Deciding Tax Cases

RTF - 178 KBNew Zealand Law Society Tax Conference, Auckland

S'i' credesse che mia risposta fosse
a persona che mai tornasse al mondo,
questa fiamma staria senza più scosse;
ma però che già mai di questo fondo
non tornò vivo alcun, s'i' odo il vero,
sanza tema d'infamia ti rispondo.^[1]

Dante, La Divina Commedia, Inferno, Canto xxvii, 62-67.

Dante's epic poem begins with the poet's journey through the circles of hell. There he meets flame tormented souls who speak to him of their sins and suffering. One of them agrees to speak freely to Dante believing that Dante, like the others in the abyss, will never leave it to spread word about the speaker's infamy. Some such feeling may be shared by many former legal practitioners upon transition to judicial office. The legal practitioner turned judge may sometimes feel as though former colleagues know little of the difficulty of decision, and of the need when deciding to wade through a morass of facts, submissions, evidence, objections and law to produce a coherent outcome.^[2]

Deciding tax cases can be difficult and understanding that, and the causes, can be an advantage to the skilful advocate to assist the judge to decide cases. There are many things that make deciding cases difficult. Some disputes are inherently difficult to resolve because they raise complex, or simply many, issues which require lengthy, detailed and careful consideration. Many disputes depend upon issues on which the judge was not trained and may not have had prior experience. There is also a range of other factors, from human foible to linguistic complexity, that play a part in, and may make difficult, decision. Understanding the process of decision, and of the difficulties arising in decision, may help in knowing how cases are best presented for decision.

It is fundamental to the process of judicial decision that the "conclusion of the judge should not be subjective or personal" to the judge but should be the consequence of the judge's best endeavours to apply an external standard.^[3] Judgments based upon objective principles and provable evidence external to the judge provide public confidence in the legal process and give disappointed litigants some protection from arbitrary and capricious decisions. The need for a judge to give reasons for decision is an important pillar in that system^[4] and requires decisions to be justified and explained by reference to the common external standards. An assumption made in the application of the judicial method is that every dispute is able to be resolved by reference to standards which are external to the judge's personal views and preferences. The cases which come to court, however, frequently have no obviously correct external answer in fact or law; but the assumption of decision by the legal method is that "the decision of the court will be 'correct' or 'incorrect' or 'right' or 'wrong' as it conforms with ascertained legal principles and applies them according to a standard of reasoning which is not personal to the judges themselves".^[5]

It is also assumed in the judicial method that decisions are reached by a forensic process in which all concerned have recourse to a common appeal to known and impersonal objective standards. These assumptions play an important role in determining what and how issues come forward for decision. The process depends upon all those involved in a dispute having a common and agreed set of external standards upon which they all rely and to which they all refer for the correct resolution to the dispute. Sir Owen Dixon described this process to an American audience in 1955:

 

The Court would feel that the function it performed had lost its meaning and purpose, if there were no external standard of legal correctness. With us in Australia appeals are argued at length in open court and written briefs are not filed. The argument is dialectical and the judges engage in the discussion. At every point in the argument the existence is assumed of a body of ascertained principles or doctrines which both counsel and judges know or ought to know and there is a constant appeal to this body of knowledge. In the course of argument there is usually a resort to case law, for one purpose or another. It may be for an illustration. It may be because there is a decided case to which the Court will ascribe an imperative authority, if the Court has established by its practice a distinction between persuasive and imperative authority. But for the most part it is for the purpose of persuasion; persuasion as to the true principle or doctrine or the true application of principle or doctrine to the whole or part of the legal complex which is under discussion.^[6]

Sir Owen's description is fundamentally true also of the process, expectations and assumptions that we have today.

Recourse to a common set of external standards has an impact on the way in which the issues for decision are framed and the effect of framing of issues on how cases are decided. A fundamental task of the advocate is to persuade the decision-maker to see the issues for decision in a particular way because the way in which a question is seen for decision can be decisive to the answer it receives. A claim in a decision of the United States Supreme Court, for example, for constitutional protection of privacy was framed for the majority of the Court as requiring answering the question of whether the Constitution conferred "a fundamental right upon homosexuals to engage in sodomy and hence invalidate[d] the laws of the many states that still [made] such conduct illegal and have done so for a very long time".^[7] The dissenting judgment framed the question for the Court differently, namely whether the Constitution gave persons "the right to be let alone".^[8] The way the constitutional question for decision was framed affected the constitutional answer given. The majority decided that the right to privacy did not confer the right to engage in the sexual activity as described whilst the dissenter saw that activity as an instance of a broader right to be let alone.

The framing of issues is also significant in tax cases in persuading a judge to an outcome. An example can be seen in the reported argument in a case claiming a tax deduction of 15 cents (US) per tonne of ore mined in an obligation to pay it in a purchase agreement for the shares in a mining company.^[9] The Commissioner had treated the payments as part of the purchase price for the shares in the company and, therefore, as a non deductible capital outgoing. The Commissioner's counsel sought to frame the question for the court to decide as whether the payments were "for the sale and purchase of an asset".^[10] Counsel for the successful taxpayer, in contrast, framed the question within the context of recurrent regular business outgoings:

 

The fact of mining, transporting and selling one ton of ore gives rise to obligations. First, the appellant must pay a royalty to the State. Secondly, the consortium mining the ore is obliged by its agreement with the appellant to pay it an amount equal to that royalty. Thirdly, the appellant must pay a royalty of 15 cents (U.S.) to the persons from whom it bought the shares in the mining company. That outgoing is calculated by reference to the amount of income-earning activity which takes place. Applying standard tests, the expenditure has the indicia of a revenue outgoing. The consideration (other than the sum of $200,000) for the purchase of the shares was executed, namely the promise to make further payments if mining took place. It is not enough only to look at what was acquired to determine the nature of the payment. The asset acquired was different in its nature from that involved in Colonial Mutual Life Assurance Society Ltd. v. Federal Commissioner of Taxation. The advantage sought by the appellant in agreeing to make the deferred payments was the mineral lease which enabled it to sub-let to the participants in the consortium which was an advantage of a revenue nature: Federal Commissioner of Taxation v. South Australian Battery Makers Pty. Ltd. The question is, what takes from the expenditure the character of revenue expenditure which one would otherwise have unhesitatingly attributed to it? There was no obligation to mine the land. If the appellant had not caused mining to take place, it would not have been obliged to give the shares back. It was well-known that the company was to be wound up. The payments were a cost of mining, analogous to any other payment quantified by use: Jones v. Inland Revenue Commissioners: Commissioner of Stamp Duties (N.S.W) v. Henry. The purchase was consummated when the $200.000 was paid. The subsequent payments were not for the shares.^[11]

The way the question was framed governed the outcome because the way the court saw the question to be answered influenced the answer given. In that case the majority held that the payments were not part of the non deductible capital cost of the shares but were one of the recurrent deductible revenue outgoings which became payable by events occurring after the purchase contract.^[12]

There has been much written about how to frame issues to be persuasive. One method for presentation of written submissions is known as the "CRAC" method, that is, beginning submissions with the conclusion, followed by a statement of the rule, then followed by analysis and last by a reference to the cases.^[13] This method has the advantage of contextualising what the judge is asked to read. It begins by identifying for the judge what the judge is being asked to do and follows that with the basis upon which the judge is sought to be persuaded. Each step in the CRAC method is directed to the desired outcome. It starts by telling the judge what is wanted. It goes next to the legal rule providing the basis for that conclusion. The facts are next placed within the rule and that is followed by the facts to fit the rule for the conclusion wanted. It is a method that aims to engage and retain the attention of the reader by providing both content and reason for the content of what is read. The reader is not left wondering why something is being said at any point.

We are, of course, all different, and different styles of writing may produce different effects on different people, but the CRAC method may be effective in persuading a reader by ensuring that the reader is always told why something is being read. In tax cases it may be useful to begin submissions by such simple statements as:

 

The applicant claims a deduction for an expenditure of $100 on sunglasses acquired for use in the appellant's business as a tennis umpire.

An opening in such terms immediately tells the decision-maker what is in issue and is calculated to explain why what follows follows. Often judges are provided recitations of facts without knowing why the facts appear where they do and how they all fit into the task the judge must perform. That is not to say that other ways may not be effective writing in other cases. Facts can be powerful and may themselves suggest things which a skilful practitioner may wish to emerge from the facts "as if" unguided by the speaker or the writer. An example of that may be seen in the following 73 word statement of an issue submitted for an appeal:

 

Leonard Slocum Jr., a mentally retarded minor whose father has physically abused him, has become the state's ward and begun a habilitation program that has helped him demonstrably. His father, Slocum Sr., petitioned to become Leonard Jr.'s guardian, but the court found him unfit because of the abuse and because he has sired four illegitimate children by a 25 year old mentally retarded woman – formerly his ward. Did the court abuse its discretion?^[14]

The issue to be determined in that was framed, or contextualised, at the end rather than at the beginning, but the facts in that case had a power which had impact upon the reader before the question for the Court was asked. It is an example of weaving the facts into the identification of the issue in a way which makes the issue concrete. Skilful practitioners, like skilful writers, can lead minds subliminally, but it is not an ability that everyone has and may not always be appropriate. More frequently decision makers are reading material without knowing why the author has chosen what is being read and therefore what is read or heard lacks impact. That can sometimes have a negative and unpredictable impact. The wandering mind might wander anywhere and may lead to doubts or explorations that the advocate may not predict or cannot know.

There is an internal discipline in the judicial method in which logical propositions have a powerful force. The framing of issues can be effective because logic directs reasoning but we should not overlook the increasing learning of the human fallibility involved in decision and judgments. Rhetoric and persuasion have long been thought able to influence an outcome, and it would be naïve to think that the way things are presented does not affect judgment.^[15] There is also a growing body of research in cognitive psychology showing that despite the best efforts of judges to "reach their decisions utilising facts, evidence and highly constrained legal criteria, while putting aside personal biases, attitudes, emotions and other individuating factors",^[16] judges, like everyone else, have two cognitive systems for making judgments – the intuitive and the deliberative – "and [that] the intuitive system appear[ed] to have a powerful effect on judges' decision making" which would "lead to erroneous and unjust outcomes" in some cases.^[17] The power of unconscious factors, often irrelevant or inappropriate, is strongest where judicial decision is at large or has some measure of discretion.

Our intuitive decisions and judgments can be affected by distorting psychological phenomena known in the literature as anchoring, statistical inferences, hindsight bias, inverse fallacies and egocentric biases.^[18] We are all familiar, and susceptible, to these influences in our daily decisions, although as judges we try to ensure that our decisions are based upon objectively verifiable and objectively defensible facts, laws and reasons. In our daily life we often unconsciously anchor our decisions, for example, to buy a "bargain" when we compare the sale price of an item with what was said to be the original price before discount; but it seems that the unsound effect of such intuitive processes as anchoring can have a distorting effect upon judicial outcomes despite our best endeavours to ensure that our decisions are soundly based on objective facts and objective reasoning.

In one study two groups of experienced judges were asked how much they would award in compensatory damages on specified facts. One group was also asked to rule upon an application for dismissal of the proceeding on the basis that the claim would not reach a jurisdictional threshold of US$75,000 on facts which the researchers considered would satisfy the threshold. All but two in the group who were asked to consider the threshold application dismissed it, but that group of judges as a whole awarded "roughly US$350,000 (or nearly 30% less on average) in damages".^[19] The conclusion of the researchers from that study was "that the anchors had a powerful influence on judgment…both when the anchor bore essentially on relation to the magnitude of the claim and when the judges knew full well that they were supposed to ignore the anchor".^[20] A subsequent wider study found that misleading numeric reference points affected judges' decisions in hypothetical cases.^[21] The units in which we measure things, it seems, has an impact upon our decisions^[22] even though the unit of measure may be irrelevant. Amongst the findings of the study was that judges imposed shorter sentences when imposing sentences in months rather than in years^[23] and awarded higher compensatory damages when informed of a cap on the damages to be awarded.^[24] The study also reported that judges awarding damages were influenced by a plaintiff's offhand reference in testimony to a damages award as seen on a "court tv show".^[25] In one study half of the judges had been told by the plaintiff that she had recently seen a "court TV show" in which a similar plaintiff had been awarded compensatory damages for mental anguish. The other half was given the same evidence but told that the amount awarded had been US$415,300. The median awarded by the first group was US$6,250 whilst that of the second it was US$50,000.^[26]

The unconscious, and often irrelevant, influences on our intuitive decision are an important part of deciding cases – including tax cases. Intuitive judgments are required when evaluating the strength and credibility of witnesses and when imposing penalties or awarding costs. Sentencing has been said to require arriving at an "instinctive synthesis"^[27] in the sense of taking into account all of the relevant factors to arrive at a single result that takes due account of them all.^[28] The imposition of civil penalties may involve a difficult process^[29] but in each case judicial decision is apt to be affected by unconscious influences.

It is hard to know whether the inappropriate "anchoring" effects of maximum penalties or of those submitted by the parties as appropriate can ever fully be guarded against where the decision to be made is at large and necessarily depends upon some degree of subjective judgment. Penalty cases, including tax penalty cases, are likely to involve competing anchors as one or another party urges the judge to adopt one or another reference point as the basis of the penalty. It is useful to look at penalty cases to see in the reasons for decision how different reference points played a part in the final outcome. In one tax promoter penalty case there were found to be seven contraventions of the promoter penalties provisions by two people in respect of a series of conduct.^[30] The total amount of the penalties that could have been imposed was $10,679,500 for one of the individuals and $10,101,869 for the other.^[31] In that brief description alone one can identify a number of different, and at times competing, reference points for the imposition of the penalty: the number of contraventions, the maximum penalty that could be imposed, the number of persons found to have contravened and the fact that the contraventions may have arisen from one course of conduct. Other reference points were also relevant in that case. The process to determine the amount of penalties upon each was not to "commence with the maximum penalty in a ratchetting down exercise",^[32] but the total amount that could have been imposed was relevant to the decision - if only to ensure that the maximum was not exceeded by the penalty imposed. In that case, the Commissioner had submitted that "head penalties" in the aggregate of $1,750,000 for the seven contraventions were to be imposed on each of the individuals which were then to be reduced^[33] to give effect to the "totality principle".^[34] Other, and alternative, reference points (or other anchors) included the impact of the amount upon the individuals,^[35] the consequences for the individuals of the contravening conduct,^[36] whether amounts imposed as penalties would be so great as to crush the individuals^[37] and the financial and personal circumstances of the individuals.^[38]

There are a great many rules in legal proceedings, including in tax cases, which tips the scale for decision in some direction. Taxpayers in Australian tax disputes have the burden of proof and it is a burden that requires proof of what the taxpayer's taxable income was rather than proof of error by the Commissioner in making the assessment.^[39] That burden may sometimes prevent a taxpayer from relying upon the legal effect of documents where a taxpayer may need to establish that a transaction was not a sham.^[40] In Raftland Pty Ltd v Commissioner of Taxation[41] it is not sufficient for taxpayers to rely upon the parole evidence to disprove a sham where the facts revealed a disparity between entitlements purposefully created by the documents relied upon and the way in which funds had been applied.^[42]

Deciding tax cases often requires judges to grapple with competing meanings that may be given to the words upon which taxation depends. A constant issue confronted in the resolution of tax disputes is the uncertainty of text, meaning or purpose. Sometimes there may be structural ambiguity by the way in which ideas may have been expressed in the text of legislation. A sentence may, for example, have two (or more) subordinate clauses creating alternative plausible interpretations.^[43] There are many tax disputes which arise from structural or linguistic ambiguity that under contemporary rules of statutory interpretation are required to be resolved by reference to object and purpose^[44] and, where appropriate, by reference to extrinsic material.^[45]

It is not always easy to draw a sharp line between a purposive interpretation and a literal interpretation of laws – especially, perhaps, of tax laws. Textual ambiguity in tax law is inherently undesirable and it is not obvious that ambiguities should be construed in favour of the revenue as a matter of purposive interpretation. Taxation is an involuntary impost upon people and the amount "which each individual is bound to pay ought to be certain and not arbitrary".^[46] The second of the four basic cannons for taxation laid down by Adam Smith in 1776 was that:

 

[t]he time for payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person.^[47]

Such views may have played a part in a literal approach to the interpretation of tax laws but continue to have force even when tax laws are given a purposive interpretation. In Scott v Cawsey^[48] Isaacs J said in 1907:

 

When it is said that penal Acts or fiscal Acts should receive a strict construction I apprehend it amounts to nothing more than this. Where Parliament has in the public interest thought fit in the one case to restrain private action to a limited extent and penalise a contravention of its directions, and in the other to exact from individuals certain contributions to the general revenue, a Court should be specially careful, in the view of the consequences on both sides, to ascertain and enforce the actual commands of the legislature, not weakening them in favour of private persons to the detriment of the public welfare, nor enlarging them as against the individuals towards whom they are directed^[49].

In 1980 Gibbs J observed in a tax case that a liability to taxation should not be inferred from ambiguous words if the taxing act did "not reveal a clear intention to do so".^[50]

Words are often ambiguous and capable of having unintended meanings and unintended potential application, such as when it was necessary to determine whether the remains of deceased humans fell within the words "goods and materials" in respect of a tax imposed by reference to whether a building or structure was for the "manufacture of goods or materials or the subjection of goods or materials to any process".^[51] It is important always to remember that words in a statute are chosen to convey a meaning and that it is the meaning intended that needs to be applied and not the other meanings which the word might have in different contexts. Words frequently have meanings other than as used in a particular sentence, context or legislation, and the task of statutory interpretation is to discern and apply that meaning which was intended in the specific text and in the context in which the words are found. Learned Hand expressed that in a tax case when he said that "the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes".^[52]

There continues to be force in the argument that a purposive approach to the construction of taxing provisions requires that they be construed literally. That would be so if, or where, the purpose of legislation was to impose tax in specifically described circumstances. A purposive construction of a provision may be to impose taxation by literal rules without ambiguity. However, there are many, and increasing, circumstances where a literal construction will not be appropriate. Principle based drafting of tax legislation may leave many gaps to be filled by case law, and anti-avoidance provisions are often made to apply when tax advantages are otherwise permissible and by reference to wide ranging analysis of whether arrangements fall within the contemplation of parliament.^[53]

In that context we sometimes forget that the words used in tax legislation reflect business, commercial or economic concepts more readily understood by those in disciplines other than the law. The concept of income is one example of many found in tax law. It is said that "income" is not a term of art but must be determined by ordinary concepts and business usages for mankind.^[54] The related concept of derivation relies also on the understanding of business and commercial accounting for when an amount, perhaps not yet received, is nonetheless derived.^[55] Those arguing cases before judges have an important role in helping the judge understand what the words used were intended to convey in the particular place they are found. The practitioners are likely to have a better understanding of how particular provisions were conceived and what the authors of the provisions intended to achieve.

The tools available to a judge and those available to other disciplines will often produce different answers to the same question. The legal rights approach applied by a judge to a tax decision is not the same as taxation by economic equivalence.^[56] The provisions are not generally to be construed or applied by reference to what a taxpayer might have derived or should have incurred.^[57] An economic, or business, equivalence approach to tax decisions might yield different results from a legal rights approach in many cases. An instrument requiring the payment of money may have the economic features of debt or equity, with different tax and economic consequences flowing from that difference. An obligation by a company to pay money to the holders of convertible notes will have significant consequences for the company, the holder of the notes, the revenue, and the company's business competitors if the payments are deductible as interest on loans or are not deductible as distributions of profits to its shareholders.^[58] Obligations to pay money are economically part of the cost of capital for many taxpayers. Those costs will be less if the payment attracts a tax deduction but that, in turn, may give a taxpayer a competitive advantage and potentially shift part of the economic cost of capital from the owners of an enterprise to taxpayers generally as a reduction to the revenue base.

The reason for dwelling upon the difficulties of decision is to emphasise the importance of the practitioners in the process leading to decision. The practitioner who best understands what the judge needs to do, and who thereby most assists the judge, is likely to have greater success in achieving the desired outcome than the practitioner who does not. The task of the judge is not likely to be helped by theatrical presentation, loose reasoning or overstated claims. These do not address the needs of the judge, and the difficulties which the judge faces, when deciding a tax case. The judge will have a specific task to perform and must do so in an open context exposed to public view, scrutiny and evaluation. The practitioner who best helps the judge achieve the judge's task is best placed to achieve the outcome a practitioner wishes to achieve.

The judge is a consumer of services of those who bring their cases to court. The practitioners control, and are able to influence, every aspect of the judge's task. It is the parties, through their representatives, who determine the issues which come before the judge, even in tax cases which are largely conducted as adversarial proceedings in which the parties determine the issues in dispute for resolution and produce the evidence upon which the dispute is to be resolved. The adversarial system gives to the practitioners both in form and in reality the primary role of identifying the issues for resolution and producing the raw material, that is, evidence and legal basis, upon which the dispute is to be determined. Enabling the parties to control their judicial determination is not to be underestimated for its importance to the health of a democratic legal system,^[59] but the point to emphasise for present purposes is the significance of the practitioners in determining what the judge does and how the judge does it when deciding a case. It is the practitioner that determines both what the judge is to decide and the materials upon which to make the decision.

Practitioners should not forget that they have many advantages over the judge in any given tax case. The practitioner will usually have had much longer to consider the issues in dispute, the law upon which it will be decided and the evidence that can or will be given. Even an experienced tax judge is unlikely to know as much about the issues and law relevant to a dispute as the practitioners whose task it is to present them to the judge for decision. The judge, however experienced, may not have considered for some time the issues, or all of the issues, which the practitioners have researched and prepared for submission. The judge will never have available as much of the facts as will be available to the practitioner. The time available to the judge will typically be less than for the practitioners. The practitioner will also have the ability, which the judge will not, of exploring issues, facts and law widely. The practitioners can consider material informing their view about the issues to present for decision which a judge may not be able to consider without the risk of improperly taking into account something which ought to have been disclosed to the parties for their submission and debate.

An increasingly significant difficulty in the decision of cases, including tax cases, arises from the volume and needless repetition of material presented to the judge. It is perhaps a curious feature of modern litigation that the physical process of decision is becoming more complicated, more difficult, more costly and less efficient. This is an aspect that will repay greater attention for the skilful advocate. The sheer bulk of material given to judges for decision seems to be increasing with modern technology and flexible rules and procedures intended to make things easier and less costly. There was a time when cases seemed to take less time than they do today. Witnesses in the past seemed to give strictly admissible oral testimony and documents tendered in evidence seemed not to duplicate the oral testimony but were restricted to those which were necessary to the disposition of a case. It is now not uncommon to find lengthy witness statements traversing matters that in different times might have been discarded and where the parties give to the Court a large amount of their discoverable documents unnecessarily and unhelpfully.

Well-developed rules of evidence should assist the lawyer to unpack the raw materials needed by the judge to produce the final product in a way which should enable quick, efficient and cost effective decision making. The burden of volume is often magnified by the same evidence being located in more than one place without helpful indication from the parties of where it can be found and how it is to be evaluated. The litigation lawyer has a particular skill in identifying what is "relevant, necessary and probative" for the judge to decide the case. Written submissions frequently fail to provide an effective tool for the judge to decide a case after the hearing has concluded in court. A judge will typically have notes, pleadings, written evidence, transcript, exhibits, submissions, counter-submissions, books of authorities and an array of other materials located in disparate places over many pages. The evidence and submissions on one point of a case may be located in so many places that some material may be difficult to find and may easily be overlooked. The evidence on the one point may exist in many witness statements, many documents tendered in evidence, and the transcript of numerous witnesses each with potential references in the transcript of the evidence in chief, the cross-examination and any re examination. How to find all of this, on every point, usually relies upon a judge's memory and more or less helpful notes made by the judge during the hearing. Written submissions frequently fail to provide an ongoing reference point from which the judge can begin, and resume, consideration of a case guided by specific references to establish particular facts or law. Frequently, written submissions are little more than a high level discussion of the case for a client without providing real and meaningful assistance in the judge's task of deciding and producing a reasoned decision. The provision of a document which the judge "cannot do without" when writing a decision can be a powerful form of advocacy. It would provide a constant an ongoing influence upon how the judge will think when the hearing has concluded and the difficult task has commenced of deciding and providing reasons for the decision.

One factor in the relationship between practitioner and judge which should never be underestimated is the need for trust. The role of the judge is to administer public justice and in doing so relies upon what the practitioner says. The judge needs confidence that the facts and law as presented by the practitioner can reliably be accepted. The judge must be confident that a practitioner's assertion of a fact is as the fact exists and has not been embellished. The advocate ceases to be effective if the judge feels the need to guard against the plausibility of what he said. Where one doubt exists, the judge will begin to look at the facts more closely, and perhaps with suspicion, and may reach conclusions contrary to those submitted by the practitioner.

What sounds as laments must, however, be put in context. The judiciary in Australia, and I am sure New Zealand, is well served by a competent and independent legal profession. Our system would not work without skilful independent practitioners trusted by the public from which their clients come and trusted also by the judiciary who serve the public. The quality of the work of justice reflects the quality of the work of its practitioners. Tax cases cannot be decided without the good work of the practitioners who act for their clients and assist the judges in reading decisions. Such laments as you may have heard do not take for granted the debt of gratitude to the practitioners. If Dante's journey caused the poet to see many ills, we should remember that it ended, happily, in paradise.

^* B.A. Dip. Ed., LL.B., (Monash), LL.M. (Cantab), LL.D. (Melb). Judge of the Federal Court of Australia; Professorial Fellow, Law School, University of Melbourne.  The author thanks Professor David Fox, then a fellow of St John's College, and Herbert Smith Freehills to make possible preparing of this lecture as a Herbert Smith visitor to Cambridge University during July 2017.

^[1] "If I did think my answer were to one / Who ever could return unto the world, / This flame should rest unshaken. But since ne'er, / If true be told me, any from this depth / Has found his upward way, I answer thee, / Nor fear lest infamy record the words." Dante Alighieri, The Divine Comedy, Inferno, Canto xxvii, 62-67 (The Harvard Classics, translated Henry F Cary, 1909-14).

^[2] See G.T. Pagone, "Lost in Translation" (2008) 12, Southern Cross University Law Review, 159.

^[3] Sir Owen Dixon, Jesting Pilate, Law Book Co, (1965), 157.

^[4] Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (2001) 207 CLR 72.

^[5] Sir Owen Dixon, Jesting Pilate, Law Book Co, (1965), 155.

^[6] Ibid, 155-6.

^[7] Bowers v Hardwick 478 US 186 (1986), 190 (White J; Burger CJ, Powell, Rehnquist and O'Connor JJ agreeing).

^[8] Ibid, 199.

^[9] Cliffs International Inc v Federal Commissioner of Taxation (1979) 142 CLR 140.

^[10] Ibid, 142.

^[11] Ibid, 141-2.

^[12] Ibid, 149-150, 173-5, 176.

^[13] See Steven D Stark, Writing to Win: The Legal Writer (Broadway Books, 1999) 128.

^[14] Bryan A Garner The Winning Brief (2^nd Edition, Oxford University Press) p 97.

^[15] Antonin Scalia and Bryan A Garner, Making Your Case: The Art of Persuading Judges, (Thompson West, 2008); Paul M Sandler, JoAnne A Epps and Ronald J Waicukauski "Classical Rhetoric and the Modern Trial Lawyer" (2010) 36 Litigation 16; Jonathan Barnes (Editor), The Complete Works of Aristotle (Princeton University Press, 1984, 2153-5.

^[16] Donald C Nugent, Judicial Bias, 42 Clev. St. Rev 1, (1994); quoted in Chris Guthrie, Jeffrey J Rachlinski and Andrew J Wistrich "Blinking on the Bench: How Judges Decide Cases", 93 Cornell Law Review 1, (2007).

^[17] Chris Guthrie, Jeffrey J Rachlinski and Andrew J Wistrich "Blinking on the Bench: How Judges Decide Cases", 93 Cornell Law Review 1, (2007), 43.

^[18] Chris Guthrie, Jeffrey J Rachlinski and Andrew J Wistrich "Judging by Heuristic: Cognitive Illusions in Judicial Decision Making", 86 Judicature 44 (2002).

^[19] Chris Guthrie, Jeffrey J Rachlinski and Andrew J Wistrich "Blinking on the Bench: How Judges Decide Cases", 93 Cornell Law Review 1, (2007), 21.

^[20] Ibid, 21.

^[21] Jeffrey J Rachlinski, Andrew J Wistrich and Chris Guthrie "Can Judges Make Reliable Numeric Judgments? Distorted Damages and Skewed Sentences", 90 Indiana Law Journal 695 (2015).

^[22] Ibid, 713.

^[23] Ibid, 717.

^[24] Ibid, 723.

^[25] Ibid, 705-709, 711.

^[26] Ibid, 708-9.

^[27] R v Williscroft [1976] VR 292, 300.

^[28] Wong v The Queen (2001) 207 CLR 584, 611.

^[29] Commonwealth v Fair Work Building Industry Inspectorate (2015) 258 CLR 482, 506, 521-2.

^[30] Commissioner of Taxation v Ludekens (2016) 103 ATR 532.

^[31] Ibid, [67].

^[32] Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2015] FCAFC 118.

^[33] Commissioner of Taxation v Ludekens (No 2) [2016] FCA 755, [67]-[68].

^[34] Mill v The Queen (1988) 166 CLR 59, 62-3; Commissioner of Taxation v Ludekens [2016] FCA 755, [69].

^[35] Commissioner of Taxation v Ludekens (No 2) [2016] FCA 755, [71].

^[36] Ibid, [72].

^[37] Ibid, [74].

^[38] Ibid, [75].

^[39] Commissioner of Taxation v Dalco (1990) 168 CLR 614; Rigoli v Commissioner of Taxation (2014) 141 ALD 529; Rigoli v Commissioner of Taxation (2016) 102 ATR 612.

^[40] Millar v Federal Commissioner of Taxation (2016) 243 FCR 302

^[41] (2008) 238 CLR 516.

^[42] Ibid, [33].

^[43] G.T. Pagone, Tax Effective Writing (Federation Press, 2012), 8-9.

^[44] Acts Interpretations Act 1901 (Cth), s 15AAA.

^[45] Ibid, s 15AB.

^[46] Adam Smith, Inquiry into the Nature and Causes of the Wealth of Nations, (Wordsworth Classics of World Literature, first published 1776, 2012 Edition), Vol 3, Book V Of the Sources of General or Public Revenue of the Society, Chapter II, 824.

^[47] Ibid, 824.

^[48] (1907) 5 CLR 132.

^[49] Ibid, 154.

^[50] Western Australian Trustee Executor and Agency Co Ltd v Commissioner of State Taxation (WA) (1980) 147, CLR 119, 126.

^[51] Bourne (Inspector of Taxes) v Norwich Crematorium Ltd [1967] 2 All ER 576.

^[52] Helvering v Gregory 69 F. (2d) 809 (1934) 810-811.

^[53] Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue (2009) 2 NZLR 289, 332 [109].

^[54] Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215, 219.

^[55] Commissioner of Taxes (SA) v The Executor, Trustee and Agency Company of South Australia Limited (1938) 63 CLR 108; Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation (1965) 114 CLR 314; see also News Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCA 645.

^[56] Mullens v Federal Commissioner of Taxation (1976) 135 CLR 290, 301; Oakey Abattoir Pty Ltd v Federal Commissioner of Taxation (1984) 15 ATR 1059, 1066.

^[57] Cecil Brothers Pty Ltd v Federal Commissioner of Taxation (1964) 111 CLR 430, 434; cf Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62, [111].

^[58] See: Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77; St George Bank v Commissioner of Taxation (2008) 69 ATR 634.

^[59] See M Cappelletti "The Law-Making Power of the Judge and its Limits: A Comparative Analysis" (1981) 8 Monash Law Review 15.