solicitor - 1.5 days) Opportunity cost $960.00 Cross reference searches (clerk) to archive spreadsheet and archive box Cost - $200.00 Retrieve 300 boxes Cost $955.47 Review files (solicitor - 21 days) Opportunity cost $13,500.00. Restore and re-deliver - $955.47 Total: $16,570.00 (approx.)
2	Second Approach	iManage Desksite and WordPerfect document searches (solicitor - 1 day) Review 6,408 documents (solicitor - 14 days) Opportunity cost $9,700.00 Review searches to cross-reference file to determine whether bill raised $130.00 Review 320 files (160 AUSDOC boxes) (solicitor - 11 days) Opportunity cost of $7,100.00. Total: $17,961.00 (approx.)
3	Matter Description Approach	No utility, no costs provided.

The Statement of Reasons by the Decision-Maker

80. On 24 December 2004, the ATO provided the Applicant with an edited copy of a submission (briefing paper) dated 18 November 2004 prepared to assist the decision-maker in considering whether authority should be given to issue the s 264(1)(a) Notice. The Statement of Reasons pursuant to s 13 of the A D (J R) Act says the decision-maker took the submission into account in making the decision. The briefing paper makes these observations. On 20 September 2004, the ATO obtained access to a number of files held by Cleary Hoare which, upon examination, established to the satisfaction of the ATO that the firm had been promoting a scheme utilising limited liability partnerships. Copies of a step sequence document had been located on four files and were attached to the briefing paper. As to limited liability partnerships, the background to tax treatment is described in this way:

"Division 5A (ITAA 1936) [eg. Division 5A of Part III of the I T A Act] objective is to provide for certain limited partnerships to be treated as companies for tax purposes. This is not confined to the payment of income tax by limited partnerships, but includes all other purposes under income tax law, including the payment of tax by partners in limited partnerships; for instance, imputation and the taxation of dividends to shareholders. The basic notion of company and shareholder taxation is that the company is taxed on its taxable income, the shareholders are separately taxed on distributions of profit made by the company and the tax paid by the company is attributed to shareholders. The important point is that, unlike partnership taxation, members of companies (shareholders) are generally only assessed on distributed profits (ie. dividends).

Removal of Accumulated Profits

Under the LLP arrangement a business is restructured to ensure that the trading entity is able to distribute accumulated profit to an associated limited liability partnership. If the accumulated profits are then on lent to individuals and not repaid, there is potential revenue leakage. This leakage amounts to the arbitrage between the corporate tax rate of 30% and individual rates (maximum rate 48.5%). A review of one file chosen at

ATC 5044
random was undertaken to establish the mechanics of the arrangement."

81. The reasons advanced in the briefing paper for issuing a s 264 Notice are these. First, a national analysis of limited liability partnerships suggests extensive use of the vehicle (approximately 1,205 registered L L Ps linked to 663 tax agents). Secondly, Cleary Hoare, in the view of the ATO, has promoted a number of taxation schemes involving the use of L L Ps. Thirdly, material gathered from the access arrangements pursuant to s. 263 of the I T A Act have led the ATO to the view that it is necessary to determine the extent of the promotion by Cleary Hoare of arrangements involving the use of limited liability partnerships. Fourthly, the ATO is of the view that the use of L L Ps to circumvent the application of Division 7A of Part III of the I T A Act is widespread. Fifthly, an analysis of one transaction chosen at random arising out managed access to the files of Cleary Hoare suggests that the arrangement implemented in that transaction resulted in a "potential revenue leakage through the arrangement of $455,390.00".

82. Apart from the briefing paper, the decision-maker relied upon a flowchart prepared by Mr Bradley McGill attached to the submission (but not in evidence) and the following material.

(a) on 7 and 8 August 2001, the Commissioner obtained certain documents from Cleary Hoare under arrangements made as a consequence of the exercise of power under s 263. On 8 June 2004, the Commissioner wrote to Cleary Hoare advising that the scope of an audit which included the principals of Cleary Hoare and the participants in arrangements offered by the firm was to be extended to include a review of the taxation affairs of the same parties for the period 1 July 2001 to 30 June 2004;
(b) on 20 September 2004, the Commissioner took access to a number of files and documents held by the firm which related to an arrangement involving limited liability partnerships. The Commissioner believes L L Ps are being used to circumvent the application of Division 7A, Part III of the I T A Act, the risk to the revenue is significant and an analysis of the use of L L Ps is a "priority technical issue" within the ATO;
(c) a review of one of the Cleary Hoare files relating to an L L P discloses, in the view of the ATO, revenue leakage of over $450,000.00. The Commissioner has previously investigated other arrangements connected with Cleary Hoare which have involved substantial under-disclosure of taxable income;
(d) prior dealings between the Commissioner and Mr Michael Hart reveal that Mr Michael Hart has been represented to the Commissioner as a trustee of the Cleary Hoare Practice Trust and a principal of the firm.

83. The decision-maker found that the firm has facilitated the participation of clients in schemes involving limited liability partnerships and the reasons for obtaining the full name and last known contact address of each client for whom the firm acted in relation to participation in an L L P or R A P arrangement are expressed in this way.

"21.1 To establish the extent of the scheme promotion:

A national analysis of limited liability partnerships suggests that there are approximately 1205 registered LLPs linked to 663 tax agents. I was aware from my position as Regional Manager, SNC Audit, Northern Region, that Cleary Hoare have been involved in the promotion of a number of taxation schemes in the past. The evidence collected from the s263 access visit shows that Cleary Hoare clients are currently involved in LLP arrangements. The Commissioner is unaware of the extent of involvement of Cleary Hoare clients in LLP arrangements.

21.2 To assist in developing an ATO view:

The LLP arrangement has been given priority technical issue status. There is evidence that the practice of using LLPs to circumvent the application of Division 7A (ITAA 1936) is widespread and that there is a significant risk to revenue through the use of such arrangements.

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21.3 To prevent revenue leakage through the LLP arrangement:

A review of one Cleary Hoare file chosen at random indicated a potential revenue leakage through the arrangement of $455,390."

The resolution of the issues

84. The starting point is to determine the scope of the Notice as a matter of construction. First, it calls upon Mr Hart to furnish, in writing, the name and last known contact address of certain clients of the firm.

85. Secondly, the field of clients in the list is to be each and every client who has a relationship with "the arrangement" implemented, by the firm, which is the arrangement referred to in correspondence as the "Limited Liability Partnership" arrangement or the "Removal of Accumulated Profits" arrangement.

86. Thirdly, the proper way to construe the two identifying phrases for the relevant arrangement is, due to the quotation emphasis adopted in the Notice, the Limited Liability Partnership arrangement or the Removal of Accumulated Profits arrangement.

87. Fourthly, those arrangements however they might be configured, structured or implemented in each transactional example are "arrangements" involving the use of a Limited Liability Partnership in a method of application contemplated by correspondence examples of which include the enclosures described at paragraphs [40], [43], [44] and [45], contained in correspondence and correspondence of the kind described at paragraph [46].

88. Alternatively, the arrangement is described, by comparison, as the removal of profits arrangement which, by reference to the correspondence described at paragraph 46 and correspondence enclosing stepped sequence documents described at paragraphs [40], [43], [44] and [45], is an arrangement for the formulation and implementation, in the circumstances of the particular client's affairs, of that sequence of steps involving the use of a Limited Liability Partnership comprising some but not necessarily all of those steps recited in the matrices or correspondence identified at paragraphs [40], [43], [44], [45] and [46], designed to effect a removal of accumulated profits from one legal entity to another howsoever those entities or collection of entities might be legally arranged.

89. Fifthly, the period of implementation of the arrangement is not constrained by the Notice. The Deputy Commissioner seeks information about all such arrangements of the kind contemplated by the correspondence and matrices for each client whenever the implementation might have occurred.

90. Sixthly, the Notice does not seek out information within the knowledge only of Mr Hart as an individual but calls upon Mr Hart to provide information of the firm about those clients of the firm for whom the arrangements have been implemented. The Notice requires Mr Hart to assemble the information and communicate it to the Deputy Commissioner. The Notice is not asking Mr Hart to reflect, per se, upon his own recollections and knowledge of those clients for whom the firm has implemented such arrangements. The Notice calls upon Mr Hart to seek out from the cohort of administrative and legal members of the firm, the name and address of those clients of the firm for whom the firm, as a corpus, has undertaken the relevant implementation steps.

91. The next question is whether the Notice so construed is so uncertain as to make compliance with the Notice impossible. The Respondent in formulating the Notice "assumed that the term [Removal of Accumulated Profits arrangement] is familiar to Cleary Hoare and does not require a definition by the Commissioner" (see para. [39]). Such assumptions are apt to be fatal in the exercise of coercive power and it would be prudent to incorporate appropriately crafted definitions of the scope of the information (in an inclusive way - perhaps by reference to particular illustrative attachments within the inclusive definition) so as to avoid potential ambiguity. However, in this particular case, I am satisfied that the assumption is correct for the reasons indicated at paras. [43] to [51]. It seems to me that, on all the evidence, those arrangements were sufficiently well defined, promoted, articulated to potential clients and the subject of implementation with a sufficient degree of systemic application that it cannot be said the arrangements were unknown, uncertain or ambiguous so as to make compliance with the Notice impossible. The Authorities establish that the Notice must

ATC 5046

be framed with sufficient clarity to show the person to whom the Notice is addressed, the information required: see
Amalgamated Television Services Pty Ltd v Australian Broadcasting Tribunal (1989) 91 ALR 363 and
May v Deputy Commissioner of Taxation (1999) 92 FCR 152. The clarity of the Notice must be considered against the background of the knowledge and circumstances of the Respondent to the Notice and the contextual facts. In this case, the Notice was clear having regard to all the evidence.

92. In relation to the failure to nominate in the Notice a period of implementation, the Commissioner has elected to call for information concerning the field of implemented arrangements whenever that may have occurred and the question of when the process of promoting the nominated arrangements began and ended lies entirely within the knowledge of the principals of the law firm. Further, the Notice in the form sent to Mr Hart resulted from a reasonably long period of managed access consequent upon the exercise of powers under s 263 and Mr Hart had been in dialogue with the Respondent about those matters. Although I accept Mr Hart's evidence as indicated at para. [49], it is clear that documents within the firm to which the Respondent had access reflect a real sense of understanding in the minds of some members of the firm of the content, detail and utility of the arrangements promoted by the firm. On any fair reading of the material, it seems to me that the relevant members of the firm understood the meaning of the two comparative phrases and proper enquiry by Mr Hart would reveal the boundaries of the period within which such arrangements began to be promoted and implemented and when they ended (if at all).

93. The next question is whether such a Notice so construed is beyond power. Subject to addressing the Applicant's contentions at paragraph [11], the principles are these. The scope of the power conferred by s 264 is extensive and wide-ranging. Since the scope of the power is circumscribed only by reference to the limitations expressed in the section, the power conferred by the first limb of s 264 is, in terms, largely unconstrained. Relevantly for present purposes, the Commissioner may require any person to furnish him with such information as he may require. The only constructionist words of addition are, "for the purposes of enabling the Commissioner to perform his functions under the Act". In performing those functions, the Commissioner may need to make "wide-ranging inquiries" as part of "the process of investigation" unconstrained by the "strong reasons which inhibit the use of curial processes for the purposes of a fishing expedition": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra), Mason J at p.536. Such an investigation may bear the character of a "roving enquiry": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (supra), Gibbs CJ at p.524 and "the fact that [the Commissioner] may be concerned about the existence or prevalence of a particular arrangement or proposal which may have implications in relation to provisions of the ITA Act 1936 rather than whether a particular taxpayer has entered into such an arrangement or adopted such a proposal does not put an investigation … outside the scope of s 264(1)(a)":
Deloitte Touche Tohmatsu & Ors v Deputy Commissioner of Taxation (1998) 40 ATR 435 at 450.

94. Section 264(1)(b) is circumscribed, in terms, by limitations. The coercive power is restricted to requiring an individual to attend and give evidence concerning "his or any other person's income or assessment" and the power to require such a person to produce all books, documents and other papers whatever is confined to such material in his "custody or under his control" relating to his or another person's income or assessment. The exercise of the coercive power under s 264(1)(b) which requires, for example, a person to create a document, would not be within power if the scope of the power is confined to the production of books, documents and papers, in existence, in that person's custody or under his control:
Fieldhouse & Ors v Commissioner of Taxation (1989) 25 FCR 187.

95. Because s 264(1)(b) reflects points of limitation in the coercive power, any notice given in exercise of the power "must in terms conform to the statutory limitations if it is to be valid": Federal Commissioner of Taxation v Australia and New Zealand Banking Group

ATC 5047
Limited (supra) Mason J at 537. Such a notice will conform to the limitations only if the notice clearly confines the documents to the relevant class. Mason J, in the context of s 264(1)(b) observed; "if not so limited, the notice fails on its face to express the limitation which the section places on the Commissioner's authority": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra) Mason J at 538 and "the demand for production must be so formulated that it expresses the limitation imposed by the section": Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (supra) Mason J at 539.

96. Since the power conferred by s 264(1)(a) is circumscribed only by the purpose of enabling the Commissioner to perform his functions under the Act, should the Notice, in terms, conform to that limitation on its face and express the limitation imposed by the section. In other words, should the Notice recite that the information is required not just pursuant to s 264 (as a point of reference to the source of power) but rather, for the purpose of investigating whether the use of Limited Liability Partnership arrangements to circumvent the application of Division 7A of Part III of the I T A Act, is widespread, and such other operative purposes. In the context of s 264(1)(b), Mason J further observed in Federal Commissioner of Taxation (supra) at p.538, "It is for the Commissioner to so formulate his notice that this limitation on his authority is drawn to the attention of the recipient."

97. It seems to me that these observations upon the limitations of the coercive power are confined to those limitations which appear within the language of s 264(1)(b) itself and the Notice need not express, in terms, on its face, the purpose of the exercise of the power when the Notice relies upon s 264(1)(a).

98. Subject to para. [11], the Notice is within power. The Statement of Reasons and Briefing Paper (see paras. [80] to [83] make it clear that the power was exercised for the purpose of enabling the Commissioner to perform his functions under the Act. As to the issues raised by para. [11], the position seems to be this. The Notice calls upon Mr Hart to bring a document into existence which is the necessary physical mechanism by which the information is to be communicated. It is unrealistic to think that a requirement to provide the information in writing exceeds the power conferred by s 264(1)(a). The conclusion reached by Their Honours in
Fieldhouse & Ors v Commissioner of Taxation (1989) 25 FCR 198 by Lockhart J at 194 and Hill J at 209 that a purported exercise of power under s 264(1)(b) was beyond power in requiring an addressee to bring a document into existence was expressly a function of the words of limitation upon the power contained within that limb of the section. Those limitations have no role to play in construing s 264(1)(a) as limiting the power so as to prevent the Commissioner requiring Mr Hart to bring into existence a written instrument (list) by which the information is furnished.

99. In
Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475, Stephen J observed at p.481 that s 264(1)(b) "is designed to permit the Commissioner to gain access to the knowledge residing in men's minds " and in considering the obligations of an individual called upon to attend and be questioned under s 264(1)(b), His Honour observed at p.482 that such a person "must attend and may be questioned as to their own knowledge of the corporation's affairs; if it turns out that they do not possess the relevant knowledge they can no doubt be required to identify those who do have that knowledge and those others may then, in turn, be required to appear and give evidence". The fundamental reason why such a notice is concerned with an individual's own knowledge is because the individual is called upon to give evidence on oath or affirmation about their knowledge, firsthand. That notion has no necessary application to a call for information pursuant to s 264(1)(a).

100. The Notice to Mr Hart is addressed to him in his capacity, properly construed, as a principal of the firm and sole trustee of the Cleary Hoare Practice Trust which is the proprietor of the business Cleary Hoare, Solicitors. It calls upon him to take the steps described at para. [90]. There is nothing in the authorities which limits the power conferred by s 264(1)(a) to information within the knowledge of the specific individual. Mr Hart is in a position to draw together, through the resources

ATC 5048

available to him, the information concerning implementation arrangements undertaken by the firm. The Notice, on that ground, is not beyond power.

101. The Applicant says that the requirement to bring a list into existence is a requirement to create a document which could not have been obtained as an exercise of power under s 264(1)(b). The document does not exist and must be created. In exercising power under s 264(1)(b), the Commissioner cannot, as an incident of the power to require the production of all books, documents and other papers, require a respondent to a notice to create a document. The Applicant says that the exercise of power in this case is simply an attempt to achieve by s 264(1)(a) that which could never have been achieved under s 264(1)(b) and, in that sense, the purported exercise of power is expressly the vice His Honour Chief Justice Gibbs had in mind in
Geosam Investments Pty Ltd & Ors v Australia and New Zealand Banking Group (1979) 25 ALR 445 at p.446 when His Honour said:

"It is quite obvious that the Commissioner would not be able to obtain, under para (a), full information as to the contents of a document which he could not have produced under para (b) but what he can require is information which will enable him to know which books, documents and papers he can require to be produced."

102. In this case, the Commissioner is not seeking full information of the contents of a document which he could not have required to be produced under s 264(1)(b). The Commissioner seeks information as part of an investigation of the name and address of each client for whom an arrangement was implemented. The power is not the expression of a device to secure the content of a document beyond reach. It is a request for information. In
May v Commissioner of Taxation (1999) 92 FCR 152 at p.166, paras. [50] to [53], Branson, Finn and Kenny JJ accepted, in the circumstances of that case, that the notice under s 264(1)(a) sought full details of the terms of a Memorandum and Articles of Association and a Trust Deed. The documents, however, were susceptible to production under s 264(1)(b) and the Notice seeking information simply "telescoped" the requirements of s 264(1)(a) and s 264(1)(b). Their Honours saw nothing impermissible in the Commissioner using the power conferred by s 264(1)(a) if the document could have been sought under paragraph (1)(b). There is no question here of a use of paragraph (1)(a) in any relationship with a document capable of production or not under paragraph (1)(b).

103. As to the constitutional question, the Notice requires the information to be given in writing. The physical pieces of paper must be provided to the Respondent. There is no suggestion that title in the pieces of paper passes to the Commissioner. In that sense, there is no acquisition. If there is an acquisition, it seems to me, as a matter of logic, that the value of the paper as an article (with the information written upon it) is valueless as it has no other use. Nevertheless, in my view there is no "acquisition of property" in the exercise of the power. The section conferring the power so construed is a valid law of the Commonwealth. The position may be otherwise in circumstances where the exercise of the power called for the production of photocopies of documents at a cost as occurred in Fieldhouse v Commissioner of Taxation (supra) thus giving rise to the comments of Their Honours Lockhart J at p.194 and Hill J at p.209.

104. The next question is whether the time prescribed in the Notice was unreasonable because it was such as to deny the Applicant the capacity to comply by the said date. The time allowed by the Notice was 30 days. Mr Festa has given evidence concerning the steps and costs involved in compliance with the Notice. The Notice requires Mr Hart and the firm to identify the particular clients across the period of the implementation of the arrangements. That period is not known to the Commissioner. It may be that the documents identified by the Commissioner in the course of managed access in the period 20 to 24 September 2004 reflect implementation arrangements across a limited number of years. Nevertheless, the effect of Mr Festa's evidence is that either of the approaches to method 2 would reveal those clients (thus enabling the list to be prepared) who had participated in an implementation arrangement and although Mr Festa's evidence talks of working days, either method could have been completed within the number of days provided

ATC 5049

by the Notice. The costs associated with undertaking steps to ensure compliance with the Notice under either approach to method 2 are considerable although the majority of the costs are lost opportunity costs. However, that is the burden of the Notice and I cannot conclude that the steps and the costs are so burdensome as to render the period provided by the Notice, unreasonable. Mr Festa's evidence was not challenged or contradicted. Mr Festa was cross examined and it was put to him that the steps and costs identified by the first and second approach to method 1 were "straw men" in the sense that they were expansive, full records searches, at great cost and not to be taken seriously. In the absence of any other evidence, I accept what Mr Festa says concerning the steps and costs associated with the first and second approach to method 1. However, I find that the steps associated with the two approaches to method 2 could have been completed within time recognising the resources that such steps would have commanded.

105. Moreover, the letter from the Respondent enclosing the Notice (see para. [4]) says: "If you are having difficulty complying with the notice in the time allowed [bold added] you should advise the Commissioner in writing as soon as possible and in any event, before the date stated in the notice. You should state your concerns and the reasons for them for consideration by this Office." The time stipulated by the Notice, in terms of reasonableness, should be construed in conjunction with the letter. The Applicant did not seek an extension of time and it seems that the first response to the Respondent was on 17 December 2004 approximately 24 days after service of the Notice (see para. [34] and the sequence of events at paras. 35 to 40). The period of time allowed by the Notice, in all the circumstances, was reasonable.

106. The Applicant contends that the Statement of Reasons and the Briefing Paper (paras. [80] to [83]) reveal that the decision-maker did not take into account any consideration of the likely compliance steps or costs of those steps in deciding the period for compliance and, as a result, there has been an improper exercise of the power conferred by s 264, because, the decision-maker was bound, as a matter of construction of the statute, to consider those factors and he failed to "call his attention" to them; see,
Minister for Aboriginal Affairs v Peco-Wallsend Ltd (1985-1986) 162 CLR 24 at 39. As a matter of principle, His Honour, Mason J, said at p.40, (proposition (b)), where: "the discretion conferred is unconfined by the terms of the statute, the Court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject matter, scope and purpose of the Act". Section 264(1)(a) confers a discretion, unconfined, in terms. The decision-maker is not bound, in terms of the section, to take into account the detail of compliance steps or the actual and opportunity costs of those steps. In any event, by setting a period of 30 days, it is clear that the decision-maker turned his mind to a period within which the requirements of the Notice might be satisfied. 30 days is objectively a reasonably long period for compliance. The failure to describe the particular matters in the s 13 Reasons does not mean the decision-maker had no regard to the activity which might be required to satisfy the Notice particularly since the Notice issued against the background of many years of managed access pursuant to powers exercised under s 263. In addition, the decision-maker seems to have additionally turned his mind to factors influencing adequacy of the time for compliance because the covering letter, expressly, invites Mr Hart to take up the question of the time for compliance with the Respondent if Mr Hart finds himself experiencing difficulty in complying with the Notice in the time allowed.

107. I conclude that the section does not require the particular matters to be considered but in any event, consideration was given to what was thought to be a reasonable time.

108. Accordingly, I propose to make the following orders. Leave is given to further amend the Amended Application for an order to review but for paragraph 2.5 and paragraph 3. Paragraph 2.5 is not a proper particular of an absence of power or improper exercise of power. As to paragraph 3, the statute does not require the decision-maker to take those matters into account. I dismiss the Application with costs.

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