HII v FC of T

Members:
Collier J

Tribunal:
Federal Court, Brisbane

MEDIA NEUTRAL CITATION: [2015] FCA 375

Decision date: 23 April 2015

Collier J

1. Before the Court are three applications in two related matters. These applications were heard together, and the parties have asked the Court to determine them together. Specifically, the Court is required to consider and determine:

2. The parties primarily agitated the applications filed in QUD 622 of 2014. At the end of the hearing of the applications in QUD 622 of 2014, both parties also made submissions concerning Mr Hii's application for summary judgment in QUD 57 of 2014. Helpfully, the parties have provided me with separate lists of issues they submit are required for decision in these combined proceedings. In particular, they agree that there is a threshold question before the Court, formulated by Mr Hii's legal representatives as follows:

3. It is also common ground that the Commissioner (or his delegate) formed no opinion that Mr Hii had avoided tax due to fraud or evasion at the time of determining Mr Hii's objection to the Commissioner's first amended assessments. The parties have agreed that only if the answer to the threshold issue ("Question 1") is in the affirmative is it necessary to go further and ask whether jurisdictional error invalidates the assessments as amended. This is particularly the case with the proceeding in QUD 622 of 2014. There are additional issues requiring the attention of the Court in QUD 57 of 2014. It is logical that I first consider matters at stake in

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QUD 622 of 2014 and then proceed to consider the interlocutory application pressed in QUD 57 of 2014.

4. Before turning to the matters which the Court has been asked to decide, and in particular Question 1, it is useful to first summarise the background which explains the current situation before the Court. In doing so, and because there are applications before the Court filed by both parties, it is convenient to refer to the parties respectively as "Mr Hii" and "the Commissioner" rather than identify them by reference to the various applications before me. In the interests of convenience I will also generically refer to the decisions of authorised officers of the Australian Taxation Office at various stages, as those of "the Commissioner". While technically decisions were made by authorised officers or delegates of the Commissioner - and at various times it may be appropriate to identify those officers - as a matter of law, the relevant decisions are those of the Commissioner.

BACKGROUND FACTS - GENERALLY

5. Mr Hii claims that at all material times he has been a resident of Malaysia for taxation (and other) purposes. However he acknowledges that he has family and business interests in Australia, and lodged tax returns as a non-resident from 1995 to 2000, nominating therein as his home address a property at Stretton in Queensland. In subsequent years when lodging his tax returns as a non-resident, Mr Hii nominated an address in Hamilton in Queensland at which his wife, Dr Beh (from whom he eventually separated), and six children resided. For the years ended 30 June 2005 and 30 June 2006 Mr Hii did not lodge Australian income tax returns. Rather, Mr Hii lodged a notification with the Commissioner that he had no Australian-sourced income in those years.

6. In 2010 the Commissioner commenced an audit of Mr Hii from assessment years ending 30 June 2001 until 30 June 2009.

7. On or about 27 June 2012 Mr Cameron Unwin, an Executive Level 2.1 officer employed by the Australian Taxation Office, positively formed the opinion that Mr Hii had avoided tax by engaging in acts during those years which constituted evasion. Relevantly to these proceedings, on 30 July 2012, 1 August 2012, 2 August 2012 and 3 August 2012 the Commissioner issued notices of amended assessment ("first amended assessments") and shortfall penalty assessments ("first shortfall penalty assessments") for the amended assessment years:

8. On or about 17 September 2012 Mr Hii lodged an objection to the first amended assessments and the first shortfall penalty assessments. Mr Hii's grounds of objection included that:

9. On 20 December 2013 the Commissioner issued a Notice of objection decision ("the objection decision"), and reasons for that decision, which allowed Mr Hii's objection in part and concluded that:

10. Subsequently, notices of amended assessment ("the second amended assessments") in respect of the assessment years ending 30 June 2001, 2002, 2003, 2004, 2007, 2008 and 2009 ("relevant years") were issued by the Commissioner on 16 and 17 January 2014.

11. A further notice of amended assessment in respect of the assessment year ending 30 June 2004 ("the third amended assessment") was issued by the Commissioner on 25 February 2014.

BACKGROUND FACTS - QUD 57 OF 2014

12. On 14 February 2014 Mr Hii commenced proceedings in this Court by filing an appeal against the objection decision of the Commissioner pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) ("TAA 53"). These proceedings are in QUD 57 of 2014. In an amended notice of appeal filed 17 July 2014, Mr Hii sought relief in the following terms:

13. On 17 February 2014 Mr Hii filed an application for review of the second amended assessments with the Administrative Appeals Tribunal. I understand that that application has been stayed, pending the resolution of the proceedings in this Court.

14. On 30 April 2014 Mr Hii filed an interlocutory application seeking summary judgment in QUD 57 of 2014. The relief sought by Mr Hii was as follows:

15. Separately, Mr Hii also applied for an order that there be a separate trial of issues in QUD 57 of 2014. On 11 July 2014 Rangiah J ordered that Mr Hii's application for the separate trial of issues be listed for hearing on 25 July 2014, and that the hearing of Mr

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Hii's application for summary judgment be listed for 1 August 2014.

16. Subsequently on 1 August 2014 Rangiah J ordered that eight questions in QUD 57 of 2014 be heard separately from other questions in the proceeding (
Hii v Commissioner of Taxation [2014] FCA 967). An appeal against this decision was allowed in
Commissioner of Taxation v Hii [2014] FCAFC 147. Mr Hii's application for summary judgment listed for 1 August 2014 was not heard at that time. Rather, it is currently before me.

BACKGROUND FACTS - QUD 622 OF 2014

17. On 26 November 2014 Mr Hii commenced fresh proceedings by filing an originating application pursuant to s 39B of the Judiciary Act 1903 (Cth) ("Judiciary Act"). These proceedings are QUD 622 of 2014. (I note that the application originally filed by Mr Hii has been superseded by an amended originating application filed with leave by Mr Hii during the hearing.) It is the amended originating application in QUD 622 of 2014 which I am considering in the course of this judgment.

18. On 18 December 2014 the Commissioner brought an interlocutory application in QUD 622 of 2014, seeking orders for summary judgment against Mr Hii in relation to the whole of that proceeding pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"), as well as costs. I note that this interlocutory application was not actually accepted for filing by the Registry until 20 January 2015.

19. The grant of leave to Mr Hii to file an amended originating application during the hearing of QUD 622 of 2014 was not opposed by the Commissioner. In the amended originating application Mr Hii sought the following relief under s 39B of the Judiciary Act on the grounds stated in the affidavit of David Hughes dated 26 November 2014 and the further and better particulars filed 13 January 2015:

ISSUES REQUIRED FOR DECISION

20. During the hearing I directed the parties to file a list of issues for decision. The parties could not agree on a list, however there is overlap in the issues nominated individually by the parties.

21. Counsel for Mr Hii submits that the key issues for decision by the Court are:

22. I have already identified the first issue in Mr Hii's list as Question 1.

23. Helpfully, during the hearing Counsel for the Commissioner provided a skeleton of argument of relevant matters under QUD 622 of 2014. This was as follows:

THE FIRST AMENDED ASSESSMENTS

24. In the events leading up to the first amended assessments, the decision that actions of Mr Hii in avoiding tax constituted evasion was made by Mr Cameron Unwin, an Executive Level 2.1 officer in the Australian Taxation Office. In his affidavit affirmed 5 February 2015 Mr Unwin deposes that in his classification level he is authorised to make decisions, including the formation of an opinion that a taxpayer has engaged in acts that constitute evasion for the purposes of s 170 of the ITAA 36. Mr Unwin also gave evidence of the process by which the draft reasons for

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decision developed, and that the reasons for decision in final form were published on 27 June 2012. Those reasons for decision were formally entitled:

Reasons for decisions

This document explains the reasons for the decisions made by the Commissioner of Taxation (the Commissioner) on whether Mr Yii An Hii is an Australian resident for income tax purposes and if so, the taxation consequences that would arise.

25. It is also described as being a "Comprehensive Audit" in case type, referable to the income years ending 30 June 2001 to 30 June 2009.

26. In this proceeding it is common ground that Mr Unwin was authorised by the Commissioner to make the decision which formed the first amended assessments.

27. The Executive Summary of the decision constituting the first amended assessments summarises issues decided by the Commissioner. They were as follows:

28. Relevantly the Conclusion at paragraphs 358-360 of the decision is as follows:

THE OBJECTION DECISION AND FURTHER AMENDED ASSESSMENTS

29. The objection decision dated 20 December 2013 was sent to Mr Hii under cover of letter from Mr Michael Cranston, Deputy Commissioner of Taxation. As I noted earlier, the decision allowed in part the objection of Mr Hii dated 17 September 2012. The following table summarises Mr Hii's original taxable income, amounts treated as taxable income following the Commissioner's audit, and Mr Hii's taxable income following the Commissioner's objection decision of 20 December 2013:

FINANCIAL YEAR ORIGINAL TAXABLE INCOME AUDIT ADJUSTMENTS AMENDED TAXABLE INCOME INCOME ADJUSTMENTS TAXABLE INCOME POST OBJECTION DECISION
2000-01 $540.00 $53,000.00 $53,540.00 −$53,000.00 $540.00
2001-02 $149.00 $4,160,710.00 $4,160,859.00 −$1,116,311.00 $3,044,548.00
2002-03 $2,461.00 $1,987,773.00 $1,990,234.00 −$694,033.00 $1,296,201.00
2003-04 $9,148.00 $2,758,300.00 $2,767,448.00 −$1,667,525.00 $1,099,923.00
2004-05 $0.00 $4,144,265.00 $4,144,265.00 −$1,154,807.00 $2,989,458.00

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2005-06 $0.00 $5,588,350.00 $5,588,350.00 −$505,075.00 $5,083,275.00
2006-07 $743.00 $32,236,579.00 $32,237,322.00 −$29,679,221.00 $2,588,101.00
2007-08 $701.00 $30,377,913.00 $30,378,614.00 −$2,197,821.00 $28,180,793.00
2008-09 $52.00 $18,618,188.00 $18,619,240.00 −$5,405,637.00 $13,213,603.00

30. I note that a third amended assessment was subsequently issued by the Commissioner on 25 February 2014 in respect of the year ended 30 June 2004. In that third amended assessment Mr Hii's taxable income of $1,099,923 for that year was amended to $849,923.

31. A primary argument of Mr Hii in his objection to the original decision of the Commissioner was that he was not a resident of Australia at any time during the relevant years. In summary, Mr Hii had submitted to the Commissioner that:

32. The objection decision referred to issues including the meaning of "reside" and "resident" in Australian income tax law. Paragraph 134 stated:

Based on the available information and applying the four behavioural factors as well as considering your physical presence in Australia in determining residency according to ordinary concepts, the Commissioner has formed the opinion that you were a resident or resident of Australia under subsection 6(1) of the ITAA 1936 for 2000-01 to 2008-09 financial years. This decision applies the ATO View in TR 98/17 and it is considered that this decision is supported by case law including Shand, Gunawan, Iyengar, Case 8, Nordern and Joachim.

33. Importantly for the purposes of this judgment the Commissioner in the objection decision stated as follows:

QUD 622 OF 2014 - AMENDED ORIGINATING APPLICATION FILED BY MR HII ON 19 FEBRUARY 2015 AND INTERLOCUTORY APPLICATION FILED BY THE COMMISSIONER ON 20 JANUARY 2015

Submissions of the parties

34. Several iterations of written submissions relevant to issues in contention in QUD 622 of 2014 were provided by the legal representatives of the parties during the course of these proceedings. This is particularly so in respect of Mr Hii's claims. The evolution of argument reflects the significant changes to the substance of Mr Hii's case in QUD 622 of 2014. This includes the amendment to Mr Hii's claim in respect of whether the Commissioner had engaged in acts constituting "conscious maladministration" as that phrase is explained by the High Court in
Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146.

35.

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Materially, Mr Hii submitted (in summary) as follows:

36. In turn the Commissioner submitted, in summary, as follows:

Summary judgment application in QUD 622 of 2014

37. The Commissioner has sought summary judgment against Mr Hii in respect of QUD 622 of 2014 pursuant to s 31A(2) of the Federal Court Act. Section 31A(2) provides:

The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

  • (a) the first party is defending the proceeding or that part of the proceeding; and
  • (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

38. A proceeding need not be hopeless or bound to fail for it to have no reasonable prospect of success: s 31A(3).

39. Section 31A(2) was examined in detail by the High Court in
Spencer v Commonwealth of Australia [2010] HCA 28. In that case French CJ and Gummow J said:

40. The reference to Lord Hope of Craighead in their Honours' judgment was to the following observations in
Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 at

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260 [94]-[95] concerning an equivalent rule in the Civil Procedure Rules 1998 of England and Wales. In that case Lord Hope said inter alia:

… For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, … that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.

(Footnotes omitted.)

41. In Spencer, Hayne, Crennan, Kiefel and Bell JJ explained the concept of "no reasonable prospect" in the following terms:

42. In the case before me in QUD 622 of 2014 Mr Hii has sought declarations as well as writs of certiorari, prohibition and mandamus. All of these remedies require the Court to exercise its discretion in favour of the party seeking the order. In this respect I note, for example, the decisions of the High Court in
Re Refugee Review Tribunal
ex parte Aala (2000) 204 CLR 82 (particularly in relation to the constitutional writs certiorari, prohibition and mandamus) and
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 (in relation to declaratory relief), as well as the helpful discussion in Aronson M and Groves M, Judicial Review of Administrative Action (5th ed, Lawbook Co Sydney, 2013) at 12.250, 13.200 and 15.90.

43.

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Mr Hii's case for discretionary relief relates to the interpretation and application of provisions of the ITAA 36 including ss 170 (both prior to and following amendments to that section introduced in 2005), 175 and 177, as well as the application of cases including Futuris. It is clear that the parties themselves agreed that the appropriate approach was for the full hearing of QUD 622 of 2014 to proceed. The full hearing of QUD 622 of 2014 required three days of submissions (out of the four days set down for the combined hearing), including frequent reference to evidence, relevant legislation and authorities. Both parties were represented by experienced Counsel, including Senior Counsel. I reserved my decision in light of the amount of detail to which I had been taken over those three days.

44. As has been repeatedly observed in cases dealing with summary judgment, the Court ought not lightly make an order for summary judgment. In determining whether Mr Hii has reasonable prospects of success in QUD 622 of 2014 I note that:

45. However militating against an order for summary judgment is that:

46. On balance, and given the extensive and complex nature of the arguments put to me at the hearing, I consider that it could be said that Mr Hii had at least a reasonable prospect of success in relation to his claims for discretionary relief in QUD 622 of 2014.

47. In my view the proper approach in these circumstances is to consider Mr Hii's substantive application in QUD 622 of 2014. Clearly, both parties recognised that Mr Hii's case could not be easily - or even appropriately - dealt with on a summary judgment application. In this respect it follows that the proper order is to dismiss the Commissioner's interlocutory application for summary judgment filed 20 January 2015.

Relevant legislation

48. Although the terms of s 166 of the ITAA 36 have been amended during the period in which the assessments of Mr Hii's income were made by the Commissioner, it was common ground before me that the current form of s 166 of the ITAA 36 applies to the present proceedings. Relevantly s 166 of the ITAA 36 provides:

166 Assessment

From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of:

  • (a) the amount of the taxable income (or that there is no taxable income) of any taxpayer; and
  • (b) the amount of the tax payable thereon (or that no tax is payable); and
  • (c) the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds).

49. Section 169A sets out material upon which the Commissioner can rely in making assessments. In particular s 169A(3) provides:

In determining whether an assessment is correct, any determination, opinion or judgment of the Commissioner made, held or formed in connection with the consideration of an objection against the

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assessment shall be deemed to have been made, held or formed when the assessment was made.

50. As I noted earlier in this judgment, s 170 of the ITAA 36 was amended in 2005 by the Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 (Cth) which commenced on 19 December 2005. Section 15 of that statute provided that amendments to s 170(1) of the ITAA 36 applied in relation to assessments for the 2004-05 year of income and later years of income.

51. Section 170 both prior to and following amendment deals with amendment of assessments. Prior to the 2004-05 years of income s 170 read relevantly as follows:

52. Following amendment, s 170 provides relevantly as follows:

53. Section 175 of the ITAA 36 provides:

The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

54. Section 175A(1) of the ITAA 36 provides:

A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

55. Further, s 177(1) of the ITAA 36 provides:

56. In light of these provisions I now turn to consideration of Question 1.

Consideration of Question 1

57. It is convenient at this point to restate the first question for decision in QUD 622 of 2014 as articulated by Mr Hii, namely:

58. I note that there is no reference to the third amended assessment concerning the year of income ending 30 June 2004 in Question 1.

59. In his written submissions, Mr Hii has characterised this issue as a jurisdictional fact question. As explained by Professors Aronson and Groves (Judicial Review of Administrative Action, 5th ed) at 4.470:

Parliament is free to make the validity of any reviewable decision conditional upon the existence of a particular fact, regardless of whether the decision-maker is an administrator, a tribunal, or an inferior court. To be more precise, Parliament can provide that a reviewable decision is to be treated as invalid if a fact does not exist. Explicit provisions of that kind are extraordinarily rare …

60. Notwithstanding the rarity of explicit provisions, as the learned authors themselves note, the High Court has demonstrated a preparedness to imply the existence of a jurisdictional fact or facts into legislation: two examples have been in
Corporation of the City of Enfield v Development Assessment Commission (2000) 199 CLR 135 and
Plaintiff M70/2011 v Minister for Immigration and Citizenship (Malaysian Declaration Case) (2011) 244 CLR 144.

61. As I have already observed, it is not in dispute in this case that no opinion was formed by the Commissioner at the time of the objection decision.

62.

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In my view Question 1 can be divided conveniently into two sub-questions, namely:

63. I shall deal with each of these sub-questions in turn.

(1)(a) Can Mr Hii seek orders pursuant to s 39B of the Judiciary Act if the Commissioner failed to comply with s 170 of the ITAA 36?

Federal Commissioner of Taxation v Futuris Corporation Ltd

64. In addressing this matter it is helpful to first examine the decision of the High Court in Futuris.

65. In that case, Futuris Corporation Ltd ("Futuris") was a publicly listed company with two wholly-owned subsidiary companies, one of which in turn held shares in its own wholly-owned subsidiary company. In the course of publicly floating one of the subsidiaries, shares were transferred within the corporate structure. This transaction resulted in the reduction of the cost base of Futuris in one of the subsidiaries and of certain moneys owed to it by that subsidiary. Another result however was an increase in the cost base of Futuris' shares in the subsidiary whose shares were the subject of the transfer. During the public float, Futuris disposed of all of its shares in that particular subsidiary company. It became necessary for taxation purposes to determine the amount of capital gain (if any) made from that disposal. Futuris lodged an income tax return for the year ended 30 June 1998 which, among other things, included calculations of its cost base in its shares in the transferred subsidiary company. Futuris specified a taxable income of $86,099,045 and tax payable of $30,991,696.20.

66. In November 2002 the Commissioner issued a notice of amended assessment to Futuris for the year ended 30 June 1998, which identified an amount of $19,950,088 to be added to Futuris' taxable income. The Commissioner attributed that amount to an increase in capital gain made on the disposal by Futuris of its shares in the subsidiary.

67. On 23 December 2002 Futuris objected to the assessment, however the objection was disallowed on 22 May 2003. Futuris appealed to the Federal Court under Part IVC of the TAA 53.

68. Subsequently on 9 November 2004 the Commissioner notified Futuris that it had determined under s 177F(1) of the ITAA 36 that the amount of $82,950,090, being a tax benefit that was referable to an amount not included in Futuris' assessable income, was also to be included in Futuris' assessable income. Futuris was served with a second amended notice of assessment of income tax on 12 November 2004. Futuris objected to that amended assessment, and again appealed to the Federal Court under Part IVC of the TAA 53.

69. Following these events, Futuris commenced further proceedings in the Federal Court pursuant to s 39B of the Judiciary Act for a declaration that the amended assessment was invalid, on the ground that the Commissioner had deliberately engaged in the double counting of Futuris' tax liability. It was these proceedings which were appealed to the High Court of Australia.

70. At first instance the Federal Court dismissed Futuris' application for declaratory relief. The primary judge accepted the contention of the Commissioner that he had assumed he was entitled to compensate the taxpayer for any double counting by later determination under s 177F(3)(a) and in any event Futuris' complaints could be addressed in the Part IVC proceedings before the Federal Court. The Full Court of the Federal Court allowed an appeal by Futuris, on the ground that (in summary) the making of the second amended assessments of income

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tax by the Commissioner was not a bona fide exercise of the power to assess. The Commissioner appealed to the High Court of Australia.

71. Futuris submitted that, in producing the second amended assessment, the process of the Commissioner was flawed because there had been "double counting" by the Commissioner of the amount of $19,950,088, and further that the double counting had been done deliberately by the Commissioner. The Commissioner relied upon s 177F(3) of the ITAA 36 to overcome any risk of double counting, as that provision permitted appropriate adjustments. The Commissioner also relied upon the finding of the primary judge that even if the Commissioner had erred as to the applicability of s 177F(3), the effect of that mistake could be addressed in Part IVC proceedings.

72. The High Court unanimously allowed the Commissioner's appeal.

73. The majority decision was delivered by Gummow, Hayne, Heydon and Crennan JJ. At 154 [15] their Honours said:

… the Commissioner did not apply the Act to facts which were known to be untrue, there was no absence of bona fides attending the second amended assessment, there was no jurisdictional error vitiating that amended assessment, and the appeal to this Court should be allowed and the order of the primary judge reinstated.

74. After setting out key provisions of the legislation relating to assessment of tax, reviews and appeals, their Honours said:

(Emphasis added, footnotes omitted.)

75. The majority considered that, in the process of making the second amended assessment, any errors of the Commissioner fell within the scope of s 175 of the ITAA 36. Those errors (if any) could not found a complaint for jurisdictional error and would be for consideration in the Part IVC proceedings (at 161-162 [45]). They further found that the imminence of the hearing of the Part IVC proceedings instituted by Futuris should have led the Court below to refuse declaratory relief (at 162 [48]).

76. Futuris had sought relief on the basis that the relevant assessment was "tentative" or "provisional". The Full Court referred to a letter written by the Deputy Commissioner to the public officer of Futuris on 20 September 2004 in which was stated:

We also advise that we will not seek payment of any of the primary tax, tax shortfall penalty and interest and general interest charges payable under subsection 170AA(1) in respect of $19,950,088 of the Part IVA adjustment until the litigation relating to the Division 19A issue is finalised.

77. The Full Court had found that there was nothing in that letter nor in the second amended assessment from which it could be inferred that the assessment was tentative or provisional, in the sense that it was not definitive of Futuris' liability (at 163-164 [51]). This conclusion was not disturbed on appeal.

78. The majority of the High Court then considered the question whether, if the Commissioner had deliberately "double counted" a significant proportion of Futuris' income, such conduct would enliven principles respecting jurisdictional error. The majority observed that the issue was whether, upon its proper construction, s 175 of the ITAA 36 brought within the jurisdiction of the Commissioner when making assessments a deliberate failure to comply with the provisions of the ITAA 36 (at 164 [55]). Their Honours continued at 164-165:

(Footnotes omitted.)

79. The High Court in Futuris noted that there was no such failure of due administration by the Commissioner in relation to the second amended assessment. Although the Full Court had considered that the Commissioner's conduct was deliberate, albeit subject to the assumption that an adjustment could be made pursuant to s 177F(3), the view taken by the Commissioner of his powers under s 177F(3) was supported by case law. Further, as their Honours noted at [60]:

Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld.

80. In a separate judgment Kirby J concurred with the orders of the majority. However at [133] his Honour opined that the taxation decisions involving tentative or provisional

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assessment, or lack of good faith, should not be treated as covering the entire field of disqualifying legal (or "jurisdictional") error for s 39B purposes.

Application of Futuris in this Court

81. Decisions of this Court have interpreted Futuris to have narrowed the class of case where the Court has power to intervene in challenges to assessments under ITAA 36 pursuant to s 39B of the Judiciary Act, to cases involving tentative or provisional assessment or conscious maladministration. In particular, in Roberts Besanko J observed:

82.

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I note that leave to appeal from the decision of Besanko J in Roberts was refused:
Roberts v Deputy Commissioner of Taxation [2015] FCA 238.

83. To the list of cases to which Besanko J referred at [41] in Roberts, I would add the decisions of the Full Court of the Federal Court in
Commissioner of Taxation v Administrative Appeals Tribunal (2011) 191 FCR 400 and
Gashi v Commissioner of Taxation (2013) 209 FCR 301. In Commissioner of Taxation v Administrative Appeals Tribunal the Full Court observed at [23]:

… First, by reason of the operation of ss 175 and 177 of the 1936 Act, production of a notice of assessment precludes judicial review of the assessment in proceedings under s 39B of the Judiciary Act unless the purported assessment is tentative or provisional or was made in bad faith : Futuris at [24] and [47].

(Emphasis added.)

84. In Gashi the Full Court said at [43]:

If the decision to issue the assessments was infected with jurisdictional error, those questions (and orders seeking to address those questions) may not be pursued under Pt IVC of the TAA. They may not be pursued under Pt IVC because the subject matter of an appeal under Pt IVC is absent - an assessment. A purported assessment that is "tentative", "provisional" or made in bad faith or conscious maladministration is not an assessment :
Federal Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39 at 54 and Richard Walter at 237. The appropriate challenge to a purported assessment is by way of constitutional writs or associated relief under s 39B of the Judiciary Act:
Mount Pritchard & District Community Club Ltd v Federal Commissioner of Taxation (2011) 196 FCR 549 at [2];
Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566 at [11]-[13] and [22]-[26].

(Emphasis added.)

85. For these purposes it is irrelevant that Mr Hii is challenging amended assessments by the Commissioner. Section 173 of the ITAA 36 provides:

Except as otherwise provided every amended assessment shall be an assessment for all the purposes of this Act.

McAndrew v Federal Commissioner of Taxation

86. In the context of this discussion concerning the applicability of s 175 and s 177 of the ITAA 36 and the principles articulated in Futuris to the case before me, it is also useful to have regard to the decision of the High Court in
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263. In that case the issue before the Court was whether, when the Commissioner has amended an assessment in purported pursuance of the authority conferred upon him and the taxpayer appeals, it rested upon the Commissioner on the hearing of the appeal to prove to the reasonable satisfaction of the Court that the taxpayer had not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment and that there had been an avoidance of tax. In examining this question at pages 269-270 Dixon CJ and McTiernan and Webb JJ said:

In the first place s. 173 places the notice of an amended assessment, that is to say of an assessment as amended, in the same position for the purpose of s. 177 as notice of an original assessment. Then in our opinion the meaning and effect of s. 177 (1) is to give evidentiary effect to such an assessment over the whole ground which by law it is the function of an assessment to cover. Over part of that ground its evidentiary effect is absolutely conclusive, over the rest of the ground it is conclusive except in proceedings on appeal against the assessment. It is given such evidentiary effect by the production of a notice of the assessment or of a copy under the hand of the commissioner, second commissioner or a deputy commissioner. The ground over which s. 177 (1) gives conclusiveness to the assessment is described as the due-making of the assessment and the correctness of the amount and all the particulars of the assessment. But that appears to us to comprise the whole ground. It is the manifest policy, one may

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now almost say the historical policy, of the legislation on the one hand to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose.

(Emphasis added.)

87. Later at page 271 their Honours observed:

In
George v Federal Commissioner of Taxation (1) [(1952) 86 C.L.R. 183] the Court said: "The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment" [(1952) 86 C.L.R., at pp. 206, 207]. Section 177 (2) and (3) impose certain conditional time bars which in this dichotomy seem evidently to belong to substantive liability. From this it follows that fulfilment of the conditions which bring a case within s. 170 (2) is part of the matter governed by the words of exception in s. 177 (1), viz. "except in proceedings on appeal against the assessment". An appeal, however, is a proceeding given by statute to a taxpayer for the purpose of impugning an assessment otherwise conclusively imposing liability upon him. If there were no more than that, it would be enough to cast upon the taxpayer the burden of establishing his objections. On ordinary principles he must establish the facts which give him a prima facie title to the relief he seeks from the Court.

88. I note that at the time of the decision in McAndrew, s 177(1) of the ITAA 36 read:

177

  • (1) The production of a notice of assessment, or of a document under the hand of the Commissioner, Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment, and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct.
  • (2) The production of a Gazette containing a notice purporting to be issued by the Commissioner shall be conclusive evidence that the notice was so issued.
  • (3) The production of a document under the hand of the Commissioner, Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a document issued by either the Commissioner, Second Commissioner, or a Deputy Commissioner, shall be conclusive evidence that the document was so issued.
  • (4) The production of a document under the hand of the Commissioner, Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced.

89. It is clear that while the language of s 177(1) of the ITAA 36 has altered slightly since the decision in McAndrew, the underlying substance of the section has not. To that extent, I consider that the observations of the plurality in McAndrew in relation to s 177(1) of the ITAA 36 are applicable to the case before me.

Assessment not invalid

90. In summary, and even assuming that the Commissioner has failed to comply with other provisions of the ITAA 36 (in this case, s 170 ITAA 36 both prior to and following the 2005 amendment) in respect of the second amended assessments, the combined effect of s 175 and s 177 of the ITAA 36 is that any failure by the Commissioner to comply with a provision of the tax legislation when issuing an assessment does not thereby render the assessment invalid. The decision of the High Court in Futuris, in particular as subsequently applied in this Court, is authority for the proposition that unless an assessment is tentative or provisional, or is produced as a result of conscious maladministration, it is not susceptible to challenge pursuant to s 39B of the Judiciary

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Act. Other than in these very limited circumstances, the appropriate challenge by a taxpayer is pursuant to Part IVC of the TAA 53 (cf also
Mount Pritchard & District Community Club Limited v Federal Commissioner of Taxation (2011) 196 FCR 549 at [52], [53], [63]).

Tentative or provisional assessment

91. The second amended assessments the subject of Mr Hii's claim pursuant to s 39B of the Judiciary Act in QUD 622 of 2014 were not "tentative or provisional" assessments as discussed in Futuris. For completeness I also note that the concept of "tentative or provisional" assessments was recognised as early as the decision of the High Court in
Federal Commissioner of Taxation v S Hoffnung & Co Ltd (1928) 42 CLR 39 where the notice of assessment itself described the assessment as "tentative". While Mr Hii challenges the manner in which the Commissioner made the second amendment assessments - in particular, the failure of the Commissioner at the objection stage to form an opinion concerning whether Mr Hii's conduct constituted evasion within the meaning of s 170 of the ITAA 36 - there is no doubt that notices of assessment under the hand of the Commissioner have been produced. As observed by the Full Court in
Commissioner of Taxation v Stokes (1996) 72 FCR 160 at 170-171, at that point s 177 of the ITAA 36:

… did its work in putting that making of the assessment beyond challenge. The notice in proper form of the assessment necessarily compelled the conclusion that there was an assessment made in fact.

(cf
F J Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at 378).

Conscious maladministration

92. I note further that Mr Hii does not claim that the conduct of the Commissioner in respect of the second amended assessments was characterised by fraud, conscious improper purpose or corruption. He does, however, submit that the failure of the Commissioner to form an opinion at the objection stage referable to avoidance of tax by Mr Hii due to fraud or evasion, when that was a necessary precondition to affirming the objection decision, constituted conscious maladministration. Mr Hii elaborates this submission by contending that it was reckless on the part of the Commissioner to fail to form the opinion. In particular he submits:

Recklessness may amount to conscious maladministration. Where an officer proceeds with a course of conduct well knowing that it is likely not in accordance with the law and prescribed administrative processes, but is careless or indifferent to that fact such behaviour bears a close affinity with deliberate misconduct.

93. For this proposition Mr Hii relies on comments of Besanko J in Roberts, in particular at [28] and [42].

94. In my view Mr Hii's articulation of "conscious maladministration" by reference to a failure to comply with an aspect of a process, is contrary to authority.

95. In Futuris in discussing the concept of "conscious maladministration", Gummow, Hayne, Heydon and Crennan JJ observed

(Emphasis added, footnotes omitted.)

96. In
Denlay v Commissioner of Taxation [2011] 193 FCR 412 at [78] the Full Court of the Federal Court explained:

The observations of the majority in Futuris do not support the proposition that any breach of the law by officers of the Commissioner in the course of processes anterior to, or even in the course of, making an assessment, suffices to establish conscious maladministration which is apt to vitiate the assessment. Conscious maladministration, as explained in Futuris, involves actual bad faith on the part of the Commissioner or his officers.

(Emphasis added.)

97. I have referred earlier in this judgment to comments of the Full Court of this Court in
Commissioner of Taxation v Administrative Appeals Tribunal (2011) 191 FCR 400 and
Gashi v Commissioner of Taxation (2013) 209 FCR 301 where the Court equated conscious maladministration with the concept of bad faith.

98. The only instance of which I am aware of the Court finding conscious maladministration on the part of the Commissioner was in
Donoghue v Federal Commissioner of Taxation [2015] FCA 235. In that case Logan J found that the Commissioner's process of assessment was affected by conscious maladministration where the Commissioner had acted in wilful disregard of a right to legal professional privilege over certain material asserted by the taxpayer.

99. Further, and in any event, I am not satisfied that the observations of Besanko J in Roberts are supportive of the submission of Mr Hii that carelessness or indifference to the law necessarily constitutes bad faith. In particular, at [28] his Honour was careful to observe that:

… However, recklessness in this context requires further explication . It seems to me that recklessness is very close to conscious maladministration in that it is proceeding with a course of conduct well knowing that it is likely that it is not in accordance with the law and prescribed administrative processes, but careless or indifferent to that fact. It includes a serious departure from the law and prescribed administrative processes to the point that one can infer wilful blindness or a state of mind akin to that. It does not include negligence, although negligence might be part of the evidence put forward on the issue. Although it is not entirely clear, I took the applicant to be submitting that recklessness in a more expanded sense would be sufficient.

(Emphasis added.)

100. Mr Hii does not allege actual bad faith on the part of the Commissioner or his officers. His submission of conscious maladministration is referable only to Mr Hii's claim that the Commissioner "took an unreasonable view of the law" by failing to form an opinion in relation to avoidance by Mr Hii due to evasion at the objection stage.

101. There is nothing before me to support such a finding as urged by Mr Hii. Even if the Commissioner took such a view of the law, at most on the material before me the view taken by the Commissioner would simply be wrong at law. I am not persuaded that the conduct of the Commissioner in this case can be described as conscious maladministration, which clearly contemplates bad faith.

102. In circumstances where the second amended assessments following the objection decision were neither tentative or provisional assessments, nor attended by conscious maladministration, it is not open to Mr Hii to seek orders by way of declaratory relief, certiorari, mandamus or prohibition pursuant to s 39B of the Judiciary Act against the Commissioner.

103. Section 177 of the ITAA 36 provides that notices of assessments are conclusive evidence except in Part IVC of the TAA 53 proceedings . I note that Mr Hii has separate

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proceedings under Part IVC of the TAA 53 in QUD 57 of 2014 in relation to the relevant second amended assessments. This is the correct approach to challenging the second amended assessments.

104. The answer to this sub-question is: no.

(1)(b) Was there non-compliance by the Commissioner with s 170 of the ITAA 36 by reason of the failure of the Commissioner to form an opinion at the objection decision stage?

105. Following my answer to question (1)(a) it is not strictly necessary for me to answer this question, as my answer to question (1)(a) disposes of Question 1. Because of the manner in which this case has been presented however, in particular in light of Mr Hii's submission that the failure of the Commissioner to form an opinion in this respect constituted a form of conscious maladministration, it is appropriate that I comment on the issue whether there was actual non-compliance by the Commissioner, in particular with s 170 of the ITAA 36.

106. In short, I consider that the Commissioner did not fail to comply with s 170 of the ITAA 36 in respect of the objection decision and second amended assessments, by reason of his conceded failure to form at that stage, again, an opinion as to whether Mr Hii's conduct was avoidance of tax due to evasion. I say "again" because it is not in dispute that at the time of the first amended assessments in 2012 the Commissioner did form the view that Mr Hii's conduct constituted evasion.

107. Item 6 of s 170(1) of the ITAA 36 permits the Commissioner to amend an assessment as a result of an objection made by the taxpayer. As the Commissioner has submitted, in my view correctly, the decision of the Full Court in
Fletcher v Commissioner of Taxation (1988) 19 FCR 442 is relevant in this context. After referring to provisions of the legislation (now s 14ZY TAA 53) imposing a duty on the Commissioner to consider an objection, to disallow it or to allow it either wholly or in part, and to notify the taxpayer of his decision, the Full Court continued at 453:

In considering the objection, the question for the Commissioner is the correctness of the original decision , that question being considered in the light of the terms of the objection but taking account of all the information then available to the Commissioner regarding the amount of the taxable income of the taxpayer and the amount of the tax payable thereon.

(Emphasis added.)

108. In reviewing the first amended assessments in light of a taxpayer's objection in order to determine if it was correct or should be allowed in whole or in part, it is not necessary for the Commissioner to redetermine, ab initio, all issues relevant to that decision. I accept the submission of the Commissioner that, in deciding the correctness of the original decision, it would be contrary to the concept of a "review" if every decision and consideration previously made by the Commissioner in relation to a taxpayer's assessable income in any particular year was required to be discarded and made afresh. This absurdity is highlighted in the circumstance where an assessment is affirmed by the Commissioner, either wholly or in part. Certainly, the ITAA 36 does not specify that this procedure must be followed.

109. This approach does not exclude the possibility that between the date of the first amended assessments and the date of determination of an objection, new material comes before the Commissioner or that there is some change in the relevant law which may result in new findings or a revision of an existing view. In such case an objection decision may be allowed in part or in whole. Indeed this is contemplated by Item 6 of s 170(1) of the ITAA 36. It was also noted by the Full Court in Fletcher at 453, and further in
Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148 at 155.

110. In this proceeding the Court is able to infer that while, in part, Mr Hii's objection was allowed, in the objection decision the Commissioner simply affirmed views already held by concerning whether Mr Hii's conduct constituted evasion of tax. That this is so is illustrated by reference to paragraph 252 of the objection decision which states:

The ATO's position on evasion in this case was clearly articulated in the Reasons for Decision that has been issued supporting the assessments and amended assessments. In addition, the opinion has been

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duly authorised, in line with the Taxation Authorisation Guidelines. All decisions in the audit case, including the opinion on fraud or evasion, were duly authorised by an EL2 officer.

111. In affirming that part of the original decision which resulted in the first amended assessments, I do not accept that the Commissioner considered himself "foreclosed" from making a decision on the objection in relation to whether there had been an avoidance of tax due to fraud or evasion.

112. Finally, in this context Mr Hii also relies on the decision of Gordon J in
BHP Billiton Finance Limited v Federal Commissioner of Taxation (2009) 72 ATR 746, affirmed on appeal by the Full Court in
Federal Commissioner of Taxation v BHP Billiton Finance Limited (2010) 182 FCR 526. In that case the taxpayer had claimed bad debt deductions. Section 177F of the ITAA 36 provided for cancellation of tax benefits, including the power of the Commissioner to determine that a tax benefit referable to a deduction be disallowed where the tax benefit had been obtained in connection with a scheme (s 177F(1)(b)). An assessment to disallow the bad debt deductions was issued to the taxpayer by the Commissioner. The assessment did not give effect to a Part IVA determination. The taxpayer objected to the assessment. In the course of considering the taxpayer's objections the Commissioner made a determination under s 177F(1)(b) of the ITAA 36. The Commissioner did not issue an amended assessment, but rather relied on s 169A(3) of the ITAA 36, which provides:

In determining whether an assessment is correct, any determination, opinion or judgment of the Commissioner made, held or formed in connection with the consideration of an objection against the assessment shall be deemed to have been made, held or formed when the assessment was made.

113. In the Full Court, Edmonds J (with whom Sundberg and Stone JJ agreed) said:

114. Placing to one side the very different facts of the two cases, I consider that the principles considered and decided in BHP Billiton are different from issues relevant to the case before me, such that BHP Billiton is of little assistance. First, in BHP Billiton no amended assessment was issued at the objection stage, unlike the case before me. Second, it appears that in that case an opinion was formed by the Commissioner at the objection stage, unlike in the case before me. Indeed this point of distinction is critical - the key point in this proceeding is whether it can be said that, having formed an opinion, issued the first amended assessments, and then following an objection affirmed those assessments in part, the

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Commissioner was required at the objection stage to revisit all opinions formed in the original decision. This was not in issue before the Courts in BHP Billiton and it is difficult to draw assistance from the findings in that case.

115. In summary, I do not accept that it was a necessary precondition of the exercise of the Commissioner's power to further amend the second amended assessments, that the Commissioner positively form a view concerning whether Mr Hii's conduct constituted avoidance of tax due to fraud or evasion within the meaning of Item 5 of s 170(1) of the ITAA 36. In my view the failure of the Commissioner to form the relevant opinion at the time of the objection decision does not make that decision or the second amended assessments invalid, or other than "assessments" within the meaning of s 175 and s 177 of the ITAA 36.

116. The answer to sub-question 1(b) is: no.

Conclusion

117. To recap, Question 1 is:

118. As is clear from my answers to sub-question (1)(a) and sub-question (1)(b), the answer to Question 1 is: no.

119. It is common ground that the remaining issues for determination in QUD 622 of 2014 require consideration only out of an affirmative answer to Question 1. Accordingly, there is no call for me to further consider this matter.

120. The appropriate orders in respect of QUD 622 of 2014 are that the interlocutory application for summary judgment filed 20 January 2015 by the Commissioner be dismissed, and that Mr Hii's amended originating application filed 19 January 2015 be dismissed.

Costs

121. As a general proposition costs follow the event:
Oshlack v Richmond River Council (1998) 193 CLR 72. In this case I see no reason why this rule should not apply.

QUD 57 OF 2014 - INTERLOCUTORY APPLICATION FOR SUMMARY JUDGMENT FILED BY MR HII ON 30 APRIL 2014

122. In his interlocutory application filed on 30 April 2014 Mr Hii claims that the Commissioner has no reasonable prospect of successfully defending part of the proceeding.

123. Earlier in this judgment I set out principles relevant to consideration by the Court of a summary judgment application pursuant to s 31A of the Federal Court Act. Key factors are:

124. In his interlocutory application Mr Hii does not set out the basis upon which he claims that an order for summary judgment is warranted. Rather, he seeks judgment in relation to part of the proceeding. Written submissions were filed by both parties almost twelve months ago in this proceeding. I note

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that these written submissions were filed prior to the commencement by Mr Hii of proceedings in QUD 622 of 2014. To a significant extent I consider Mr Hii's summary judgment application in QUD 57 of 2014 has been overtaken by his amended originating application filed in QUD 622 of 2014. A reason I draw this conclusion is that Mr Hii's written submissions filed 3 June 2014 in support of this summary judgment application ("written submissions") in QUD 57 of 2014, as well as the limited oral submissions made by the parties on the morning of the fourth day of trial in QUD 622 of 2014 and QUD 57 of 2014, emphasise and repeat Mr Hii's claim that the failure of the Commissioner in the objection decision to positively form an opinion meant that the second amended assessments in respect of relevant years were invalid. This particular contention is summarised in Mr Hii's written submissions that:

125. To the extent that Mr Hii bases his interlocutory application on the contention that he is entitled to summary judgment in QUD 57 of 2014 because the Commissioner did not form an opinion at the objection decision stage concerning avoidance of tax due to evasion or fraud, the application cannot be sustained in light of my decision in QUD 622 of 2014.

126. It appears, however, that Mr Hii's case extends somewhat beyond this point. In particular, Ms Seiden SC for Mr Hii also submitted at the hearing:

MS SEIDEN: Yes. And to the extent that my learned friends suggests that submissions that have already been made I would propose to address your Honour again, and that's why, really, there has been a list provided. There's really on two issues that have to be addressed, and your Honour has already heard the issue about the opinion being required to be formed at that stage. In the summary judgment proceedings in Part IVC the applicant does take issue with the rationality, if you like, or whether there's errors of law in the reasoning of the auditor's decision on the formation of opinion. So that's an extra point that is not taken in the 39B.

The 39B stops at the point that there's no opinion, and then you will see the applicant contends that to the extent that there is some writing in the objection decision about the reason of the fraud evasion, it's certainly not enough to amount to an opinion. And the court, to the extent that that was enough, would in any event find that there was an error of law. So to that extent the applicant would take issue with the reasoning process of the decision-maker, and so that's something new, and that's really - that's the only additional point that the applicant would seek to address your Honour on. And then the final point is - which is, assuming your Honour is satisfied in the Part IVC proceedings that there is error of law either because there's no opinion or because the opinion is defeated by errors of law, what then happens, the applicant's submission is the assessments would be set aside as being excessive, and my learned friend, as I understand it, contends that your Honour is able to in a proper case form the opinion again.

So there would be submissions about that issue. But they're the only two topics that I would seek to address your Honour on, and that was why we sought to highlight the relevant paragraphs of submissions that I've already made to your Honour so that I don't have to go over old ground, your Honour.

(Transcript 19 February 2015 p 213 ll 5-31.)

127.

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Referable to this submission are further submissions of Mr Hii, which can be summarised as follows:

128. In response the Commissioner contends, in summary:

129. An assessment by the Commissioner is an act of administration coming within the ambit of the executive power of the Commonwealth (Knox CJ in
Federal Commissioner of Taxation v Munro (1926) 38 CLR 153). A taxpayer who wishes to challenge an assessment has a right to object to it in accordance with Pt IVC of the TAA 53 (s 175A ITAA 36). The Commissioner is required to decide whether to allow the objection in part or full, or disallow it (s 14ZY(1) TAA 53). The taxpayer may in turn challenge the objection decision pursuant to s 14ZZ(1) of the TAA 53. In proceedings in this Court the taxpayer has the burden of proving that the amended assessments are excessive or otherwise incorrect (s 14ZZO TAA 53).

130. It is clear that in the substantive proceedings in QUD 57 of 2014 Mr Hii bears the onus of proving that the second amended assessments under consideration were excessive.

Rationality

131. So far as concerns the questions whether the Commissioner has properly considered all matters concerning Mr Hii's tax liability for each assessment year, or whether the Commissioner's objection decision was rational, I do not consider that these are questions which I can, or should, determine summarily. As Mr Derrington for the Commissioner submitted, this proceeding is fact intensive. The question whether Mr Hii was, at relevant times, an Australian citizen, has been estimated by his legal representatives to require several weeks of trial and many witnesses (transcript 17 February 2015 p 3 ll 38-46). There is a great deal of material which is relevant to this issue, to which I have not been taken.

132. I note that this is also a case where there are issues of law in dispute, including the concept of rationality and whether it is applicable on these facts, and the interpretation of "avoidance" and "evasion" in the context of this case.

133. The concept of rationality is one examined in detail by the High Court in
Minister for Immigration and Citizenship v SZMDS (2010) 240 CLR 611. In that case at [131] Crennan and Bell JJ observed:

But, the test for illogicality or irrationality must be to ask whether logical or rational or reasonable minds might adopt different reasoning or might differ in any decision or finding to be made on evidence upon which

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the decision is based. If probative evidence can give rise to different processes of reasoning and if logical or rational or reasonable minds might differ in respect of the conclusions to be drawn from that evidence, a decision cannot be said by a reviewing court to be illogical or irrational or unreasonable, simply because one conclusion has been preferred to another possible conclusion.

(Emphasis added.)

134. Their Honours later said at [135]:

Whilst there may be varieties of illogicality and irrationality, a decision will not be illogical or irrational if there is room for a logical or rational person to reach the same decision on the material before the decision maker. A decision might be said to be illogical or irrational if only one conclusion is open on the evidence, and the decision maker does not come to that conclusion, or if a decision to which the decision maker came was simply not open on the evidence or if there is no logical connection between the evidence and the inferences or conclusions drawn.

135. As Rares J subsequently explained in
SZOOR v Minister for Immigration and Citizenship (2012) 202 FCR 1 at [15]:

It is only if no decision-maker could have followed that path, and despite the reasons given by the actual decision-maker, that the decision will be found to have been made by reason of a jurisdictional error.

136. In this case there is evidence before the Court that at all material times Mr Hii's family lived at a residence in Hamilton Queensland, where several expensive cars owned by Mr Hii were also located. Further, Mr Hii also identified that house as his postal address. At an interlocutory level, in light of these facts it is difficult to identify irrationality within the meaning of that term discussed in SZMDS and SZOOR in the decision of the Commissioner that the Hamilton address was Mr Hii's residential address for tax purposes during the relevant years, even if there were flaws as submitted by Mr Hii in the reasoning process of the Commissioner.

137. Mr Hii claims that there was irrationality in the finding of the Commissioner that he had avoided tax by fraud or evasion when the Commissioner determined under the penalty regime that Mr Hii fell under the lowest of the penalty regimes. Submissions were made by the Commissioner at the hearing before me to rationalise this determination, including that the Commissioner determined that Mr Hii's conduct was at the higher end of the scale of carelessness rather than encroaching into recklessness, or simply that the Commissioner imposed the incorrect penalty. The Commissioner relied on the decision of the High Court in
Wilson v Chambers & Company Pty Ltd (1926) 38 CLR 131, in particular comments of Starke J where at page 151 his Honour considered the meaning of "evade" in terms of certain offences under the Customs Act 1901 (Cth) as follows:

Clearly, in my opinion, the word "evade" in the Act does not necessarily involve any device or underhand dealing for the purpose of escaping duty; but on the other hand it involves something more than a mere omission or neglect to pay the duty. It involves, in my opinion, the intentional avoidance of payment in circumstances indicating to the party that he is or may be under some obligation to pay duty. The circumstances may consist of knowledge, or neglect of available means of knowledge, that the omission to pay is or may be in contravention of the Customs law.

138. In my view there is substance to the stance taken by the Commissioner in respect of the penalties imposed on Mr Hii, as well as in relation to the Commissioner's interpretation of "evade". Mr Hii's submissions concerning irrationality and the relevant penalties imposed on him by the Commissioner do not support an order for summary judgment.

Re-hearing of case

139. Further, and in any event, the parties are at odds over the outcome of the proceedings should the Commissioner's opinion be vitiated, and in particular whether this Court can substitute its own view for that of the Commissioner. I am satisfied that this case is not suitable for summary judgment. The Commissioner relies on the decision

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of the High Court in Kolotex which I consider supports the Commissioner's submission that he has reasonable prospects of defending Mr Hii's claim, at least in respect of this point. Certainly no material has been presented to the Court which would enable the Court to make its own determination of Mr Hii's tax liability. As I noted before, Mr Hii concedes that this issue is not suitable for summary determination (transcript 20 February 2015 p 229 ll 15-18).

Conclusion

140. The complexity of this case is such that it is not one where the Court can easily reach the conclusion that the Commissioner lacks reasonable prospects of defending the appeal. I am not satisfied on the material before me that the Commissioner lacks reasonable prospects to defend Mr Hii's notice of appeal filed 14 February 2014 in QUD 57 of 2014.

141. In my view Mr Hii's interlocutory application for summary judgment filed 30 April 2014 should be dismissed, with costs following the event.

 

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