case_outcome: applied

case_text: relation to recklessness in the context of s 226H, Cooper J observed in BRK (Bris) Pty Ltd v FCT [2001] FCA 164 ; (2001) ATC 4111 at 4129: Recklessness means to include a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and the regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness. For the Commissioner, it was contended that recklessness was established by the following considerations: 34.1 the Applicant's signing of commercial documents without understanding the general effect that signing those documents would have; 34.2 the Applicant's acceptance of her husband's advice to take certain actions, without independent enquiry of the effect of those actions; 34.3 the applicant's accepting appointment as a director of a company which was trustee for a trust of which she was a beneficiary, the operations of which she professed little knowledge; 34.4 her swearing of affidavit material without personal knowledge of the factual matters contained therein; 34.5 vesting of trust assets of the Jancy Trust into a separate trust, without informing audit officers of that transaction. I am not prepared to infer that the appellant was reckless for the purposes of the imposition of additional tax under s 226H having regard to these considerations.


case_outcome: cited

case_text: further material then came to be filed subsequent to the hearing of the appeal (as to which see Carr v Finance Corporation of Australia (No 1) [1981] HCA 20 ; (1981) 147 CLR 246 per Mason J, as he then was, at 257-8 and Jackson v Conway [2000] FCA 1530 per Branson J at [29]. The transcript of closing submissions of the trial of the matter, make it plain that it was contended for the appellant that there had been neither recklessness on her part, nor hindrance of the Commissioner on her part.


case_text: word "false" in the former s 223 means "wrong": Reliance Finance Corporation Pty Ltd v FCT (1987) 87 FLR 305. It is not necessary for the respondent to show that the statement was deliberate or fraudulent: Federal Commissioner of Taxation v Turner (1984) 15 ATR 379.


case_title: Jackson v Conway [2000] FCA 1530


case_title: Kajewski v FCT (2003) ATC 4375

case_text: provisions of s 223 apply even if the appellant was ignorant of the accounting matters giving rise to the additional income of the Jancy Trust: Kajewski v FCT (2003) ATC 4375. In my opinion, it is not competent for the Federal Court to conduct a merits review of the exercise of the discretion by the Commissioner to remit. As my reasons at first instance indicate, the appellant was actively involved with Jancy Pty Ltd, the trustee of the Jancy Trust, of which she was the primary beneficiary. She had extensive involvement in the refinancing of property owned by Jancy Pty Ltd with the ANZ Bank.


case_text: 5 July 2006, the Full Court of the Federal Court (Dowsett, Allsop and Edmonds JJ) allowed the appellant's appeals in part: Pearson v Commissioner of Taxation [2006] FCAFC 111. In my reasons of 16 March 2005, I said, at [22]: There is no dispute in these proceedings as to the Commissioner's power to issue amended assessments and his approach to the quantification of additional tax payable by the appellant, should his contentions concerning the income and the asserted disclaimers be accepted. And, at [92], I said: The parties are agreed that if I should find for the Commissioner in respect of the issues concerning the trust income of [Corplan Financial Network Unit Trust (CFNUT)] and [Corplan Financial Group Unit Trust (CFGUT)] in the relevant years and find against the appellant on the question of disclaimers, the monetary amounts should be as in the table annexed to these reasons. The judgment of Edmonds J (with whom Dowsett and Allsop JJ agreed) said concerning this issue: On the hearing of the appeal, Senior Counsel for the appellant accepted that [22] and [92] accurately reflect what his Honour was asked to do. He also accepted, although as it subsequently transpired he should not have, that no submission, written or oral, was put below as to the absence of a basis for recklessness and moreover, that he did not even draw his Honour's attention to the allegedly live question of additional tax. He said that the matter was raised as an issue in the initiating application to the Court, although it seems it was not raised as an issue in the statement of facts, issues and contentions filed by the parties as part of the interlocutory processes. If these were the only facts then, in my opinion, by the time the case came on for hearing before his Honour below, the issue of additional tax was no longer a live discrete issue; it may have remained an issue in name, but only on the basis that it stood or fell by reference to the outcome of the substantive issue. While, on the hearing of the appeal, Senior Counsel for the appellant did not accept this view of the matter, he did accept that it would be more appropriately framed as an application for leave to agitate the issue rather than as a challenge to his Honour's disposition of the matter. I tend to agree and on those facts and concessions, I would not be prepared to grant leave. However, following the hearing of the appeal, papers, including transcript below, were filed with the Court which indicate that the factual basis of the imposition of additional tax, namely recklessness, was still an issue so far as the appellant was concerned, even if the respondent and the Court thought otherwise....


case_title: Reliance Finance Corporation Pty Ltd v FCT (1987) 87 FLR 305


case_outcome: discussed

case_title: Heesh v Baker (2008) 67 ACSR 192

case_text: Moodie did not accept the proofs of debt for the full amounts of them, but admitted each of Kandelka and Pilmood to vote for $65,907.00 a total of $131,814.00. Apparently Mr Moodie allowed that they were creditors in respect of certain interest owing under the Loan Agreements. The solicitor for Pisces objected at the meeting, referring to Heesh v Baker (2008) 67 ACSR 192 (see below), while the solicitor for Kandelka and Pilmood distinguished that case as not having involved a loan agreement. In fact four creditors voted against the DOCA totalling $143,826.00 by value. Twenty four creditors voted in favour of the DOCA, totalling $2,111,187.74 by value. Kandelka and Pilmood each sought to prove for a total of $1,315,907.51 representing $1,252,500 for principal and $63,407.51 for interest. If their proofs had been admitted in full they would have voted against the DOCA to the full combined extent of $2,631,815.02 and the resolution in favour of the DOCA would not have been passed. If their proofs had not been admitted at all, the amount voted in favour of the DOCA would have remained $2,111,187.74 but the amount voted against it would have been only $12,012.00. In Heesh v Baker , above, Barrett J had to consider whether, in the circumstances of that case, the holders of redeemable preference shares were "creditors" of the company concerned for the purposes of Pt 5.3A of the Act. The terms of the issue of the shares, as set out in the prospectus, provided that the company was to pay a fixed dividend and that distribution rates might vary from time to time depending on the sufficiency of profits. If there should be insufficient profits to pay fully the distribution entitlement, any shortfalls were to carry forward to a successive period until payment was made. It should be acknowledged at once that in that case there was no loan agreement and that the possibility of unavailability of profits was addressed in relation to a different issue.


case_text: J referred to certain cases as authority for the proposition that a company was or could be subject to an absolute obligation to redeem notwithstanding a provision similar to s 254K of the Act ( UOB Venture Investments Ltd v Tong Garden Holdings Pte Ltd [2001] 1 SLR 362 at [20]; Mutual Life and Citizens Assurance Co Ltd v Mosgiel Ltd [1994] 1 NZLR 146 ; Re Dividend Fund Incorporated (In Liquidation) [1974] VR 451 at 454-6; TNT Australia Pty Ltd v Normandy Resources NL (1989) 53 SASR 156 at 206; and Re Marra Developments Ltd and the Companies Act (No 2) (1978) 3 ACLR 798. His Honour stated (at [58]-[59]): [58] What these cases really show, in my view, is that the question is ultimately one of construction. It cannot be doubted that, upon and by virtue of subscription for and allotment of redeemable preference shares, a contract comes into existence between the company and the shareholder. The contract may or may not impose what the Singapore court found to be an absolute obligation to redeem (or, for that matter, to pay specified dividends at specified times). If the obligation is absolute, a breach of contract occurs when the company fails to perform; and this is so even if the failure is because of unavailability of a fund from which payment may lawfully be made. There are then questions about remedies, a matter to which I shall return. [59] In the present case, the contract between York and each holder of CPRPS shares includes not only the provisions of the constitution given contractual force by s 140 of the Corporations Act but also the terms of issue set out in the prospectus. When regard is had to the content of each, the contract is seen to be of the kind described in Coppleson above [discussed below], both as to default in the payment of dividends and as to default in redemption. The contract requires only such performance as is consistent with the statutory constraints. There are no absolute obligations.


case_title: Mutual Life and Citizens Assurance Co Ltd v Mosgiel Ltd [1994] 1 NZLR 146


case_title: Re Dividend Fund Incorporated (In Liquidation ) [1974] VR 451


case_title: TNT Australia Pty Ltd v Normandy Resources NL (1989) 53 SASR 156


case_title: Re Marra Developments Ltd and the Companies Act (No 2) (1978) 3 ACLR 798


case_outcome: followed

case_title: Federal Commissioner of Taxation v Coppleson [1981] FCA 166 ; (1981) 39 ALR 30

case_text: J referred to certain cases as authority for the proposition that a company was or could be subject to an absolute obligation to redeem notwithstanding a provision similar to s 254K of the Act ( UOB Venture Investments Ltd v Tong Garden Holdings Pte Ltd [2001] 1 SLR 362 at [20]; Mutual Life and Citizens Assurance Co Ltd v Mosgiel Ltd [1994] 1 NZLR 146 ; Re Dividend Fund Incorporated (In Liquidation) [1974] VR 451 at 454-6; TNT Australia Pty Ltd v Normandy Resources NL (1989) 53 SASR 156 at 206; and Re Marra Developments Ltd and the Companies Act (No 2) (1978) 3 ACLR 798. His Honour stated (at [58]-[59]): [58] What these cases really show, in my view, is that the question is ultimately one of construction. It cannot be doubted that, upon and by virtue of subscription for and allotment of redeemable preference shares, a contract comes into existence between the company and the shareholder. The contract may or may not impose what the Singapore court found to be an absolute obligation to redeem (or, for that matter, to pay specified dividends at specified times). If the obligation is absolute, a breach of contract occurs when the company fails to perform; and this is so even if the failure is because of unavailability of a fund from which payment may lawfully be made. There are then questions about remedies, a matter to which I shall return. [59] In the present case, the contract between York and each holder of CPRPS shares includes not only the provisions of the constitution given contractual force by s 140 of the Corporations Act but also the terms of issue set out in the prospectus. When regard is had to the content of each, the contract is seen to be of the kind described in Coppleson above [discussed below], both as to default in the payment of dividends and as to default in redemption. The contract requires only such performance as is consistent with the statutory constraints. There are no absolute obligations. In Federal Commissioner of Taxation v Coppleson (1981) 39 ALR 30 ( Coppleson ), the relevant contractual provision for redemption contained the words "Subject to the provisions of the Companies Ordinance, ...". Bowen CJ, Franki and Fisher JJ said that they thought that those words added nothing. In their joint judgment their Honours stated (ALR 36): That condition exists, even if not expressly stated. Both parties contracted on the basis of the law and part of that law is s 61 of the Companies Ordinance [comparable to s 254K of the Act]. The parties cannot be presumed to have assumed obligations which it is unlawful for one of the parties to fulfil. It is not a case where supervening legislation operates to make the fulfilment of its obligations by one party unlawful. Rather, the parties are contracting on the basis of a given law. In these circumstances, failing the availability of one or both of the funds specified in s 61(3), the company is not in default under its contract with the holders of redeemable preference shares if it fails to redeem after receipt of the requisite notice. I respectfully agree with Barrett J that the question whether the company has undertaken an absolute obligation to redeem or only an obligation to do so once the conditions stipulated in s 254K are satisfied is one of construction. I do not understand Coppleson, which is binding on me for what it decided, to be inconsistent with that limited proposition. I treat Coppleson as warning, however, that a conclusion that a company has undertaken an absolute obligation to redeem should not be lightly reached. Difficult questions would arise if the construction arrived at was that there was an unqualified obligation to redeem. Clearly, the remedy of specific performance of such an obligation would not be available if its effect was to require a contravention of s 254K. Nor would a judgment in debt or for damages in those circumstances. A winding up on the "just and equitable ground" may be the only appropriate remedy available to the holder of the redeemable preference shares. I need not discuss all of the issues that would or might arise, in view of the conclusion that I reach below that, as a matter of construction, Pisces did not assume an absolute obligation to redeem. I now turn to the question of construction of the Share Sale Agreement and the Loan Agreements. For convenience I will number the points to be made. (1) Clause 5.3 of the Share Sale Agreement, which has reference to Sch 7 of that Agreement, acknowledged that upon completion, Pisces would not pay the price for the shares in MDS then transferred to it, and instead, that Kandelka and Pilmood would have, relevantly, two inconsistent securities: the CRP Shares and the Loan Agreements. The elimination of the inconsistency would have to be looked for elsewhere. (2) The waivers provided for in cll 3.1-3.4 and Schedule 6 are problematical. By waiving the provision for the issue of the CRP Shares, the vendors and Messrs Kraa and Troughton would forego the consideration that Pisces had agreed to give for the transfer of the shares in MDS. Likewise if Pisces waived the benefit of the Loan Agreement, apparently it would be notionally excised from the Share Sale Agreement and there would be no deferral favouring Pisces. But deferral of what? It is difficult to see, putting to one side the Loan Agreement, what obligation to pay burdened Pisces apart from any that might by found in an undertaking to redeem by a certain date (see below). (3) The third paragraph in Sch 7 (set out at [37] above) states unequivocally that the loan from Kandelka and Pilmood to Pisces was to be made from the proceeds of the redemption of the CRP Shares. That is to say, there was to be a redemption followed by a "loan back" of the proceeds of the redemption. Absent a redemption, the Loan Agreement would not become operative. (4) The first sentence in the terms and conditions document annexed to the Share Sale Agreement (set out at [40] above) speaks in mandatory terms of conversion or redemption at a fixed time (three times are stated and the parties treated the earliest, 1 January 2009, as the relevant one I will say nothing of the second bullet point or the date 25 January 2009 to which it impliedly refers). Standing alone, this provision seems to mean that failing conversion on 1 January 2009, Pisces must redeem the CRP Shares on that date no matter what. (5) The statement in that document that the CRP Shares "shall be redeemed at the Company's option or converted at the Shareholders' option" is problematical. The "Shareholders' option" is a true option. It may be that "the Company's option" is also, and reflects s 254A(3)(b) of the Act. The expression "at the Company's option" could be read down as meaning simply "by the Company". I do not find the reference to "option" alone determinative, but in the light of other indicia think it refers to a true option. (6) The statement in the same document that the CRP Shares "may only be redeemed out of profits or out of the proceeds of a new issue of shares made for the purpose of redemption" expresses an agreement that there is to be no redemption in fact if there are not profits or the proceeds of the new issue of shares made for the purpose of redemption, available to enable the redemption to take place lawfully. This is a clear acknowledgment that Pisces is not to be obliged to redeem unless and until it can do so lawfully under s 254K. Pisces led evidence of a lack of profits available to fund the redemption and asserted that it was difficult in the current economic climate to raise funds for that purpose by an issue of shares. There was no attempt by Kandelka and Pilmood to prove that the lack of profits or the proceeds of a new issue of shares made for the purpose of a redemption, by the date of the second meeting of creditors on 10 July 2009, was in some way attributable to the fault of Pisces. A possible construction of the statement consistent with an absolute obligation to redeem is that while Pisces will not actually redeem (in contravention of s 254K of the Act), Kandelka and Pilmood are allowed to resort to the remedies they would enjoy for a failure to redeem other than of recovering the redemption money of $2,500,000, however described. This construction would not, however, make Kandelka and Pilmood creditors of Pisces. (7) In the first paragraph of the terms and conditions document commencing "In the event that ...", it is stated that absent an election to convert into ordinary shares, "the sum of $1.67 per share shall be payable on or after 1 January 2009" (my emphasis). This suggests that redemption on 1 January 2009 is not an absolute obligation of Pisces and is consistent with the idea that the obligation to redeem becomes absolute only once a fund of either kind mentioned is available. (8) The second paragraph commencing "In the event that ..." also accepts that redemption will not necessarily take place on 1 January 2009. The expression "or part thereof" suggests that there may be a partial redemption on 1 January 2009. This is consistent with the expression in that paragraph "on any sums outstanding until Fusion is able to redeem all the preferential shares with the issue of shares made for the purpose of redemption or out of profits". Accordingly, both the opening and closing elements of the paragraph accept that there is not an absolute obligation on Pisces to redeem on 1 January 2009. Counsel for Pisces points to the reference to "interest", which is problematical. Interest suggests a loan, not the holding of shares. Yet the paragraph is directed to the holding of CRP shares "until redemption." I think "interest" is to be read as a slip or error and as if it were "a dividend". There is to be a dividend of 10% per annum on the amounts of any CRP Shares that remain unredeemed for as long as they remain unredeemed after 1 January 2009. (9) In my opinion, in the light of (3), (5), (6), (7) and (8) above, the Loan Agreements are to be read on the assumption that there has been a lawful redemption on or by 1 January 2009 by Pisces. On that assumption, a loan by each of Kandelka and Pilmood to Pisces of $1,250,000 or part thereof for the purpose of conducting the business of Pisces makes sense. The reference to "or part thereof" allows for two possibilities: first, that there has been no conversion but there has been a partial redemption (see above); second, that somehow prior to 1 January 2009, some of the shares have been converted to ordinary shares and the remainder have been redeemed (see the second note ** set out at [40] above). (10) As noted earlier, the expression "this day advanced" in cl 2 of the Loan Agreement (set out at [45] above) is problematical. The expression "the Principal Sum" is defined in recital D as being "$1.25 million or part thereof". It may be that "this day" was intended to mean 1 January 2009 on the basis that a total redemption and "loan back" occurred on that date. On the other hand, the expression may have a distributive meaning, as was suggested by counsel for Pisces. According to this meaning, the expression would refer to any date when, from time to time, the amount of the Principal Sum altered as a result of a partial redemption and "loan back". Because of the view I take otherwise, I favour the latter construction.


case_text: applicant submitted that s 37 does not authorise the Tribunal to determine the rights and liabilities of the parties by the application of the law to determined facts. Rather, it empowers the Tribunal to exercise afresh, discretionary powers that the applicant in question had. By that structure, the Tribunal does not exercise the judicial power of the Commonwealth: Attorney-General v Breckler [1999] HCA 28 ; (1999) 197 CLR 83. In order, therefore, for the Tribunal to be able to substitute its decision, it was necessary for it to identify a discretion, which the applicant had exercised, which was not 'fair and reasonable' and which the Tribunal could then re-exercise. The applicant pointed to the Tribunal's reasoning by reference to the following extract from the Tribunal's Review Determination and Reasons: 'The Tribunal notes that the Trustee has power to pay a benefit to the Complainant under its compromise power in rules 9.7(d) of the 1995 Trust Deed and 10.7(d) of the 2000 Trust Deed and the relevant state's Trustee Act.' The reasoning was flawed, so the submission went, as was the Tribunal's consequential determination that it could order the applicant to pay the respondent $380,000. Clause 9.7 of the 1995 Trust Deed provided: ' Trustee's Powers 9.7 The Trustee may do anything it considers appropriate to administer the Fund and comply with Superannuation Law, including: (a) giving receipts and discharges; (b) conducting and settling legal proceedings; (c) referring claims to arbitration; (d) compromising any claim; (e) giving any guarantee or indemnity; (f) insuring any risks; (g) acting as an underwriter; (h) making rules for rounding off contributions and benefits; (i) providing for and transferring liability for any tax; (j) electing to be bound by any legislation.' The real issue in the context of these grounds of appeal is whether the respondent's claim is a claim against the Fund or a claim against the applicant. If it is a claim against the Fund, then the applicant is empowered, but not obliged, to compromise it pursuant to cl 10.7(d) of the 2000 Trust Deed. A discretion is involved and the exercise of that discretion by the applicant, as trustee, is within the Tribunal's jurisdiction of review without involving the Tribunal in the exercise of judicial power. As was said in the joint judgment (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) in Breckler at [24]: 'The limitation of the grounds of complaint to one that the decision was unfair or unreasonable suggests that what is involved is a complaint as to the exercise by the trustee of a discretion rather than the discharge of duties, for example to distribute to those answering specified criteria.' To like effect, Kirby J said at [69]: 'The majority of the Full Court upheld the conclusion of the primary judge that the Tribunal's jurisdiction was confined to the review of discretionary decisions. Only in discretionary cases would questions as to the unfairness or unreasonableness of the decision under review arise for the Tribunal's determination. Upon this issue the dissenting judge reached the same conclusion. He relied on the fact that "[i]n the case of non-discretionary decisions the Tribunal is denied that ability [of determining whether or not the decision is unfair or unreasonable] by s 37(5)". That is the subsection which forbids the Tribunal from doing "anything ... that would be contrary to law, to the governing rules of the fund concerned and, if a contract of insurance between an insurer and trustee is involved, to the terms of the contract". Having established that the jurisdiction of the Tribunal was so confined to functions arguably apt to a non-judicial body engaged in broad evaluation of merits (as distinct from the determination of purely legal rights) the point of difference between the majority and dissentient in the Full Court was reached.' On the other hand, if it is a claim against the applicant then, on my view of the proper construction of cl 10.7(d) of the 2000 Trust Deed, it is irrelevant to the source of the applicant's power to compromise the claim. However, the Tribunal submitted that the following considerations are critical: (a) As the High Court pointed out in Breckler , the Tribunal exercises a jurisdiction to which entities choose to subscribe, in return for, inter alia , preferential taxation treatment. (b) It has a place within a complex regulatory scheme over superannuation entities, and although its review function is independent, it is, for example, supplied with staff by the Australian Securities and Investment Commission ('ASIC'): see subs 62(2) of the Complaints Act. (c) Its secrecy provisions have an express exemption for disclosure of information where the Tribunal is requested to do so by ASIC or APRA: subs 63(3) of the Complaints Act. (d) Sections 64 and 64A of the Complaints Act impose statutory obligations of notification to ASIC and APRA on the Tribunal.


case_text: to the first point, the applicant submitted that a fair-minded lay observer seeing the letter might reasonably apprehend that the Tribunal might not bring an impartial mind to bear on the issues before it. The situation it was said is not analytically different from a Supreme Court judge trying a criminal case seeking advice from the police. For that reason a case of apprehended bias is made out: Ebner v Official Trustee in Bankruptcy [2000] HCA 63 ; (2000) 205 CLR 337 at 344 [6] . As to the apprehension of bias ground, on the resumed hearing of the appeal, the Tribunal, in its submissions, referred to what was said in the joint judgment in Ebner at 345, [8]: 'The apprehension of bias principle ... [in its] application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.' The need for this two step process was affirmed in Smits v Roach [2006] HCA 36 ; (2006) 228 ALR 262 at [53] , [56]. Applying the two steps in Ebner , the Tribunal in its submissions asked and answered the following two rhetorical questions: (a) What is said by the applicant to be the conduct which gives rise to the apprehension? It is said to be the writing of a letter by the Director of the Tribunal, Ms McDonald, to APRA inviting assistance from APRA. This letter follows a s 64 referral. (b) What is the 'logical connection between the matter and the feared deviation from the course of deciding the case on its merits'? No such connection has been articulated by the applicant. It is difficult to see what the connection could be, given that the author of this letter is a staff member of the Tribunal, and not one of the two members appointed pursuant to s 7 and constituted pursuant to s 9 to conduct this review. More so because the person who made the referral was the Tribunal Chairperson himself, and not one of the two constituted members. The Tribunal submitted that the two step process set out in Ebner cannot be satisfied in the present case. Moreover, taking into account the factors set out above, the Tribunal submitted no fair-minded lay observer, informed of the nature of the Tribunal's jurisdiction, the way it conducts its hearings and the presence of its obligations under ss 64 and 64A of the Complaints Act, combined with other features of its legislative scheme, would apprehend that contact by Tribunal administrative staff would mean that the two Tribunal members constituted to deal with this review would not bring impartial minds to the review. Further, no such fair-minded lay observer, properly informed, would apprehend that a referral made by the Tribunal Chairperson pursuant to a statutory duty would mean that the two (other) Tribunal members constituted to hear this review would not bring impartial minds to their task. As to the denial of procedural fairness ground, the Tribunal submitted that, once the subject matter of the s 64 referral is understood, it cannot sensibly be argued that whether APRA's investigations would or would not ultimately determine that the applicant had breached the standards set out in reg 4.15 was in any remote way 'relevant and probative to the issues the applicant was making submissions about'. There were no findings about a breach of such standards made by the Tribunal, nor were those standards put in issue. Accordingly, there was no occasion at all for disclosure of the referral to the applicant. In any event, so the submission went, there is no substantive unfairness because the applicant was aware of the referral to APRA. By an email dated 3 June 2005 (that is, two days after the letter of 1 June 2005 [57]), Mr Ian Yard-Smith, counsel for the applicant, stated that he had 'just been discussing this matter with Suzette Wilson from APRA'.


case_text: the applicant submitted that the argument advanced by the Tribunal that there was no denial of procedural fairness was outside the grant of leave that was afforded to the Tribunal to make submissions about the matters in R v Australian Broadcasting Tribunal; Ex parte Hardiman [1980] HCA 13 ; (1980) 144 CLR 13. The Tribunal, by making this submission, enters the arena properly occupied by the applicant and the respondent; it is difficult to see how the submission is one which is limited to the Tribunal's powers and procedures. The applicant submitted that by making this submission, the Tribunal has taken the respondent's side in the case. The 'ambulatory' nature of the Tribunal which has intervened means that the apprehension of bias which arises cannot be resolved by reconstituting the Tribunal in a different way. Apart from that difficulty, according to the applicant, the submission is without merit. The Tribunal argues that there is no substantive unfairness because the applicant was made aware of the notification to APRA, in an email dated 3 June 2005. However, the applicant continued, the apprehended bias case was not based on the notification to APRA. It was based on the discussions which may have taken place between APRA and the Tribunal after that notification. There is no doubt that the real complaint of the applicant in relation to ground (h) the Tribunal acting in a way (by consulting with APRA) which gave rise to an apprehension of bias was not the s 64 referral made by the Chairperson of the Tribunal on 10 May 2005, but the letter of invitation to Mr Venkatramani of APRA, at [57], sent by Ms McDonald, a Director of the Tribunal, on 1 June 2005 and the content of that letter. It invited discussion not on possible contravention by the applicant of reg 4.15 of the SIS Regs but in assisting the Tribunal in identifying all possible issues and gathering all relevant information before the matter (the respondent's complaint) was listed for a review determination.


case_text: to the second point, it was submitted that it is obvious that the communication was relevant to the inquiry being undertaken by the Tribunal. A decision-maker is obliged to disclose adverse information that is credible, relevant and significant to the decision to be made: Muin v Refugee Review Tribunal [2002] HCA 30 ; (2002) 190 ALR 601 at 631 [123] , per McHugh J and 1005 [227], per Kirby J; Kioa v West [1985] HCA 81 ; (1985) 159 CLR 550 at 629; Minister for Local Government v South Sydney City Council [2002] NSWCA 288 ; (2002) 55 NSWLR 381 at 438 [260] , per Mason P. Accordingly, a breach of the rules of procedural fairness occurred. By failing to afford the applicant procedural fairness, the Tribunal committed an excess of jurisdiction and hence an error of law.


case_text: that reason, I do not agree with the Tribunal's submission that the Tribunal's statutory functions and procedures, in particular the requirement in s 64 to refer matters to APRA, informs or circumscribes the practical content of the requirement to avoid apprehension of bias. Nor do I think the rule of necessity operates in the present case to prevail over and displace the application of the rules of natural justice to ensure that the Tribunal is not disabled from performing its statutory functions, cf., Laws v Australian Broadcasting Tribunal (1990) 93 ALR 435 at 448, 449. The letter at [57] and the subject matter of the invitation it contained had nothing to do with the statutory functions of the Tribunal under s 64. However, there are a number of difficulties in the way of the applicant succeeding on this ground and the next an alleged failure to accord the applicant procedural fairness. First, the letter at [57] was not sent by the members who constituted the Tribunal for the purpose of hearing the respondent's complaint. Indeed, it was not even sent by the Chairperson who made the s 64 referral. It was sent by a staff member of the Tribunal holding the position of Director. Second, there is no evidence that any meeting or discussions took place in response to the letter and even if a meeting or discussions took place, there is no evidence as to who participated at that meeting or in those discussions.


case_title: Minister for Local Government v South Sydney City Council [2002] NSWCA 288 ; (2002) 55 NSWLR 381


case_title: Muin v Refugee Review Tribunal [2002] HCA 30 ; (2002) 76 ALJR 966


case_outcome: approved

case_text: agree with the applicant's submissions as to the proper construction of cl 10.7(d) of the 2000 Trust Deed (and, if it matters, cl 9.7(d) of the 1995 Trust Deed), namely, that it is only concerned with the applicant's power to compromise claims made against the Fund and does not extend to claims made against the applicant. On the other hand, I see no warrant for confining the operation of cl 10.7(d) of the 2000 Trust Deed by concluding that it does not empower a trustee to compromise a claim by a beneficiary relating to the beneficiary's entitlement to trust property. This was certainly the view of the Queensland Supreme Court (Lee J) in Re Irismay Holdings Pty Ltd [1996] 1 Qd R 172, criticising statements to the contrary in Re Earl of Strafford deceased; Royal Bank of Scotland Ltd v Byng [1980] Ch 28 at 32 33, albeit in relation to the Queensland statutory equivalent of s 49(d) of the Trustee Act 1925 (NSW). I agree with that criticism.


case_outcome: distinguished

case_text: its submissions in relation to ground (g) of the notice of appeal, the Tribunal submits that this issue whether the respondent's claim is a claim against the Fund or whether it is a claim against the applicant is to be determined by reference to whether or not the applicant, as trustee, has a right of indemnity against the trust assets. In other words, a right to indemnify itself in respect of the loss it will suffer as a result of payment of compensation. If it does, then the claim, so the submission goes, is a claim against the Fund; if it does not, so the submission goes, then the claim is a claim against the applicant. Reliance for this submission is placed on what was said by this Court (Allsop J) in Retail Employees Superannuation Pty Ltd v Crocker (2001) 48 ATR 359 at 389 ([140], [141]): '[140] Whether the tribunal deals with it or the Trustee deals with it, the parties concerned, including Ms Crocker, must appreciate that what is involved is not the determination of the rights of the parties. That is for suit in a court (which may, in the end, be the only appropriate forum in which to vindicate her position). Rather it is a decision whether, despite the lack of entitlement under the policy, it is appropriate for the Trustee to compound Ms Crocker's claim and, if it is, in what amount. [141] Of course, in that inquiry, some assessment of legal, as well as factual, issues will have to be made: Did the Trustee's conduct, which is said to give rise to the claim, exhibit a lack of honesty or an intentional or reckless failure to exercise care and diligence? (See cl 5.1(a)(i) or (ii) of the trust deed.) If so, then it is probably not a claim "against the Plan" (ie the trust) for the purposes of cl 7(c) because the Trustee, in these circumstances, has no right of indemnity against the trust assets. If not, it probably is such a claim, "against the Plan", for the purposes of cl 7(c), because the Trustee would have a right of indemnity. I agree with the Trustee's submissions in this regard.' These observations have to be understood in the context of Crocker as a whole. Ms Crocker's complaint was that the trustee had refused to pay her a benefit in consequence of her being totally and permanently disabled. The trustee determined that she was not. The Tribunal decided otherwise and remitted back to the trustee quantum related issues. Allsop J accepted that the Tribunal's reasoning that Ms Crocker was within the definition of totally and permanently disabled was wrong and he set it aside ([100] [111]). However, Ms Crocker also advanced a separate argument to the effect that even if she was not totally and permanently disabled, nevertheless, because the trustee had a power to compromise a claim, its discretionary decision not to do so was reviewable by the Tribunal. Clause 7(c) of the trust deed which applied to Ms Crocker was in the following terms: 'to institute, conduct, defend, compound or abandon any legal proceedings by or against the Plan or its officers or otherwise concerning the affairs of the Plan and also to compound and allow time for payments or satisfaction and allow time for payments or satisfaction of any debts due and of any claims or demands by or against the Plan.' Allsop J found that the trustee did not exercise the power in cl 7(c) at all ([129]). He noted an argument put by the trustee at [128]: '[128] It was said by the Trustee before me that the decision made by the Trustee was in respect of a claim by Ms Crocker for her entitlement (that is under the relevant policy) to disability benefits. The Trustee refused that claim. That decision was correct (by reference to the terms of the insurance policy). It was said that the question as to whether the Trustee would be entitled to use cl 7(c) and thereby trust funds to settle a different claim one for damages or compensation based on its conduct towards Ms Crocker in circumstances predicated upon her lack of entitlement, has not been the subject of a decision, or indeed a claim. Thus, it was said, to the extent that the tribunal dealt with that subject matter in respect of the second unit, it impermissibly embarked on an adjudication of the rights of the parties, not upon review of a decision; reference was made to Briffa v Hay at 444.' The trustee, therefore, ran an argument that the claim against it was a personal claim and was not a claim for a benefit due under the terms of the trust for which it would be indemnified. Thus, so the argument ran, this infringed the requirement that the Tribunal not deal with the adjudication of the rights of the parties. Of that topic, Allsop J had, himself, said at [15], [16]: '[15] In the context of a trustee acting as the trustee of a superannuation fund pursuant to a trust deed and an insurer issuing a policy to the trustee on behalf of the members of a fund, allegations of the kind just mentioned might throw up for consideration a number of matters if one were concerned with analysing or determining all the legal rights and obligations of the 3 parties (member, trustee and insurer) inter se: questions as to whether the member was entitled under the terms of the trust or the terms of the insurance policy to disability cover; questions as to whether, irrespective of the terms of the policy, the trustee had bound itself in some fashion to the member to provide disability cover; questions as to whether any such obligation had been created in contract, by estoppel or in some other legal or equitable framework; and questions as to whether, if the trustee had so bound itself and was not entitled to have the insurer pay the claim, it was entitled to indemnify itself out of the trust fund to meet such obligation. [16] However, the Tribunal's task was not to determine all such rights and obligations of the parties. To do so would, in all likelihood, see it purport to engage in the exercise of judicial power. Rather, the Tribunal's task was confined to the role given to it by the Act. At this point I gratefully adopt the description of the legislative scheme set out by the full court in National Mutual Life Association of Australia Ltd v Campbell [2000] FCA 852 ; (2000) 99 FCR 562 at 565-68 [10] to [20]. This relieves me of referring to the Superannuation (Resolution of Complaints) Act 1993 (Cth) , other than to the provisions essential to these reasons.' The argument put by the trustee at [128] potentially involved Allsop J in having to consider whether the argument he touched upon at [15] [16] that the determination of rights involved the exercise of judicial power was correct. His Honour circumvented this problem by holding that the compromise clause applied because Ms Crocker's claim was against the fund and was not a personal claim against the trustee. At [130] [131] his Honour said: '[130] It would have been open to the Trustee on the claim before it to deal with the matter not only by reference to r 5A.1 of the trust deed, but also (having concluded that no entitlements arose under the policy and thus no requirement lay on it to pay an Insured Benefit by reason of the terms of r 5A.1) by reference to cl 7(c). That is, it would have been open to the Trustee to consider whether, in the circumstances, it was appropriate to compound the claim of Ms Crocker under cl 7(c). [131] Any such decision would have raised questions as to whether that would be a proper exercise of power (in particular in the light of the expression "the Plan" in cl 7(c), Recital A and r 1 and the basis for the exclusion of the Trustee's personal liability under cl 5.1). If it were to be concluded that the exercise of the power could possibly be made (that is, bearing in mind cl 5.1, it would not be an exercise in self dealing by the Trustee) any such decision would then have raised questions about the merits of the claim both factually and legally. In these circumstances these questions would not be arising in the context of the Trustee deciding the rights of Ms Crocker against itself, but in the context of making a decision as to whether or not it should compound the claim.' Explicitly, therefore, Allsop J rejected the argument at [128] that what was being compromised was a personal claim against the trustee. His Honour then reasoned that the Tribunal had not considered the re-exercise of this power and remitted the matter back to it for it to do so ([135] [137]). The applicant submits that the following propositions emerge from the foregoing analysis of Crocker : (a) Crocker expressly proceeded on the basis that the claim made was not a claim for compensation from the trustee for breach of trust but rather a claim under the policy for a benefit due from the fund ([131]); (b) it not being a personal claim, it was able to be compromised under clause 7(c) ([130] [131]); (c) had the claim been a personal claim, it would have been necessary to deal with the argument at [128] that the determination of the claim would have involved the adjudication of rights ([131]); and (d) had those issues arisen and they did not his Honour's expressed view (at [15] [16]) was that such a process by the Tribunal would have involved the exercise of judicial power. I agree with this submission. Understanding the observations of his Honour at [140] and [141] extracted at [47] above in this context, what his Honour was considering at [141] was whether a claim, which was clearly a claim 'against the Plan', was a claim against the trustee because of the lack of any indemnity against the trust assets. That is not this case. Here the claim of the respondent is clearly a claim against the applicant and not against the Fund. In any event, there is no right of indemnity against the trust assets because by the time the claim was made there were no trust assets. It was tentatively suggested by Senior Counsel for the Tribunal that the applicant would have been insured against any loss it suffered as a result of paying compensation to the respondent and in that sense the applicant had the benefit of an indemnity. But even if the applicant carried such insurance, it would be an indemnity sourced outside its position as trustee of the Fund and nothing that was said in the passages extracted from Crocker would work a conversion of the claim from one against the applicant to one against the Fund. On the view I take, the respondent's claim is against the applicant and not against the Fund. As such, the provisions of cl 10.7(d) of the 2000 Trust Deed and s 49(d) of the Trustee Act 1925 (NSW) have no relevance or role to play. The decision under review, namely the applicant's refusal to compensate the respondent for his loss alleged to result from the applicant's contravention of SIS Act covenants in the investment strategy it adopted, was not a decision the Tribunal had jurisdiction to review under s 37 of the Complaints Act. In the circumstances, it is not necessary to consider ground (f). The determination of the Tribunal dated 20 February 2006 must be set aside and, in lieu thereof, the respondent's complaint to the Tribunal be dismissed. This ground of the amended notice of appeal was predicated on the unstated premise that cl 10.7(d) of the 2000 Trust Deed did confer a power on the applicant, as trustee, to compromise a claim against itself. On the views expressed in [40] [54] above, the ground does not arise.


case_text: to the apprehension of bias ground, on the resumed hearing of the appeal, the Tribunal, in its submissions, referred to what was said in the joint judgment in Ebner at 345, [8]: 'The apprehension of bias principle ... [in its] application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.' The need for this two step process was affirmed in Smits v Roach [2006] HCA 36 ; (2006) 228 ALR 262 at [53] , [56].


case_text: Tribunal submitted that the correct approach is that set out by this Court (Kenny J) in VFAB v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 872 ; (2003) 131 FCR 102, at [25]: 'The test for apprehended bias in relation to curial proceedings is well-settled. The test is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question to be decided: see Re Refugee Review Tribunal; Ex parte H [2001] HCA 28 ; (2001) 75 ALJR 982, at [27] per Gleeson CJ, Gaudron and Gummow JJ. As their Honours observed, this rule may be expressed differently when applied to administrative proceedings, in order to take account of the nature of the decision-maker and its proceedings. "[R]egard must be had to the statutory provisions, if any, applicable to the proceedings in question, the nature of the inquiries to be made and the particular subject matter with which the decision is concerned": see Ex parte H , at [5]. Further, their Honours posited, at [28], that: Perhaps it would be better, in the case of administrative proceedings held in private, to formulate the test for apprehended bias by reference to a hypothetical fair-minded lay person who is properly informed as to the nature of the proceedings, the matters in issue and the conduct which is said to give rise to an apprehension of bias. Whether or not that be the appropriate formulation, there is, in our view, no reason to depart from the objective test of possibility, as distinct from probability, as to what will be done or what might have been done. To do otherwise, would be to risk confusion of apprehended bias with actual bias by requiring substantially the same proof.' The Tribunal noted that her Honour also emphasised (at [77]) that the nature of the Tribunal's processes was important to ascertaining the presence or absence of an apprehension of bias: 'In order to determine whether, in this case, there was disqualifying bias, the court must carefully consider all the circumstances in order to assure itself that the test is by a fair-minded lay observer. Accordingly, the Court must consider the nature of the Tribunal, the issues before it, and the conduct of all relevant participants in the proceeding.' Applying those authorities to the present situation, the Tribunal submitted the following considerations are important: (a) The Tribunal is an administrative tribunal which sits in private. (b) Although it has the power to conduct oral hearings, it generally does not, but rather decides matters 'on the papers'. (c) It decided this matter on the papers.


case_text: In my view, there is little to add to the observations of his Honour in Hicks . Similar observations have been made in many other Federal Court cases including La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201 at 204 (per Burchett J), Bank of Western Australia v Federal Commissioner of Taxation (1994) 55 FCR 233 at 255 (per Lindgren J), Nezovic v MIMIA [2003] FCA 1263 ; (2003) 133 FCR 190 at 206 (per French J), and Koara People v State of Western Australia [2006] FCA 66 at par 29 (per Nicholson J). The principle of comity is applied in other Australian courts in respect of decisions of single judges: I note, by way of illustration, Durovic trading as Shell Tornik Roadhouse v Judge , unreported Supreme Court of New South Wales, Rolfe J, 25 February 1997; Zotovic v Dobel Boat Hire Pty Ltd (1985) 62 ACTR 29 at 32 (per Blackburn CJ); Anteden Pty Ltd v Glen Eira City Council [2000] VSC 366 par 25 (per Balmford J); McDermott Projects Pty Ltd v Chadwell Pty Ltd (2002) 2 QdR 363 at 365 (per Holmes J); and Swetnam Brothers Pty Ltd v Grundy , unreported Supreme Court of Tasmania, Wright J, 14 March 1997. The principle of judicial comity as between Courts of equal status is long-standing in the United Kingdom; the principle is discussed, with many case citations, in Halsbury's Law of England , 4 th Edition Reissue vol 37 at par 1244. I also note similar comments in A MacAdam and J Pyke, Judicial Reasoning and the Doctrine of Precedent in Australia (Butterworths, Sydney, 1998) at 179-180.


case_title: Bank of Western Australia v Federal Commissioner of Taxation (1994) 55 FCR 233


case_text: I have referred to four cases in which this interpretation has been applied. These cases are: 1. Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 ; (2002) ATC 5201; (2002) 51 ATR 629 (a decision of Kiefel J); 2. Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 ; (2003) 138 FCR 1; (2003) 54 ATR 423 (a decision of Hill J); 3. Spotlight Stores Pty Ltd v Commissioner of Taxation [2004] FCA 650 ; (2004) 55 ATR 745; (2004) ATC 4674 (a decision of Merkel J); and 4. Caelli Constructions (Vic) Pty Ltd v Commissioner of Taxation [2005] FCA 1467 ; [2005] 147 FCR 449; (2005) 60 ATR 542; (2005) ATC 4938 (a decision of Kenny J). 45 In each of the Federal Court decisions Walstern , Spotlight Stores and Caelli Constructions , the learned judge followed and applied the principles decided by Kiefel J in Essenbourne . 48 Finally, in Caelli Constructions Kenny J assumed that Essenbourne correctly stated the law, and applied the principle to the facts of the case (par 61). 49 As I have already noted, in Walstern (at FCA par 87 per Hill J) and Caelli Constructions (at FCA par 61 per Kenny J) their Honours stated their views that the decision of Kiefel J in Essenbourne was correct, and stated the law. Merkel J in Spotlight Stores did not need to discuss the Essenbourne case in great detail, however his Honour observed that he proposed to follow Essenbourne and Walstern as, notwithstanding the submissions of the Commissioner in Spotlight Stores , his Honour was not satisfied that those decisions were clearly wrong (at FCA par 121). Hill J in Walstern had also indicated that, as a matter of comity, he would have followed the decision of Kiefel J in Essenbourne unless he had formed the view either it was distinguishable or that the decision was clearly wrong, neither of which was the case (at par 87). 53 Notwithstanding powerful submissions by the Commissioner, I am not satisfied that the principle articulated by Kiefel J in Essenbourne is clearly wrong. With respect, there is little to add to the reasons provided by Kiefel J in Essenbourne or Hill J in Walstern which have been repeated in this judgment. I agree with the four judges in Essenbourne, Walstern, Spotlight Stores and Caelli Constructions that the identification of particular employees is a requisite element in the application of the definition of 'fringe benefit' under the FBTAA . Like the judges in Walstern , Spotlight Stores and Caelli Constructions I propose to follow the Essenbourne decision and, to the extent it is applicable to the facts of the case before me, apply it. 66 On the other hand, the facts of the case before me may be contrasted with those in Walstern and Caelli Constructions , where the Courts found against the respective applicants. In Walstern , Hill J found that a fringe benefit had been provided to each of two employees at the time allocation was made by the trustee of the contribution made by the employer, in circumstances where: • the trustee was clearly an 'arranger' within the meaning of par (e) of the definition of 'fringe benefit'; and • the arrangement in question was one which involved the employer making the contribution on the understanding that all relevant steps would be taken culminating in the trustee ultimately allocating the employer's contribution equally to each of the two employees. 68 In Caelli Constructions , Kenny J found that contributions to a trustee had been made 'in respect of the employment of the employee' for the purposes of the definition of 'fringe benefit' in s 136(1) FBTAA in circumstances where: • the trust deed required that payments made by the employer and others to the trustee be made in respect of identified employees; • the quantum of the payment to be made by the employer was specifically fixed by reference to the actual employment of each employee, in the sense that the employer made a weekly contribution for any week in which an employee was entitled to be paid wages in respect of their work, and if an employee ceased work during a relevant period the amount of the employer's payment was correspondingly reduced; • payments in respect of a particular worker were credited towards the individual worker's Worker's Account maintained by the trustee; and • when the employee became entitled to a benefit, the trust deed specified that the amount of benefit was calculated directly by reference to the contribution made to the worker's own Worker's Account at the relevant time. 69 Again, it is clear in this case that the nature of the scheme created both by the trust deed and the arrangement in place in Caelli was such that contributions to the trustee were made in respect of the employment of particular employees, to the extent that weekly contributions were made and varied depending on the circumstances of particular employees, and the fund operated accordingly. In no way were similar circumstances replicated in the case before me. 70 In the alternative, the Commissioner has submitted that the trust in favour of the beneficiaries took immediate effect as a vested interest in equal shares. This issue may be quickly dealt with. In my view the trust in favour of the beneficiaries in the case before me did not take immediate effect as a vested interest in equal shares. The beneficiaries are not implied takers in default. This is evident from consideration of clauses in the CSP Deed including: • clause 1.1 definition of 'Termination Date', namely the earliest to occur of the date a liquidator is appointed to ABC, the date a liquidator is appointed to ABC Public, and the date 80 years from the date of the Deed; read in conjunction with Clause 3.1, which provides that the trustee holds the Trust Fund for the Beneficiaries and must, inter alia, appoint all of the Trust Fund to the Beneficiaries (who must be living at the time of the appointment) on or before the Termination Date; • clause 2.7, which provides that if the Trust Fund has not been effectively or validly disposed of by a trust declared by the deed, the trustee holds that part of the Trust Fund affected on a resulting trust for the Settlor (ABC Public); • clause 3.3, which vests the trustee with broad powers to appoint capital; read with clause 3.4 which requires the trustee to act reasonably and have regard to the Selection Criteria for Capital in Schedule 2; • clause 3.6, which vests the trustee with absolute discretion to exclude any person from benefiting under the deed. The trustee is required to act reasonably and must have regards to the Exclusionary Criteria in Schedule 3; and • clause 8.7, which provides as follows: 'Every trust, power, authority and discretion of the Trustee: (a) is absolute and uncontrolled; and (b) may be exercised in the same way as the Trustee could exercise it if the Trustee were the absolute and beneficial owner of the Trust Fund.'


case_text: The application to the Commissioner for a private ruling, and the subsequent ruling by the Commissioner in response to that application, were in accordance with Pt IVAA TA Act . This Part was repealed by Sch 2 of Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 (No 161 of 2005). The submissions of the parties in this case have been on the basis of this superseded legislation, and to the extent necessary I shall apply those provisions. In any event, the framework for private rulings delivered by the Commissioner (which continues now in Sch 1 Div 359 TA Act, legislation not relevant to this application) is well known. As Hill J noted in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 at 423, the legislation confers upon a person the right to apply to the Commissioner for a private ruling upon the way in which, in the Commissioner's opinion, a tax law would apply (cf s 14ZAF TA Act ). 27 The key legislative provision for the purposes of this application is s 136(1) FBTAA , specifically the definition of 'fringe benefit'. So far as relevant, the definition reads as follows: 'fringe benefit , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; or (e) a person (in this paragraph referred to as the arranger ) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between: (i) the employer or an associate of the employer; and (ii) the arranger or another person; or (ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer: (i) participates in or facilitates the provision or receipt of the benefit; or (ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so; in respect of the employment of the employee, but does not include: (f) ... (g) ... (h) ... (ha) a benefit constituted by the acquisition by a person of a share or right under an employee share scheme (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 ); ... ...' 28 As made clear by the definition, a benefit may be provided to the employee or to an associate of the employee, not only by the employer, but o by an associate of the employer; or o by an unassociated third party who nonetheless has a connection with the employer or the employer's associate, described as the 'arranger', or o by an unassociated third party in circumstances where the employer or the employer's associate nonetheless participates in or facilitates the provision or receipt of the benefit or promotes a scheme or plan involving the provision of the benefit. 'Employee ' within the terms of the FBTAA is defined by s 136(1) FBTAA as: (a) a current employee; (b) a future employee; or (c) a former employee.


case_title: Durovic trading as Shell Tornik Roadhouse v Judge , unreported Supreme Court of New South Wales, Rolfe J, 25 February 1997


case_text: In the case before me the applicant is asking the Court to confirm an interpretation of the definition of 'fringe benefit' which has been previously applied in four cases decided by judges of the Federal Court, and to find that that interpretation is applicable in the case now before me. Further, the applicant is asking the Court to require the Commissioner to rule in accordance with that interpretation. The foundation of this interpretation is in the judgment of Kiefel J in Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 ; (2002) ATC 5201; (2002) 51 ATR 629 where her Honour held that the definition of 'fringe benefit' as defined by subs 136(1) Fringe Benefits Tax Assessment Act 1986 (Cth) (' FBTAA ') requires reference to a particular employee in connection with the benefit said to have been provided. In the absence of reference to a particular employee in connection with the benefit, the benefit provided is not a 'fringe benefit' for the purposes of the FBTAA . 5 I have referred to four cases in which this interpretation has been applied. These cases are: 1. Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 ; (2002) ATC 5201; (2002) 51 ATR 629 (a decision of Kiefel J); 2. Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 ; (2003) 138 FCR 1; (2003) 54 ATR 423 (a decision of Hill J); 3. Spotlight Stores Pty Ltd v Commissioner of Taxation [2004] FCA 650 ; (2004) 55 ATR 745; (2004) ATC 4674 (a decision of Merkel J); and 4. Caelli Constructions (Vic) Pty Ltd v Commissioner of Taxation [2005] FCA 1467 ; [2005] 147 FCR 449; (2005) 60 ATR 542; (2005) ATC 4938 (a decision of Kenny J). 6 The Commissioner is of the view that the principle as decided in Essenbourne , and subsequently applied, is not correct. He has made submissions to this effect, referring to Australian Taxation Office Media Release Nat 03/30. Further, in the Explanation attached to the Private Ruling provided to the applicant, the Commissioner confirmed that his views as expressed in Taxation Ruling 1999/5 remained the ATO position notwithstanding the decision in Essenbourne . The Commissioner in the case before me is asking the Court to reconsider the interpretation of 'fringe benefit' articulated in Essenbourne . 7 This application, and the position taken by the Commissioner, both practically in disallowing the applicant's objection and legally in his submissions, lead in my view to two key questions which require decision by this Court: 1. Should this Court apply the interpretation of 'fringe benefit' as applied in Essenbourne , specifically that there will be no fringe benefit unless there is identification of particular employees in connection with the receipt of the benefit? 2. If the Court should apply that interpretation, was a fringe benefit provided within the meaning of s 136(1) FBTAA in the case before me? 8 Before going to those questions, it is appropriate to consider the relevant history of this matter, in particular: • details of the proposal the subject of the appeal; • Question 1 in the Application for the Private Ruling submitted by the applicant and other rulees; • the case of the applicant in submitting that the issue of shares in ABC Learning Centres Ltd ('ABC Public') to the trustee of the Carers Share Plan ('CSP') did not give rise to a fringe benefit in relation to either ABC Public or the rulee Regional Management Companies ('RMCs'); and • the reasons of the Commissioner in making a ruling unfavourable to the applicant, which forms the primary focus of this application. 9 The factual background to this application and the arrangement proposed by the applicant are not in dispute in the sense that: • the facts were substantially detailed in Appendix 4 to the Application for Private Ruling submitted by Harris Black Chartered Accountants on 2 June 2005, on behalf of the list of rulees named in Appendix 1 to that Application. The applicant in the case before me is one of those rulees; and • those facts were essentially reproduced in the 'Outline of the relevant facts' contained in a letter under the hand of Mr Paul Duffus, Deputy Commissioner of Taxation, on 30 June 2005, containing the Private Ruling produced by the Australian Taxation Office in response to the Application for Private Ruling. 18 So far as is relevant for present purposes, the case of the applicant is as follows: • the ABC Public shares were provided by ABC Public to the trustee of the CSP. ABC Public was not an associate of the RMCs whose employees potentially could receive a benefit; • the ABC Public shares were provided by the trustee of the CSP to particular employees. The trustee was also not an associate of those RMCs; • no employee had any entitlement to ABC Public shares unless and until he or she qualified for appointment, and was appointed those shares by the trustee of the CSP; • there was no sufficient or material link between the issue of shares by ABC Public to the trustee of the CSP, and the employment of any employee of an RMC. Instead, the CSP acted as a true incentive to the employees to remain in employment with an RMC because an employee could only benefit if and when the trustee of the CSP exercised its discretion in his or her favour. When the trustee exercised its discretion in an employee's favour, any benefit in the form of dividends or shares would be assessable income to the employee; • in order to fall within the definition of 'fringe benefit', the relevant benefit must be in respect of the employment of the employee : Essenbourne . In this case, no specific employees were identified as being in receipt of benefits under the proposal; and • the proposal could properly be characterised as falling within the exclusionary principles in par (ha) of the definition of 'fringe benefit' in s 136(1) FBTAA , namely that it was 'a benefit constituted by the acquisition by a person of a share or right under an employee share scheme (within the meaning of Div 13A of Pt III of the Income Tax Assessment Act 1936 )'. Such schemes are specifically excluded from being a 'fringe benefit' by par (ha) of the definition. 19 Detailed reasons for the answer to Question 1 were set out in a document entitled 'EXPLANATION: (This does not form part of the Notice of Private Ruling)'. This document was attached to the Notice of Private Ruling Authorisation Number 53514, which was in turn sent by letter dated 30 June 2005 under the hand of Mr Duffus of the Australian Taxation Office to Harris Black Chartered Accountants. 20 In summary, the reasons that the issue of ABC Public shares to the trustee of the CSP were deemed by the Commissioner to give rise to a fringe benefit in relation to the rulee RMCs as employers were as follows: • shares are considered to be property and therefore a 'benefit' for the purposes of the FBTAA ; • when ABC Public issued shares to the trustee, ABC Public was considered to provide property to the trustee pursuant to s 154 FBTAA ; • the trustee of the CSP was considered to be 'an associate' of an employee where the employee was capable of benefiting under the trust. Therefore when ABC Public issued shares to the trustee of a trust and an employee was capable of benefiting under that trust, a benefit would be provided to an associate of the employee; • in considering whether one of the ABC entities could be a relevant person for the purposes of either par (e) or par (ea) of the definition of 'fringe benefit', there appears to have been some confusion in the Explanation. In the Commissioner's analysis with respect to whether an ABC entity could be 'an arranger' for the purposes of par (e), the Commissioner refers to 'ABC issu(ing) shares to the trustee of a trust' and 'ABC intends to issue shares to the trustee for the benefit of the RMCs employees', when the entity actually issuing the shares was ABC Public. (In the final analysis, the Commissioner was of the view that it was arguable that the entity issuing shares was not an 'arranger' within the meaning of par (e)); • in relation to the possible operation of par (ea) however, the Commissioner was of the view that ABC would be 'a person (the provider)' if: o the RMCs participated in or facilitated the issue of shares to the trustee, and knew or ought to have known they were doing so; or o the RMCs participated in, facilitated or promoted the CSP, and knew or ought to have known they were doing so; The Commissioner stated in the Explanation that if the RMCs were to provide this information to the trustee 'they would be participating in or facilitating the issue of shares to the trustee and participating in or facilitating the CSP and would know or ought reasonably to know they were doing so. Where the information was provided to the trustee by ABC, the RMCs are still considered to be participating in or facilitating the issue of shares to the trustee and participating in or facilitating the CSP, because it is only as a result of their agreement with the ABC (under the Licence Agreement) that ABC is able to provide this information'. This reasoning was further explained by the Commissioner in the letter of 13 September 2005 to Harris Black Chartered Accountants, setting out the Reasons for Decision of the Commissioner in finding against the applicant in relation to its Notice of Objection Against Private Ruling. The Commissioner, through Mr Duffus, pointed out in that letter that: • ABC also provided information to ABC Public for ABC Public to calculate the gifting of shares to the trustee; • ABC only had that information to allow it to prepare the payrolls for the RMCs; and • the only way ABC could lawfully pass on such information to ABC Public was with the participation or facilitation of the RMCs. The Commissioner was of the view that in these circumstances the RMCs would know, or ought reasonably to know, that the RMCs were doing so pursuant to par (ea). Accordingly in the view of the Commissioner it followed that for the purposes of par (ea) of the definition of 'fringe benefit', ABC was 'a person (the provider)'; • the Commissioner noted that 'fringe benefit' in s 136(1) FBTAA meant, inter alia , a benefit provided in 'respect of the employment of the employee'. In his view the CSP operated as an employee incentive scheme providing rewards to RMC employees for services they provided as employees. Accordingly, the issue of shares by ABC Public to the trustee of the CSP was a product or incident of the employment of the RMC employees; • the reference in the definition of 'fringe benefit' to a benefit being provided to 'an employee' meant that a fringe benefit could arise notwithstanding that a benefit provided to a trust might not be provided in respect of a specific employee; • in any event, the Commissioner was of the view that the facts in this case were arguably distinguishable from those in Essenbourne . In particular, the Commissioner noted that cl 36 app 4 to the Application for Private Ruling stated that the initial issue of ordinary shares by ABC Public would be calculated by reference to the number of employees who had signed an AWA, held positions as set out in that document and had served a certain full-time period in that position at an ABC centre. The Commissioner said that therefore, it was arguable that the shares issued to the trustee of the CSP were shares provided in respect of the employment of particular employees. 21 In the Explanation, the Commissioner continued to maintain the views expressed in TR 1999/5, in preference to the views of Kiefel J in Essenbourne . TR 1999/5 explains the approach of the Commissioner to circumstances where property is gifted to a trust and an employee who is a beneficiary of that trust is able to benefit from that gift. As explained by par [1] of TR 1999/5, the Ruling considers, inter alia , whether a payment by an employer of money (which does not constitute salary or wages or an exempt benefit) to the trustee of a trust or non-complying superannuation fund is a fringe benefit, and the value of that benefit. The view was expressed in the Explanation that the Ruling applied to the circumstances of this case, and that further for reasons outlined in pars 45-49 of TR 1999/5 a fringe benefit could arise notwithstanding that a benefit provided to a trust was not provided in respect of a specific employee. 22 Paragraphs 45-49 of the Ruling are as follows: '[45] The definition of fringe benefit in subsection 136(1) is in relation to "an employee". It is considered that there will be a fringe benefit, notwithstanding the payment of the money to the trust is not in respect of a specific employee. Such a construction is the natural consequence of the use of the indefinite article "an". It is sufficient if the benefit is provided in relation to employees generally. [46] Alternatively, where the contribution is not made in respect of a particular employee or employees, the benefit will be provided in relation to each and every employee (as the trust or non-complying superannuation fund may be for the benefit of all employee). [47] The foregoing construction of the definition of fringe benefit is supported by the fact that paragraph 136(1)(hb) specifically exempts from the definition: "a benefit constituted by the acquisition by a trust of money or other property where the sole activities of the trust are obtaining shares...in a company...of the employer, and providing those shares... to employees of the employer ; [emphasis added]." [48] Such an exclusion would be otiose if the definition of fringe benefit did not include benefits provided to an associate of the employees in respect of the employees generally. [49] An alternative view relies on the reference to "the employee" in paragraph (b) of the definition of fringe benefit. As outlined above, we do not accept this view.' 23 By objection dated 14 July 2005 the applicant objected to the ruling of the Commissioner in response to Question 1 of the Ruling Application. As I noted earlier in this judgment, the Commissioner disallowed the objection in a letter of 13 September 2005 containing the Notice of Decision on Objection. 24 An Application was then filed with this Court whereby the applicant appealed against the appealable objection decision. 25 In answering this question, it is helpful to consider: • relevant legislative provisions under the FBTAA ; • the decisions and reasoning in Essenbourne and subsequent cases; and • principles of precedent. 33 Whether the trustee in this case is an associate of the employees within the meaning of the legislation will be considered later in this judgment. The Cases Essenbourne 34 As I have already noted, the first issue involves consideration of 'fringe benefit' as decided in Essenbourne . It is useful therefore to consider the case and the principle articulated by Kiefel J, currently in dispute. 35 In Essenbourne , the employer was a family company which owned a motor dealership in Queensland. The three key employees were three sons of the Marino family, which controlled Essenbourne Pty Ltd. The sons received low salaries in keeping with the corporate strategy of coping with periods of business downturn, and enabling surplus funds to be re-invested in profitable years. In light of the low salaries, a superannuation fund, an employee share fund and an employee incentive trust were established to provide benefits primarily to the three employees of Essenbourne Pty Ltd who were family members. This was in addition to the salaries they received, and in order to retain their services. 36 Various capital contributions were made to each entity, however the critical payment for present purposes was a contribution by Essenbourne Pty Ltd of $252 000 to the employer incentive trust on 30 June 1997. This sum was calculated on the advice of the solicitor of Essenbourne Pty Ltd, and was equivalent to the sum which could be contributed to the superannuation fund on the basis of the age of all members of the superannuation fund. On the same day, the three key employees were allotted each one third of the Employee Units in the trust, ie 84,000 units each. The employees were not required to pay for those units. 37 The Trust Deed of the employee incentive trust provided that the Trust was to provide benefits and incentives to employees, and that the employer (Essenbourne Pty Ltd) was to make contributions for the benefit of 'its employees generally' (cl 5.1). Further, the Deed allowed the trustee to issue Bonus Units in respect of Employee Units to the holders of those units on such basis as the trustee, with the consent of the employee, might determine (cl 10.1). 41 As Kiefel J noted, the Commissioner had not suggested the three brothers, employees of Essenbourne Pty Ltd, were entitled to the trust money or the property in which the money was invested. Her Honour also observed that under the Trust, the brothers had only the prospect of Bonus Units issuing (par 50). 42 While Kiefel J accepted the Commissioner's proposition that it was not necessary that an employee be in receipt of a benefit where it has been provided to an associate of that employee, the fact of provision of a benefit to an associate is not enough in itself to make that benefit a 'fringe benefit' within the meaning of the FBTAA . As her Honour pointed out: 'The difficulty in the Commissioner's approach is that it does not identify a benefit to a particular employee. The statute may deem a benefit to be provided to an employee where it is provided to the employee's trustee, but this would not obviate the apparent necessity to identify the employee in question. The definition of 'fringe benefit' would appear to require the identification of the employee to whom the benefit is provided. This is the principal contention of Essenbourne.' (par 51) (emphasis added) 43 Her Honour agreed with the contention of Essenbourne Pty Ltd that the definition of 'fringe benefit' required reference to a particular employee in connection with the benefit said to be provided. This requirement of the definition was not, in Kiefel J's view, satisfied in Essenbourne . Given the nature of the contest before me, it is important and relevant to set out her Honour's reasoning on this point: '[54] In my view Essenbourne is correct in its contention that the definition of "fringe benefit" requires reference to a particular employee in connexion with the benefit said to have been provided. This is reflected in the references to a benefit being "provided to the employee or to an associate of the employee" and to the benefit being provided "in respect of the employment of the employee" (emphasis added). The latter reference, in particular, can only be to a particular person's employment. The Commissioner submitted that the reference to "an employee" in the definition should be read as "employees", in the case of certain benefits, as s 23 Acts Interpretation Act 1901 (Cth) would permit. In my view the Assessment Act requires that the particular employee be identified in connexion with the benefit. It is their employment which, after all, provides the necessary "link" to the benefit: see J & G Knowles & Associates Pty Ltd v FC of T [2000] FCA 196 ; (2000) 96 FCR 402. The definition does not admit of a reference to a number of employees in connexion with the benefit, the subject of the assessment. ... [56] The link between the benefit and the employment of the employee is required to be sufficient or material: J & G Knowles, 409, 410. It arises because of the words 'in respect of the employment'. A mere causal link with the employment of the employee will not be sufficient. Essenbourne submits that, at least until the issue of Bonus Units, there is not a sufficient connexion with the brothers' employment. It seems to me that the substantial link at this point is as between the payment and the deduction sought by Essenbourne. It is not necessary for me to further consider the point for, in my view, the payment by Essenbourne to the trustee does not qualify as a fringe benefit as it is defined.' 44 Accordingly, on the facts of the case, Kiefel J held that the benefits provided were not 'fringe benefits'. Walstern, Spotlight Stores and Caelli Constructions 45 In each of the Federal Court decisions Walstern , Spotlight Stores and Caelli Constructions , the learned judge followed and applied the principles decided by Kiefel J in Essenbourne . 46 In Walstern , Hill J decisively and unambiguously agreed with Kiefel J in Essenbourne on this issue. His Honour said: '(at 22) As I have already noted, I would, as a matter of comity, follow the decision of Kiefel J in Essenbourne unless the case was either distinguishable or I was of the view that the decision was clearly wrong. On this point the case is not distinguishable. Further, far from being of the view that her Honour was clearly wrong, I am of the view that her Honour was clearly right. The definition of "fringe benefit" in s 136(1) of the FBTA Act makes clear the importance of identification of the employee. The benefit itself is one which is said to be "in relation to an employee". The benefit is required to have been provided to the employee (or associate of the employee) and is required to be in respect of the employment of the employee. The definition of "property fringe benefit" (if that is the kind of benefit relied upon) requires relevantly provision of property to a particular person there referred to as "the recipient". The valuation formula relevantly here requires that there be a benefit provided "to a person" in respect of the employment of an employee. Any contribution made by an individual employee is taken into account in determining the taxable value of the benefit. Although not relevant in the present case, the exclusion of a benefit otherwise deductible to an employee contemplates taking into account the specific circumstances of the employee himself or herself. It is not surprising that the legislation requires a link between the benefit and a particular employee (or associate of a particular employee) because historically the purpose of the Fringe Benefits Tax Act 1986 (Cth) is to provide a specific means of taxing benefits which are a substitute for income to an employee and in respect of which the provisions of the 1936 Act and particular s 26(e) were thought to be defective. Income tax is a tax upon the taxable income of a particular employee. While fringe benefits tax is a tax for which an employer is made liable and is payable at the maximum personal income tax rate, the theory of fringe benefits tax legislation is that it operates as a final withholding tax payable by the employer on amounts that essentially are or would be income of the employee...' 48 Finally, in Caelli Constructions Kenny J assumed that Essenbourne correctly stated the law, and applied the principle to the facts of the case (par 61). 49 As I have already noted, in Walstern (at FCA par 87 per Hill J) and Caelli Constructions (at FCA par 61 per Kenny J) their Honours stated their views that the decision of Kiefel J in Essenbourne was correct, and stated the law. Merkel J in Spotlight Stores did not need to discuss the Essenbourne case in great detail, however his Honour observed that he proposed to follow Essenbourne and Walstern as, notwithstanding the submissions of the Commissioner in Spotlight Stores , his Honour was not satisfied that those decisions were clearly wrong (at FCA par 121). Hill J in Walstern had also indicated that, as a matter of comity, he would have followed the decision of Kiefel J in Essenbourne unless he had formed the view either it was distinguishable or that the decision was clearly wrong, neither of which was the case (at par 87). 52 Accordingly, in my view it would be appropriate to follow the principle articulated in Essenbourne and followed by three other judges of the Federal Court before me, unless in my view the principle is clearly wrong, or the facts before me are distinguishable. 53 Notwithstanding powerful submissions by the Commissioner, I am not satisfied that the principle articulated by Kiefel J in Essenbourne is clearly wrong. With respect, there is little to add to the reasons provided by Kiefel J in Essenbourne or Hill J in Walstern which have been repeated in this judgment. I agree with the four judges in Essenbourne, Walstern, Spotlight Stores and Caelli Constructions that the identification of particular employees is a requisite element in the application of the definition of 'fringe benefit' under the FBTAA . Like the judges in Walstern , Spotlight Stores and Caelli Constructions I propose to follow the Essenbourne decision and, to the extent it is applicable to the facts of the case before me, apply it. 55 As I take the view that I should apply the interpretation of 'fringe benefit' as applied in Essenbourne , it is necessary to consider whether the facts of the case before me are distinguishable in such a fashion that the principle is not applicable. So far as is relevant in the context of this case, the question is whether the ABC Public shares, which are the benefits in question, have been provided in respect of the employment of a particular employee or employees . 58 If, as the applicant contends, the employees are not identified with sufficient particularity, in my view the question of the benefit being 'in respect of' their employment does not arise. As Kiefel J pointed out in Essenbourne , 'It is their employment which, after all, provides the necessary "link" to the benefit: see J & G Knowles & Associates Pty Ltd v Commissioner of Taxation [2000] FCA 196 ; (2000) 96 FCR 402.' 59 The Commissioner has submitted that the facts of this case are distinguishable from those in Essenbourne , and that if it was necessary to establish that the provision of benefits was in respect of particular employees, this was the case. The Commissioner has submitted in summary: • beneficiaries were identifiable precisely from the terms of the CSP Deed, in particular clause 1.1 which states: 'Beneficiary' means, at any time, any employee of an Employer RMC who: (a) is registered as a party to an Australian Workplace Agreement with an Employer RMC; and (b) holds the position of assistant, group leader, director or regional manager with an Employer RMC; other than an Excluded Person. • the employment plainly is the explanation for the provision of the benefit in the form of the ABC Public shares in respect of employees who are beneficiaries under the CSP Deed this was clearly described in the application for the private ruling; • the selection criteria are incorporated into the terms of the CSP Deed, and the CSP Deed requires the trustee to have regard to those criteria in exercising its power of appointment; • the benefit is provided by ABC Public as 'the arranger' within the meaning of par (e) of the definition of 'fringe benefit' in s 136(1) FBTAA . The Commissioner submits that 'arrangement' is defined in very broad terms by s 136(1) FBTAA , and the context for the proposed plan as outlined in the ruling application evidences that the issue of the shares is made under an 'arrangement' between ABC Public and the relevant RMCs, notwithstanding the particular facts relied on by the applicant; and • in the alternative, the benefit is provided by ABC Public within the meaning of subpara (ea), on the basis that there is participation and/or facilitation by the RMCs in the provision of the share issue to their employees, and knowledge by the RMCs (or they ought reasonably to know) that they are doing so. 60 In my view the issue of whether a benefit has been provided by ABC Public as 'the arranger' within subpara (e) of the definition of 'fringe benefit' in s 136(1) FBTAA , or provided by ABC Public within the meaning of subpara (ea) of that definition, does not arise, because in my view the benefits provided in this case were not 'in respect of the employment of the employee '. 61 It is instructive to compare the proposal before me, the rights of the employees who are potential beneficiaries under the CSP Deed, and the extent to which they are identified, with the facts in Essenbourne . Indeed, the interpretation of 'fringe benefit' articulated by Kiefel J in Essenbourne appears even more relevant to the facts in this case before me than it was in Essenbourne . In my view the applicant's case before me is stronger than it was before her Honour. 62 Relevant aspects of the arrangement in this case include: • the benefits in question, namely the shares in ABC Public, were provided by ABC Public, which, notwithstanding that was the holding company of the statutory licensee, was not in any relationship with the employees who would receive the shares which are alleged to constitute the fringe benefit. The provider of the benefits was therefore more remote from the employees than was the case in Essenbourne , where the entity which contributed some of the capital to the fund was the employer of potential beneficiaries; • the trustee of the CSP under the CSP Deed was an independent professional trustee. This can be compared with, for example, the trustee in Essenbourne where the trustee was a corporate entity of which potential beneficiaries were directors; • in the case before me the potential beneficiaries were defined in the CSP Deed as RMC employees who satisfied various criteria. The relationship between the provider of the shares, ABC Public, the regional managers and the RMCs was within the framework of a franchise structure. Importantly, any future employees of existing RMCs, or of future RMCs which later came into existence and entered an arrangement with ABC Public, could also potentially qualify as beneficiaries of the CSP. The arrangement in this case did not involve potential provision for family members associated with the employer company as was the case in Essenbourne ; • the CSP was a discretionary trust , with the trustee vested with powers to appoint income and capital of the trust fund among the beneficiaries on such terms and in such proportions as it saw fit. This is clear from cl 3.3 and cl 4.4 of the CSP Deed. Although the trustee was required by cl 3.4 and cl 4.5 of the CSP Deed to act reasonably and to have regard to the selection criteria provided in the CSP Deed, in my view this did not override the discretionary powers of the trustee. The position of the trustee was reinforced by cl 8.7 of the CSP Deed, which provided that every trust, power, authority and discretion of the trustee was absolute and uncontrolled. This was similar to Essenbourne where the Trust Deed provided for the employer to make contributions for the benefit of 'its employees generally' and employees were entitled to subscribe for Employee Units, however distributions of income to employee unit holders was determined from time to time by the trustee. Further, in Essenbourne employees were not entitled to receive Bonus Units unless certain conditions had been satisfied including periods of time as full time employees of Essenbourne Pty Ltd; • although the calculation of the initial issue of shares by ABC Public to the trustee of the CSP may have been by reference to the total number of employees of the applicant and the other RMCs at that time: • clearly no immediate benefit could be provided in respect of future employees of the RMCs, who were nonetheless future potential beneficiaries; • the identification by the trustee of employees who satisfied the selection criteria to the extent that the trustee was required to distribute trust property to those employees, as already discussed was an event to take place after initial issue, which meant that at the time the contribution was to be made to the trustee no identified RMC employees were beneficiaries of the CSP; • it is also feasible that additional RMC employees could become parties to new AWAs without further shares necessarily being issued by ABC Public to the trustee; and • on the facts it would also be possible for shares to be issued to the trustee in batches for employees generally, without reference to particular employees. 63 As counsel for the applicant submitted, a far stronger connection existed between the contributions made for the employees and each employee's employment in Essenbourne , than existed between the proposed share issue by ABC Public and any particular RMC employee's employment. 75 The applicant has also submitted that the Commissioner was wrong to decide that he was not bound by previous decisions of the Federal Court following and including Essenbourne . On the facts of the case before me, it is unnecessary for me to consider this issue. THE COURT ORDERS THAT: 1. The appeal against the appealable objection decision made by the Commissioner of Taxation under s 14ZY of the Taxation Administration Act 1953 (Cth) to disallow in full the applicant's taxation objection against the private ruling issued to the applicant for the FBT years ended 31 March 2006 to 31 March 2011 be allowed. 2. The Commissioner's decision be set aside, and substituted with the decision that the applicant's taxation objection be allowed in full. 3. The objection decision should have been as follows: a. the correct response to Question 1 of the ruling application is that the proposed issue of shares by ABC Learning Centres Limited to the trustee of the Carers Share Plan will not give rise to a fringe benefit in relation to the rulee RMCs (including the applicant); and b. the ruling should be amended accordingly. 4. The respondent pay the applicant's costs on the basis provided for in the Test Case Funding Deed. 5. In the event of a dispute between the parties as to the amount of the costs payable under the Test Case Funding Deed, then the applicant shall, pursuant to the Federal Court Rules , be entitled to costs ascertained in accordance with the Test Case Funding Deed, and such costs can be taxed accordingly. I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate: Dated: 13 June 2006 Counsel for the Applicant: Mr David Russell QC Solicitor for the Applicant: Mr Peter Smith Counsel for the Respondent: Mr Tony Pagone QC Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 6 April 2006 Date of Judgment: 14 June 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/734.html


case_text: The nature of a discretionary trust is such that, although the beneficiaries have an interest in the trust, it is in the nature of a right to be considered as a potential recipient of benefit by the trustees, and a right to have their interests protected by a court of equity: Gartside v Inland Revenue Commissioners [1967] UKHL 6 ; [1968] AC 553 at 617. As Lord Wilberforce said in Gartside : '(W)hen it is said that he has a right to have the trustees exercise their discretion "fairly" or "reasonably" or properly that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes. But that does not mean that he has an interest which is capable of being taxed by reference to its extent in the trust find's income.' (at 617-618) 72 While the trustee is to have regard to specified criteria in appointing capital and income under the CSP Deed, this does not derogate from what in the final analysis is an absolute discretion of the trustee as defined in cl 8.7. 73 Accordingly, in relation to Key Question 2, namely 'If the Court should apply that interpretation, was a fringe benefit provided within the meaning of s 136(1) FBTAA in the case before me?' the answer is that no fringe benefit was provided in the case before me within the meaning of s 136(1) FBTAA .