Case: Raftland Pty Ltd v Federal Commissioner of Taxation [2008] HCA 21 ; (2008) 82 ALJR 934
Outcome: considered
approach the question as to what amounts to sham by reference to a passage which appears in the joint judgment of Gleeson CJ and Gummow and Crennan JJ in Raftland Pty Ltd v Federal Commissioner of Taxation [2008] HCA 21 ; (2008) 82 ALJR 934 at paras 33 36: [33] It was not contended by the appellant that the amounts referred to above were misappropriated. Yet it is central to the argument for the appellant that they were amounts to which the E &amp; M Unit Trust and, through that trust, its beneficiaries were entitled. The apparent discrepancy between the entitlements appearing on the face of the documents and the way in which the funds were applied gave rise to a question whether the documents were to be taken at face value. In various situations, the court may take an agreement or other instrument, such as a settlement on trust, as not fully disclosing the legal rights and entitlements for which it provides on its face. If that be so, the parol evidence rule in Australia identified with Hoyt's Pty Ltd v Spencer does not apply. [34] One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence "as a mere piece of machinery" for serving some purpose other than that of constituting the whole of the arrangement. That, in essence, is the respondent's case with respect to the [2008] HCA 21 ; 246 ALR 406 at 417 alleged existence of the "present entitlement" of the trustee of the E &amp; M Unit Trust to the income of the Raftland Trust. [35] The term "sham" may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Official Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd , Mistily LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a "sham", the term, when "[c]orrectly employed", denoted an objective of deliberate deception of third parties. [36] The presence of an objective of deliberate deception indicates fraud. This suggests the need for caution in adoption of the description "sham". However, in the present litigation it may be used in a sense which is less pejorative but still apt to deny the critical step in the appellant's case. The absence of a present entitlement within the meaning of s 100A(1)(a) of the Act may appear from an examination of the whole of the relevant circumstances, and these are not confined to the terms of the Raftland Trust instrument. Later in time, in Commissioner of Taxation v ANZ Savings Bank [1994] HCA 58 ; (1994) 181 CLR 466 at 479, Brennan, Deane, Dawson and Toohey JJ remarked, in their joint judgment: In several decisions it has been held that the Commissioner may support the amount of the assessment on a ground not taken into account at the time the assessment was made. The Commissioner will be required to give proper notice to the taxpayer and, where appropriate, will be directed to furnish particulars. But, as Kitto J observed in Federal Commissioner of Taxation v Wade : "No conduct on the part of the commissioner could operate as an estoppel against the operation of the Act." [ emphasis added ]