Case: Jagelman v Federal Commissioner of Taxation 96 ATC 4055
Outcome: applied
The submissions made on behalf of 3D in this regard were to the following effect: (1) To the extent that assertions were made by the Commissioner against 3D, those accusations had to be squarely put to the relevant witnesses. (2) As certain accusations were not put to the witnesses for 3D, the Tribunal fell into serious error by taking those assertions into account in making its determination. Not only did the Tribunal take those assertions into account but made findings of fact, and findings on credit, based upon matters never put to witnesses (in particular Mrs Montgomery). (3) In this regard the Tribunal must apply notions of procedural fairness: Kioa v West [1985] HCA 81 ; (1985) 159 CLR 550 ; Jagelman v FCT 96 ATC 4055 , Fletcher &amp; Ors v FCT (1988) 19 FCR 442 , Commissioner of Taxation v Metaskills Pty Ltd [2003] FCA 766 ; (2003) 130 FCR 248. A breach of these principles constitutes an error of law: Australian Postal Commission v Hayes [1989] FCA 176 ; (1989) 23 FCR 320 at 326 per Wilcox J. The first part of s 39(1) of the AAT Act provides statutory recognition of these principles: Sullivan v Department of Transport (1978) 20 ALR 323. (4) The integrity of the Price Spreadsheets was of fundamental importance to the case sought to be put by 3D. The Price Spreadsheets were recognised by the Commissioner as 'the central plank in the Applicants' case'. (5) In the course of the hearing, counsel for the Commissioner put to Mrs Montgomery in respect of the Price Spreadsheets that '...the numbers have been massaged and fiddled with'. (6) Counsel for 3D strenuously objected to such a question on the following basis: 'Mr McGovern: I object to that, because it is quite important. That proposition may be an ultimate submission, but in fairness to the witness and she is here now my friend should take her directly to each of the figures which he asserts to have been massaged, each of which has been fiddled with, so that we all know, rather than put it globally. Its unfair to the witness to do it otherwise.' Later: 'Mr Fagan: I don't purport to be able to put a positive to this witness about which number has been adjusted in which respect. I submit that it's quite appropriate to put, in this sort of circumstance, to this witness that the whole thing has been an adjustment and fiddling of numbers to reach a number to correspond with a cheque that as [sic] cashed. The Deputy President: I can see no reason why it can't be put. She can deny it if she likes.' Later: 'Mr McGovern: ... But at this point, and this is not just forensic flourish, this is really a question for the decision-maker at the end of the day to have to make a grave determination about this lady's credibility and whether you accept her or not, and, in those circumstances, to just put a rolled-up general proposition which is, now we know, unsupportable by as he frankly confesses he can't ascribe any particularity to any massaged figures or numbers, at least what should be done ... ... Mr Fagan: ... I am entitled to put this general proposition that they have been fabricated, by its very nature I wouldn't know how.' (7) As counsel for 3D feared, and as ultimately eventuated both in the Commissioner's written and oral submissions, counsel for the Commissioner proceeded to make submissions with some particularity as to discrepancies within the Price Spreadsheets. The alleged discrepancies, being the basis for the Commissioner's submissions, were not put to the witness, particularly Mrs Montgomery. Accordingly she was denied an opportunity to be heard on the matter in response. (8) In this regard, the Commissioner's submissions (both written and oral) asserted with some particularity the manner in which the Price Spreadsheets were allegedly manipulated, and these submissions were both taken into account, and adopted by the Tribunal, without demur, in finding against 3D. (9) For the Tribunal to accept submissions on such matters not put to the witness was an error in law, being a clear failure to provide procedural fairness to 3D on a crucial part of 3D's case. (10) In such circumstances it is difficult to resist the conclusion that an acceptance of the Commissioner's submissions by the Tribunal amounted to gross unfairness. (11) Mrs Montgomery in particular was confronted in the witness box with an imprecise, generalised and unspecified assertion about 'fudging and fiddling' the contemporaneous records, but the final submissions, which she was not offered opportunity to address in evidence, then contained detailed allegations never put to her. This was a clear breach of the rule in Browne v Dunn (1893) 6 R 67 (HL), and that rule has been treated as an aspect of procedural fairness, and if breached will give rise to a vitiation of the decision of the Tribunal; see Hoskins v Repatriation Commission [1991] FCA 559 ; (1991) 32 FCR 443 at 446. 17 The submissions made on behalf of the Commissioner were to the following effect: (1) There was no denial of procedural fairness by the Tribunal for the following reasons: (a) It was squarely put to Mrs Montgomery who had reconstructed the Price Spreadsheets that she had 'fabricated' or 'massaged' or 'fiddled' the figures in the Price Spreadsheets. (b) The Tribunal in reviewing a decision is not bound by technicalities, legal forms or rules of evidence and must act according to substantial justice and the merits of the case. In those circumstances, the rule in Browne v Dunn has no application. (c) The Tribunal was entitled to look at the Price Spreadsheets and draw its own conclusions where it was obvious that information had been omitted or falsely inserted, in order to reach a figure corresponding to the cheque which was drawn. (d) In relation to one subject matter, 3D was invited by the Tribunal during closing submissions to re-open its case and call further evidence. It was clearly open to 3D to seek leave to recall Mrs Montgomery in order to overcome any perceived deficiency in the opportunity she had been afforded, when first cross-examined, to explain discrepancies in the relevant documents. 3D did not seek such leave. The substance of the fabrication was put to Mrs Montgomery (2) 3D has submitted that there was a denial of procedural fairness because it is alleged the specific detail of the Commissioner's analysis of the Price Spreadsheets, which forms Annexure A to the Tribunal's reasons for decision, was not put to Mrs Montgomery. The Tribunal referred to this submission but found it to be without substance. (3) From the commencement of the audit and in the hearing before the Tribunal, the Commissioner had directly challenged the story put forward as to the existence of MSH and Mr Borg. It was manifest that any documentation put forward by the taxpayer in support of that story was also under challenge. (4) The Commissioner's challenge to the Price Spreadsheets was also fully appreciated by 3D. So much is clear from paras 14 and 15 of the Submissions of the Applicant dated 1 June 2007 which were provided to the Tribunal before the Commissioner made the submissions of which 3D presently complains. (5) It is significant that notwithstanding the opportunity to do so in submissions in reply, 3D made no submissions about the fabrications in the Price Spreadsheets, but merely confined its complaint to what was said to be a denial of procedural fairness. Indeed, 3D could not possibly have had an answer to the fabrications, which were apparent on the face of the Price Spreadsheets when they were compared with the Job Balance record. (6) In any event, an evaluation of the Price Spreadsheets was not necessary to the Tribunal's decision. Once it found that Mr Borg did not exist, the 'elaborate arrangements alleged as to how he ... was paid may be of limited relevance.' For that reason, the Tribunal took the view that the submissions made by the Commissioner concerning the Price Spreadsheets were of 'peripheral relevance'. (7) It is clear that an immaterial error of law will not vitiate the decision of the Tribunal. Even though it was perhaps not necessary to do so once it found that Mr Borg did not exist, the Tribunal for the sake of completeness annexed the Commissioner's analysis of the Price Spreadsheets to its reasons, and held that it correctly summarised the evidence given in this regard. (8) The evidence showed that Mrs Montgomery, having prepared the Price Spreadsheets, was the person who was most familiar with those documents and may be taken to have intimately known the content of them. She must also be taken to have been aware that the figures in those documents had been manipulated in order to reach the totals on the cheques (as the Commissioner has demonstrated in Annexure A to the Tribunal's reasons). (9) It was also an incontrovertible fact that Mrs Montgomery had also managed to create a Price Spreadsheet in respect of items which proved not to be for hire at all but for sale, demonstrating the fact of its fabrication. Mrs Montgomery was cross-examined about this and it was directly put to her in the following terms: 'Really, Ms Montgomery, what this shows is that your documents at tab 14 are a fabrication, aren't they?---No, they're not. They came out of the computer program. You have told us that the starting point of one of them, the first one behind tab 14 for the week ending 28 December, is a real document from the time, haven't you?---That's right. It's nothing of the kind, is it?---Yes, it is. It's something that you have put together to try to substantiate numbers?---No. I took it out of off the job balance generals. And then you have told us that you have extrapolated back, and, lo and behold, you have been able to extrapolate for the week ending 7 December by adding and subtracting advices and receipts to page 427, a number of 16,500, which you purport would explain another entry in the bank statements and on Mr Borg's statements of account?---These were all these all came out of the computer program. These, being tab 14?---These were all worked out of the computer program. They have been massaged the numbers have been massaged and fiddled with---?---No. ---and put together by you---' (10) Clearly Mrs Montgomery, as the author of the recreated Price Spreadsheets, was only too aware of what the cross-examiner was putting to her when he suggested that she had massaged and fiddled the numbers. If there was an answer to be made by her, 3D was on notice of the need to elicit that explanation in re-examination or by seeking leave to adduce further evidence in chief. Application of the Rule in Browne v Dunn (11) Section 33(1)(b) of the AAT Act stipulates that a proceeding before the Tribunal shall be conducted with as little formality and technicality as the legislation and a proper consideration of the matters permits. Consistent with that legislative approach, s 33(1)(c) provides that the Tribunal is not bound by the rules of evidence. (12) 3D, before the Tribunal, had suggested that there was a 'clear breach of the rule in Browne v Dunn '. In Re Ruddock (in his capacity as Minister for Immigration and Multicultural Affairs) and Another; Ex parte Applicant S154/2002 [2003] HCA 60 ; (2003) 201 ALR 437 , the High Court held that the rule in Browne v Dunn had no application to proceedings before the Refugee Review Tribunal. Section 420(2) of the Migration Act 1958 (Cth) (an equivalent provision to s 33 of the AAT Act) was relevant to that conclusion. The High Court held that the purpose of such provisions was to free bodies such as the Tribunal from certain constraints otherwise applicable in courts of law. (13) In any event, even assuming the rule was to apply, there was no breach of that rule. Where it is obvious that the evidence of the witness is challenged, failure to state this expressly will not necessarily involve a breach of the rule. (14) In Jagelman v Commissioner of Taxation 96 ATC 4055 , it was submitted that there was a denial of procedural fairness by reason of a failure to put a matter to the applicant. Justice Hill observed at 4060: 'However, it has been pointed out in a number of cases that the application of the rule in Browne v Dunn must depend upon the circumstances of the case. Where the issues in a case are such that it would readily be apparent to a party that a particular imputation has been made, there will be no necessity to put that imputation to a witness who denies it and, in consequence, there will have been no denial of procedural fairness: see Seymour v Australian Broadcasting Commission (unreported, Court of Appeal, NSW, 3 June 1977) discussed by Hunt J in Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1 at 21-2. In the latter case, Hunt J said (at 23): "In many cases, of course, counsel for the party calling the witness in question will be alert to the relevance of the other material in the case to be relied upon for the challenge to the truth of the evidence given by his witness or to the credit of that witness, and in those circumstances counsel will be able to give his witness the opportunity to deal with that other material in his own evidence in chief."' It was open to the Tribunal to look at the Price Spreadsheets and draw its own conclusions (15) Section 43 of the AAT Act provides that the Tribunal may exercise all the powers and discretions that are conferred on the decision-maker and stands in the shoes of the Commissioner. The Tribunal is not bound by the facts that were before the decision-maker. (16) The Price Spreadsheets and the Job Balance General were 3D's documents and their inherent want of authenticity could be gathered directly from them. 3D's written submissions in chief to the Tribunal invited consideration of the content of the documents, independent of any testimony about them from which 3D asserted that their authenticity was self-evident. The Commissioner was entitled to (and did) respond on the same basis. It was open to the Tribunal to draw the conclusions which the Commissioner invited, simply by looking at the documents. In particular, that there had been manipulation of those documents by either omitting or falsely inserting information in order to reach a figure corresponding to the cheque which was drawn. Opportunity to Re-open (17) Section 39 of the AAT Act requires that the Tribunal ensure that every party to a proceeding before the Tribunal is given a reasonable opportunity to present his or her case. This section is a statutory recognition of the requirement to afford natural justice. Section 33(1)(c) has been held to permit the introduction of further evidence after the conclusion of the hearing. That requirement may extend to permitting a party to adduce new evidence once judgement has been reserved. It has been held that while normally a court will require exceptional circumstances to permit that course, so stringent a test does not apply in AAT hearings. (18) In Sullivan v Department of Transport (1978) 20 ALR 323 , a party was afforded an opportunity by the Tribunal to call further evidence. Justice Deane said as follows: 'In the context of the express invitation to the appellant, at the conclusion of the evidence, to adduce any further evidence or other material and of the complete absence of any indication by the appellant that he was under any misapprehension or that he desired that the proceedings be adjourned, the failure of the Tribunal either to adjourn the proceedings of its own motion or expressly to inform the appellant of his right to seek an adjournment did not, in my view, constitute a failure to ensure that the appellant was given a reasonable opportunity of putting his case or otherwise involve a failure to observe the requirements of natural justice.' (19) After the conclusion of the evidence and during the course of 3D's submissions below, the Tribunal indicated that it would afford 3D an opportunity to reopen its case if Mr Borg could be found. The Tribunal later repeated this invitation a number of times, that 3D should 'go and find Mr Borg', for the reason that he was 'either crucial or important in this equation'. (20) 3D acknowledged that it was open to it to re-open its case. It was open to 3D to have recalled Mrs Montgomery or any other witness it thought could shed light on the figures in the Price Spreadsheets, the authenticity of which the Commissioner had challenged, first in cross-examination of Mrs Montgomery and subsequently in written submissions. It did not do so for the obvious reason that there was no possible explanation for the discrepancies identified by the Commissioner, other than that the figures had been manipulated or fabricated. (21) The Tribunal amply accorded natural justice in the present case by extending an opportunity to 3D to call further evidence and by providing a further opportunity to be heard. Thereafter, any potential lack of procedural fairness arising from the level of detail of the original cross-examination (the Commissioner does not accept that there was any) was averted. 3D did not avail itself of the opportunity. 21 I incline to the view of Hill J in Jagelman at 4060 that the application of the rule in Browne v Dunn must depend on the circumstances of the case: see the relevant part of his Honour's judgment extracted in [17(14)] above. Where the Tribunal makes a finding contrary to the evidence of a witness in circumstances where the matter found was not put to the witness, this will generally involve a denial of procedural fairness and would be a denial of natural justice on the part of the Tribunal to do so. But this all depends on the circumstances of the particular case. In the present case, it was put to Mrs Montgomery that she had 'fabricated' or 'fiddled' the figures in the Price Spreadsheets she had reconstructed. The real complaint of 3D is the general or holistic way this was put to Mrs Montgomery, rather than it being put with the particularity of the discrepancies manifest in the Commissioner's submissions which are Annexure A.